##### Table of Contents



UNITED STATES  SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 
 (Mark one)
 þ
    
    QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR
THE QUARTERLY PERIOD ENDED JUNE 30,
2009
 OR
 o
    
    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 001-33815
 Virtual Radiologic Corporation
 (Exact name of registrant as specified in its charter)
 Delaware
(State or other jurisdiction of 
incorporation or organization)
    
    27-0074530
(IRS Employer
Identification No.)11995 Singletree Lane, Suite 500
Eden Prairie, Minnesota
(Address of principal executive offices)
    
    55344
(Zip code)
 (952) 595-1100
 
 þ o
 o þ
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



TABLE OF CONTENTS
 Part I  Financial InformationItem 1.
    
    Financial Statements
    
    
    3Item 2.
    
    Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    20Item 3.
    
    Quantitative and Qualitative Disclosures
About Market Risk
    
    
    36Item 4.
    
    Controls and Procedures
    
    
    36Part II  Other InformationItem 1.
    
    Legal Proceedings
    
    
    37Item 1A.
    
    Risk Factors
    
    
    37Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    37Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    37Item 5.
    
    Other Information
    
    
    38Item 6.
    
    Exhibits
    
    
    40Signatures
    
    
    41EX-10.1EX-10.2EX-10.3EX-10.4EX-10.5EX-10.6EX-31.1EX-31.2EX-32.1EX-32.2
  2




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##### Table of Contents



PART I  Financial Information
 
 ITEM 1. Financial Statements
 Virtual Radiologic Corporation
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 Contents
 PageConsolidated Financial Statements (unaudited)Consolidated Balance Sheets as of June 30, 2009 and December 31, 2008
    
    
    4Consolidated Statements of Operations for the three and six months ended June 30, 2009 and 2008
    
    
    5Consolidated Statements of Changes in Stockholders Equity for the six months ended June 30,
2009 and the year ended December 31, 2008
    
    
    6Consolidated Statements of Cash Flows for the six months ended June 30, 2009 and 2008
    
    
    7Notes to Consolidated Financial Statements
    
    
    8
 3




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VIRTUAL RADIOLOGIC CORPORATIONCONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except share data)
 As of
    
    
    As ofJune 30,
    
    
    December 31,2009
    
    
    2008AssetsCurrent assets:Cash and cash equivalents
    
    $
    34,395
    
    
    $
    19,180Restricted cash
    
    
    1,753
    
    
    
    700Short-term investments
    
    
    7,096
    
    
    
    10,136Accounts receivable, net
    
    
    17,937
    
    
    
    17,383Prepaid expenses
    
    
    945
    
    
    
    1,704Other current assets
    
    
    544
    
    
    
    2,422Total current assets
    
    
    62,670
    
    
    
    51,525Property, plant and equipment, net
    
    
    15,190
    
    
    
    11,692Intangible assets, net
    
    
    4,513
    
    
    
    5,073Medical malpractice excess loss reserves receivable
    
    
    1,396
    
    
    
    1,288Other assets
    
    
    923
    
    
    
    1,423Total assets
    
    $
    84,692
    
    
    $
    71,001Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    353
    
    
    $
    421Accrued professional services compensation expense
    
    
    6,118
    
    
    
    5,690Accrued sales, general and administrative compensation expense
    
    
    3,428
    
    
    
    1,383Current deferred tax liability
    
    
    1,103
    
    
    
    1,103Other current liabilities
    
    
    2,784
    
    
    
    2,490Total current liabilities
    
    
    13,786
    
    
    
    11,087Deferred tenant lease allowance
    
    
    2,619
    
    
    
    Medical malpractice loss reserves
    
    
    3,332
    
    
    
    1,419Medical malpractice excess loss reserves
    
    
    1,396
    
    
    
    1,288Other liabilities
    
    
    965
    
    
    
    690Total liabilities
    
    
    22,098
    
    
    
    14,484Commitments and contingencies (see Note 7)Virtual Radiologic Corporation stockholders equity:Common stock, $.001 par value; 100,000,000 shares
authorized at June 30, 2009 and December 31, 2008; 15,819,515
and 15,849,398 shares issued and outstanding at June 30, 2009
and December 31, 2008, respectively
    
    
    17
    
    
    
    17Additional paid-in capital
    
    
    99,024
    
    
    
    95,881Treasury stock at cost, 1,046,638 and 944,760 shares at June 30, 2009
and December 31, 2008, respectively
    
    
    (8,841
    )
    
    
    (8,000
    )Accumulated deficit
    
    
    (27,619
    )
    
    
    (31,397
    )Accumulated other comprehensive loss
    
    
    (13
    )
    
    
    (6
    )Total Virtual Radiologic Corporation stockholders equity
    
    
    62,568
    
    
    
    56,495Non-controlling interest (See Note 2)
    
    
    26
    
    
    
    22Total stockholders equity
    
    
    62,594
    
    
    
    56,517Total liabilities and stockholders equity
    
    $
    84,692
    
    
    $
    71,001
  4




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##### Table of Contents



VIRTUAL RADIOLOGIC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share data)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenue
    
    $
    30,585
    
    
    $
    25,921
    
    
    $
    59,153
    
    
    $
    49,241Operating costs and expenses:Professional services
    
    
    14,396
    
    
    
    11,910
    
    
    
    28,162
    
    
    
    22,277Sales, general and administrative
    
    
    10,526
    
    
    
    9,332
    
    
    
    21,592
    
    
    
    18,067Depreciation and amortization
    
    
    1,723
    
    
    
    1,216
    
    
    
    3,173
    
    
    
    2,071Total operating costs and expenses
    
    
    26,645
    
    
    
    22,458
    
    
    
    52,927
    
    
    
    42,415Operating income
    
    
    3,940
    
    
    
    3,463
    
    
    
    6,226
    
    
    
    6,826Other income (expense):Interest income
    
    
    45
    
    
    
    89
    
    
    
    102
    
    
    
    265Interest expense
    
    
    (2
    )
    
    
    
    
    
    
    (3
    )
    
    
    Total other income
    
    
    43
    
    
    
    89
    
    
    
    99
    
    
    
    265Income before income tax expense
    
    
    3,983
    
    
    
    3,552
    
    
    
    6,325
    
    
    
    7,091Income tax expense
    
    
    1,593
    
    
    
    1,548
    
    
    
    2,543
    
    
    
    3,083Net income
    
    
    2,390
    
    
    
    2,004
    
    
    
    3,782
    
    
    
    4,008Non-controlling interest expense
    
    
    4
    
    
    
    4
    
    
    
    4
    
    
    
    8Net income attributable to Virtual Radiologic Corporation
    
    $
    2,386
    
    
    $
    2,000
    
    
    $
    3,778
    
    
    $
    4,000Earnings per common shareBasic
    
    $
    0.15
    
    
    $
    0.12
    
    
    $
    0.24
    
    
    $
    0.24
    

Diluted
    
    $
    0.15
    
    
    $
    0.12
    
    
    $
    0.23
    
    
    $
    0.23Weighted average common shares outstandingBasic
    
    
    15,871
    
    
    
    16,719
    
    
    
    15,867
    
    
    
    16,667Diluted
    
    
    16,279
    
    
    
    17,198
    
    
    
    16,260
    
    
    
    17,233
  5




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VIRTUAL RADIOLOGIC CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(unaudited)
(in thousands)
 AccumulatedAdditional
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Paid-In
    
    
    Treasury
    
    
    Accumulated
    
    
    Comprehensive
    
    
    Non-controlling
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Stock
    
    
    Deficit
    
    
    Loss
    
    
    Interest
    
    
    EquityBalance at December 31, 2007
    
    
    16,463
    
    
    $
    16
    
    
    $
    90,165
    
    
    $
    
    
    
    $
    (39,851
    )
    
    $
    
    
    
    $
    8
    
    
    $
    50,338Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,454
    
    
    
    
    
    
    
    
    
    
    
    8,454Other comprehensive incomeForeign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6
    )
    
    
    
    
    
    
    (6
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,448Equity-based compensation for independent physicians
    
    
    
    
    
    
    
    
    
    
    (479
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (479
    )Equity-based compensation for employees
    
    
    
    
    
    
    
    
    
    
    1,544
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,544Stock option exercises
    
    
    331
    
    
    
    1
    
    
    
    313
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    314Excess tax benefits from exercises of stock options
    
    
    
    
    
    
    
    
    
    
    4,396
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,396Non-controlling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    14Stock issuance costs
    
    
    
    
    
    
    
    
    
    
    (58
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (58
    )Repurchase of common shares
    
    
    (945
    )
    
    
    
    
    
    
    
    
    
    
    (8,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,000
    )Balance at December 31, 2008
    
    
    15,849
    
    
    
    17
    
    
    
    95,881
    
    
    
    (8,000
    )
    
    
    (31,397
    )
    
    
    (6
    )
    
    
    22
    
    
    
    56,517Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,778
    
    
    
    
    
    
    
    
    
    
    
    3,778Other comprehensive incomeForeign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7
    )
    
    
    
    
    
    
    (7
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,771Equity-based compensation for independent physicians
    
    
    
    
    
    
    
    
    
    
    284
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    284Equity-based compensation for employees
    
    
    
    
    
    
    
    
    
    
    1,277
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,277Stock option exercises
    
    
    72
    
    
    
    
    
    
    
    32
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32Excess tax benefits from exercises of stock options
    
    
    
    
    
    
    
    
    
    
    1,550
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,550Non-controlling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    4Repurchase of common shares
    
    
    (102
    )
    
    
    
    
    
    
    
    
    
    
    (841
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (841
    )Balance at June 30, 2009
    
    
    15,819
    
    
    $
    17
    
    
    $
    99,024
    
    
    $
    (8,841
    )
    
    $
    (27,619
    )
    
    $
    (13
    )
    
    $
    26
    
    
    $
    62,594
  6




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##### Table of Contents



VIRTUAL RADIOLOGIC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
 Six Months EndedJune 30,2009
    
    
    2008Cash flows from operating activities:Net income
    
    $
    3,782
    
    
    $
    4,008Adjustments to reconcile net income to net cash provided by operating activities:Provision for doubtful accounts and sales allowance
    
    
    851
    
    
    
    309Depreciation and amortization
    
    
    3,173
    
    
    
    2,071Lease abandonment liability
    
    
    200
    
    
    
    Medical malpractice loss reserves
    
    
    2,091
    
    
    
    Equity based compensation for independent contractor physicians
    
    
    284
    
    
    
    (559
    )Equity based compensation for employees
    
    
    1,277
    
    
    
    704Deferred income taxes
    
    
    261
    
    
    
    1,059Other, net
    
    
    89
    
    
    
    49Changes in operating assets and liabilities:Accounts receivable
    
    
    (1,405
    )
    
    
    (1,634
    )Prepaid expenses
    
    
    758
    
    
    
    1,024Other assets
    
    
    1,790
    
    
    
    693Accounts payable
    
    
    91
    
    
    
    136Accrued expenses
    
    
    2,584
    
    
    
    848Other liabilities
    
    
    790
    
    
    
    121Net cash provided by operating activities
    
    
    16,616
    
    
    
    8,829Cash flows from investing activities:Purchases of property, plant and equipment
    
    
    (4,135
    )
    
    
    (5,072
    )Cash paid for acquisition, net of cash acquired
    
    
    
    
    
    
    (6,521
    )Proceeds from maturity of short-term investment
    
    
    3,054
    
    
    
    Restricted cash
    
    
    (1,050
    )
    
    
    Other, net
    
    
    8
    
    
    
    (52
    )Net cash used in investing activities
    
    
    (2,123
    )
    
    
    (11,645
    )Cash flows from financing activities:Excess tax benefit from exercises of stock options
    
    
    1,550
    
    
    
    1,917Repurchases of common stock
    
    
    (841
    )
    
    
    Other, net
    
    
    13
    
    
    
    (165
    )Net cash provided by financing activities
    
    
    722
    
    
    
    1,752Net increase (decrease) in cash and cash equivalents
    
    
    15,215
    
    
    
    (1,064
    )Cash and cash equivalents:Beginning of period
    
    
    19,180
    
    
    
    33,487End of period
    
    $
    34,395
    
    
    $
    32,423Supplemental disclosure of cash flow informationCash received for income taxes
    
    $
    435
    
    
    $
    776
  7




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##### Table of Contents



VIRTUAL RADIOLOGIC CORPORATION
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008
(unaudited)
 1. Business Overview
     2. Summary of Significant Accounting Policies
 Interim Financial Statements
   8




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VIRTUAL RADIOLOGIC CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008
(unaudited)
 Principles of Consolidation and Basis of Presentation
 Consolidation of Variable Interest
Entities
   Recent Accounting Pronouncements
 Fair Value Measurements, Effective Date of FASB Statement No. 157,
 9




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VIRTUAL RADIOLOGIC CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008
(unaudited)
 Non-controlling Interests in Consolidated
Financial Statements an amendment of ARB 51
 Determination of the Useful Life of Intangible
Assets
 Subsequent Events,
 Amendments to FASB Interpretation No. 46(R)
 10




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VIRTUAL RADIOLOGIC CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008
(unaudited)
 The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles The Hierarchy of Generally Accepted Accounting Principles
 3. Selected Consolidated Financial Statement Information
 Restricted Cash
  Short-term Investments
 Accounting for Certain
Investments in Debt and Equity Securities
 June 30,
    
    
    December 31,2009
    
    
    2008(in thousands)Due in one year or less:Certificates of deposit
    
    $
    7,096
    
    
    $
    10,136
  Level 1
 Level 2
 Level 3
  11




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##### Table of Contents



VIRTUAL RADIOLOGIC CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008
(unaudited)
  Fair Value Measurements as ofJune 30, 2009Total
    

    Level 1
    

    Level 2
    

    Level 3(in thousands)DescriptionShort-term investments (Certificates of Deposit)
    
    $
    7,096
    
    
    $
    7,096
    
    

    $  

    
    $  
 Fair Value Measurements as ofDecember 31, 2008Total
    
    Level 1
    
    Level 2
    
    Level 3(in thousands)DescriptionShort-term investments (Certificates of Deposit)
    
    $
    10,136
    
    
    $
    10,136
    
    
    $ 
    
    $ 
 Property, Plant and Equipment, Net
 As of
    
    
    As ofJune 30,
    
    
    December 31,2009
    
    
    2008(in thousands)Equipment
    
    $
    11,564
    
    
    $
    10,332Software
    
    
    6,849
    
    
    
    6,110Furniture and fixtures
    
    
    931
    
    
    
    1,144Leasehold improvements
    
    
    5,412
    
    
    
    342Other
    
    
    232
    
    
    
    1,742Total property, plant and equipment
    
    
    24,988
    
    
    
    19,670Less: Accumulated depreciation and amortization
    
    
    9,798
    
    
    
    7,978Property, plant and equipment, net
    
    $
    15,190
    
    
    $
    11,692
  4. Goodwill and Other Intangible Assets
 Goodwill
 Goodwill and Other Intangible
Assets
 12




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VIRTUAL RADIOLOGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008
(unaudited)
   Intangible Assets, Net
  As of June 30, 2009
    
    
    As of December 31, 2008(in thousands)Estimated
    
    
    Original
    
    
    Accumulated
    
    
    Carrying
    
    
    Original
    
    
    Accumulated
    
    
    CarryingUseful Life
    
    
    Cost
    
    
    Amortization
    
    
    Value
    
    
    Cost
    
    
    Amortization
    
    
    ValuePatents
    
    15 years
    
    $
    347
    
    
    $
    68
    
    
    $
    279
    
    
    $
    347
    
    
    $
    56
    
    
    $
    291Non-compete agreements
    
    2 years
    
    
    298
    
    
    
    180
    
    
    
    118
    
    
    
    298
    
    
    
    105
    
    
    
    193Customer relationships
    
    10 years
    
    
    4,968
    
    
    
    852
    
    
    
    4,116
    
    
    
    4,968
    
    
    
    379
    
    
    
    4,589Intangible assets, net
    
    
    
    
    
    $
    5,613
    
    
    $
    1,100
    
    
    $
    4,513
    
    
    $
    5,613
    
    
    $
    540
    
    
    $
    5,073
    Amount(in thousands)Six months ending December 31, 2009
    
    $
    561Year ending December 31, 2010
    
    
    879Year ending December 31, 2011
    
    
    689Year ending December 31, 2012
    
    
    570Year ending December 31, 2013
    
    
    473Thereafter
    
    
    1,341Total
    
    $
    4,513
  13




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##### Table of Contents



VIRTUAL RADIOLOGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008
(unaudited)
 5. Stock Options and Accounting for Stock-Based Compensation
  Stock optionsWeightedAverage
    
    
    Exercise PricesExercise Price
    
    
    Per ShareOutstanding
    
    
    Per Share
    
    
    Ranging FromBalance at December 31, 2008 (1)
    
    
    2,183,995
    
    
    $
    10.82Granted
    
    
    377,000
    
    
    
    8.72
    
    
    $
    8.39 - $8.98Exercised
    
    
    (71,995
    )
    
    
    2.60
    
    
    
    2.00 - 5.50Forfeited/Cancelled/Expired
    
    
    (131,251
    )
    
    
    10.24
    
    
    
    2.00 - 17.55Balance at June 30, 2009
    
    
    2,357,749
    
    
    
    10.77Exercisable at June 30, 2009
    
    
    990,540
    
    
    
    9.42
    
    
    
    2.00 - 23.00
 
 (1)
  The number of options outstanding includes 120,000 options granted in May 2007 to
members of the Companys Board of Directors that were not issued
pursuant to the Companys  Equity
Incentive Plan.  Restricted Stock AwardsWeightedNumber
    
    
    Average Grantof Shares
    
    
    Date Fair ValueUnvested at December 31, 2008
    
    
    
    
    
    $
    Granted
    
    
    110,368
    
    
    
    8.67Vested
    
    
    
    
    
    
    Cancelled
    
    
    
    
    
    
    Unvested at June 30, 2009
    
    
    110,368
    
    
    
    8.67Expected to vest after June 30, 2009
    
    
    110,368
    
    
    
    8.67
  Stock-Based CompensationEmployees and Directors
  Share-Based Payment
 14




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##### Table of Contents



VIRTUAL RADIOLOGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008
(unaudited)
 Stock-Based CompensationPhysicians
  6. Stock Repurchase Program
  7. Commitments and Contingencies
  Accounting for Costs associated with Exit
or Disposal
  15




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##### Table of Contents



VIRTUAL RADIOLOGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008
(unaudited)
 (in thousands)2009
    
    $
    212010
    
    
    432011
    
    
    432012
    
    
    432013
    
    
    3153Less: Amount representing interest
    
    
    10Present value of minimum lease payments
    
    
    143Less: Current portion
    
    
    38Capital lease obligations, less current portion
    
    $
    105
 Professional Liability Coverage
   Litigation
  16




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##### Table of Contents



VIRTUAL RADIOLOGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008
(unaudited)
    8. Related Party Transactions
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(in thousands)
    
    
    (in thousands)VRP professional services revenue from vRad
    
    $
    6,519
    
    
    $
    5,646
    
    
    $
    12,653
    
    
    $
    10,912vRad professional services expense to VRP
    
    
    6,519
    
    
    
    5,646
    
    
    
    12,653
    
    
    
    10,912VRP professional services revenue from the Professional
Corporations
    
    
    7,102
    
    
    
    5,900
    
    
    
    13,725
    
    
    
    10,974Professional Corporations professional services expense
to VRP
    
    
    7,102
    
    
    
    5,900
    
    
    
    13,725
    
    
    
    10,974vRad management fee revenue from the Professional
Corporations
    
    
    7,031
    
    
    
    5,841
    
    
    
    13,588
    
    
    
    10,864Professional Corporations management fee expense to vRad
    
    
    7,031
    
    
    
    5,841
    
    
    
    13,588
    
    
    
    10,864Cash paid for professional services by vRad to VRP
    
    
    6,519
    
    
    
    5,646
    
    
    
    12,653
    
    
    
    10,912Cash paid for professional services by the Professional
Corporations to VRP
    
    
    7,102
    
    
    
    5,900
    
    
    
    13,725
    
    
    
    10,974Cash paid for management fees by the Professional
Corporations to vRad
    
    
    7,031
    
    
    
    5,841
    
    
    
    13,588
    
    
    
    10,864
   9. Earnings Per Share
  17




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##### Table of Contents



VIRTUAL RADIOLOGIC CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008
(unaudited)
 Determining Whether Instruments Granted in Share-Based Payment
Transactions Are Participating Securities
 Earnings Per Share
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(in thousands, except per share data)Basic and
Diluted Earnings per Share - Two-class MethodBasic Earnings per Share:Undistributed income
    
    $
    2,386
    
    
    $
    2,000
    
    
    $
    3,778
    
    
    $
    4,000Restricted stock ownership
    
    
    0.7
    %
    
    
    0
    % (1)
    
    
    0.7
    %
    
    
    0
    % (1)Restricted stock interest in undistributed income
    
    $
    16
    
    
    $
    
    
    
    $
    26
    
    
    $
    Weighted average restricted sharesoutstanding - Basic
    
    
    102
    
    
    
    
    
    
    
    80
    
    
    
    Total basic
earnings per share - Restricted
    
    $
    0.16
    
    
    $
    
    
    
    $
    0.33
    
    
    $
    Undistributed income
    
    $
    2,386
    
    
    $
    2,000
    
    
    $
    3,778
    
    
    $
    4,000Common ownership
    
    
    99.3
    %
    
    
    100
    % (1)
    
    
    99.3
    %
    
    
    100
    % (1)Common stockholders interest in undistributed income
    
    $
    2,370
    
    
    $
    2,000
    
    
    $
    3,752
    
    
    $
    4,000Weighted average common sharesoutstanding
- Basic
    
    
    15,871
    
    
    
    16,719
    
    
    
    15,867
    
    
    
    16,667Total basic
earnings per share - Common
    
    $
    0.15
    
    
    $
    0.12
    
    
    $
    0.24
    
    
    $
    0.24Diluted Earnings per Share:Common stockholders interest in undistributed earnings
    
    $
    2,370
    
    
    $
    2,000
    
    
    $
    3,752
    
    
    $
    4,000Add:
Undistributed earnings - restricted stock
    
    
    16
    
    
    
    
    
    
    
    26
    
    
    
    Net income used in diluted earnings per share
    
    $
    2,386
    
    
    $
    2,000
    
    
    $
    3,778
    
    
    $
    4,000Weighted average common shares
    
    
    15,871
    
    
    
    16,719
    
    
    
    15,867
    
    
    
    16,667outstanding
- BasicWeighted average restricted stock outstanding
    
    
    102
    
    
    
    
    
    
    
    80
    
    
    
    Common share equivalents
    
    
    306
    
    
    
    479
    
    
    
    313
    
    
    
    566Shares used to compute earnings per common share-Diluted
    
    
    16,279
    
    
    
    17,198
    
    
    
    16,260
    
    
    
    17,233Total diluted earnings per share
    
    $
    0.15
    
    
    $
    0.12
    
    
    $
    0.23
    
    
    $
    0.23
 
 (1)
 18




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VIRTUAL RADIOLOGIC CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008
(unaudited)
 10. Subsequent Events
  19




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##### Table of Contents



ITEM 2. 

Managements Discussion and Analysis of Financial Condition and Results of Operations
 Special Note Regarding Forward-Looking Statements
   
    
    the impact of general economic conditions on the number of reads our customers
send to us;
    
    the competition in the teleradiology market, including the possibility of pricing
pressure resulting from that competition;
    
    our characterization of our independent contractor physicians as independent
contractors;
    
    our ability to effectively manage our growth and development;
    
    the impact of intellectual property infringement claims;
    
    our ability to recruit and retain qualified radiologists;
    
    our ability to obtain proper physician licenses and hospital credentials on
behalf of our independent contractor physicians;
    
    the regulation of the corporate practice of medicine;
    
    our dependence on our Affiliated Medical Practices, which we do not own;
    
    our ability to enforce the non-competition agreements with our independent
contractor physicians;
    
    the loss of key members of management and personnel;
    
    new technologies;
    
    the breach of our security measures that safeguard patient and customer data;
    
    the performance of our information systems, which are dependent on systems
provided by third parties;
    
    our ability to comply with government regulations;
    
    the general economic conditions of the markets that we operate in; and
    
    other risk factors listed from time to time in our reports filed with the SEC,
including without limitation, the section entitled Risk Factors in our Annual
Report on Form 10-K for the year ended December 31, 2008, as updated by Part II,
Item 1A of our Quarterly Report on Form 10-Q for the quarter
ended March 31, 2009 and Part II, Item 1A of this report.
  20




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##### Table of Contents



Overview
    Trends in Our Business and Factors Affecting Our Results of Operations
  Revenue
   
    
    an increase in our customer base;
    
    an increase in utilization of our services by our customers;
    
    high customer retention rates; and
    
    customer relationships acquired through our acquisition of Diagna Radiology,
LLC, or Diagna (completed in April 2008).
  21




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##### Table of Contents



Key Revenue Metrics
 As of June 30,2009
    
    % change
    
    2008
    
    % changeCustomers
    
    
    641
    
    
    
    11.5
    %
    
    
    575
    
    
    
    31.9
    %Facilities
    
    
    1,085
    
    
    
    15.5
    %
    
    
    939
    
    
    
    25.2
    %% of U.S. hospitals served
    
    
    17.7
    %
    
    
    
    
    
    
    14.7
    %
 For the three months ended June 30,
    
    For the six months ended June 30,2009
    
    2008
    
    2009
    
    2008Reads
    
    
    665,306
    
    
    
    538,194
    
    
    
    1,278,423
    
    
    
    1,008,888Same site volume growth(1)
    
    
    5.8
    %
    
    
    6.8
    %
    
    
    8.9
    %
    
    
    10.3
    %Percentage of read revenue from:Final reads
    
    
    27.1
    %
    
    
    21.8
    %
    
    
    27.1
    %
    
    
    22.3
    %Preliminary reads
    
    
    72.9
    %
    
    
    78.2
    %
    
    
    72.9
    %
    
    
    77.7
    %Year-over-year change in price per read
    
    
    (5.2
    %)
    
    
    (5.6
    %)
    
    
    (5.2
    %)
    
    
    (4.8
    %)
 
 (1)
    
    Same site volume growth measures the percentage increase in the number of reads over the
comparable prior year period generated by a facility that
has been under contract for at least three months at the beginning of the measurement period
and remains a customer throughout that period.
 Operating Costs and Expenses
  Professional Services Expense.
 22




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##### Table of Contents




    
    Physician Cash Compensation Expense.Physician cash compensation expense is the fees
paid to our independent contractor physicians for providing diagnostic interpretation
services for our customers. We compensate our independent contractor physicians using a
formula that includes a base level of compensation and additional amounts with regard
to the number of hours worked and the number and type of reads performed. We recognize
physician cash compensation expense in the month in which our independent contractor
physicians perform the reads for our customers. Since our inception, our
physician cash compensation expense has increased each year as we have added more
independent contractor physicians to fulfill the increased demand for our services as
our business and customer base has grown. However, physician cash compensation expense
as a percentage of revenue has decreased due to the increased
efficiency of our
independent contractor physicians. The increases in efficiency by the existing
independent contractor physicians have been, and may continue to be, offset, in part,
by increases in newly engaged independent contractor physicians and the costs
associated with the typical 90- to 180-day period during which newly engaged
independent contractor physicians obtain necessary state licenses and hospital
credentials, and thereafter become accustomed to our workflow technology.
    
    Physician Stock-Based Compensation Expense.We record stock-based compensation
expense in connection with any equity awards to our independent contractor physicians.
Physician stock-based compensation expense is a non-cash expense that fluctuates based
upon the fair value of our common stock underlying the awards at the close of each
reporting period as required by Emerging Issues Task Force Issue No. 96-18, Accounting
for Equity Instruments that are Issued to Other than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services, or EITF Issue No. 96-18. As the value of
an award is based on the underlying value of the common stock, we may record additional
expense or income based on fluctuations in that value. Our physician stock-based
compensation expense may also increase in future periods if we issue additional equity
awards to our independent contractor physicians.
    
    Medical Liability Expense.Medical liability expense consists primarily of incurred
but not reported, or IBNR, loss reserves, claims-made loss development reserves related
to our self-insured retention and premiums paid for third-party medical malpractice
insurance. We recognize loss development and IBNR loss reserves based on actuarial
analyses performed during the policy term, and amortize medical liability insurance
premiums over the term of the policy to which they relate. Our medical liability
expense has increased as a percentage of revenues due to the establishment of loss
development and IBNR loss reserves.
 Key Professional Service Metrics
 As of June 30,2009
    
    2008Radiologists providing services
    
    
    135
    
    
    
    124
 For the three months ended June 30,
    
    For the six months ended June 30,2009
    
    2008
    
    2009
    
    2008Average diagnostic cash compensation per read
    
    $
    19.22
    
    
    $
    21.25
    
    
    $
    19.64
    
    
    $
    21.50
 Sales, General and Administrative Expenses.
 23




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##### Table of Contents



Results of Operations
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenue
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Operating costs and expenses:Professional services:
    
    
    47.1
    
    
    
    45.9
    
    
    
    47.6
    
    
    
    45.2Physician cash compensation expense
    
    
    42.2
    
    
    
    44.6
    
    
    
    42.7
    
    
    
    44.7Physician stock-based compensation expense (income)
    
    
    1.4
    
    
    
    (0.2
    )
    
    
    0.5
    
    
    
    (1.1
    )Medical liability expense
    
    
    3.5
    
    
    
    1.5
    
    
    
    4.4
    
    
    
    1.6Sales, general and administrative
    
    
    34.4
    
    
    
    36.0
    
    
    
    36.5
    
    
    
    36.7Depreciation and amortization
    
    
    5.6
    
    
    
    4.7
    
    
    
    5.4
    
    
    
    4.2Total operating costs and expenses
    
    
    87.1
    
    
    
    86.6
    
    
    
    89.5
    
    
    
    86.1Operating income
    
    
    12.9
    
    
    
    13.4
    
    
    
    10.5
    
    
    
    13.9Total other income
    
    
    0.1
    
    
    
    0.3
    
    
    
    0.2
    
    
    
    0.5Income tax expense
    
    
    (5.2
    )
    
    
    (6.0
    )
    
    
    (4.3
    )
    
    
    (6.3
    )Net income
    
    
    7.8
    
    
    
    7.7
    
    
    
    6.4
    
    
    
    8.1Non-controlling interest expense(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income attributable to Virtual Radiologic Corporation
    
    
    7.8
    %
    
    
    7.7
    %
    
    
    6.4
    %
    
    
    8.1
    %
 
 (1)
 Comparison of the Three Months Ended June 30, 2009 and June 30, 2008
 Revenue
 Three Months EndedJune 30,
    
    
    Change2009
    
    
    2008
    
    
    In Dollars
    
    
    Percentage(dollars in thousands)Revenue from reads
    
    $
    30,047
    
    
    $
    25,633
    
    
    $
    4,414
    
    
    
    17.2
    %Other revenue
    
    
    538
    
    
    
    288
    
    
    
    250
    
    
    
    86.8Total revenue
    
    $
    30,585
    
    
    $
    25,921
    
    
    $
    4,664
    
    
    
    18.0
  24




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##### Table of Contents



Operating Costs and Expenses
 Professional Services
 Three Months Ended
    
    
    Three Months Ended
    
    
    ChangeJune 30, 2009
    
    
    June 30, 2008
    
    
    In Dollars
    
    
    Percentage(dollars in thousands)Physician cash compensation expense
    
    $
    12,891
    
    
    $
    11,573
    
    
    $
    1,318
    
    
    
    11.4
    %Physician stock-based
compensation expense (income)
    
    
    427
    
    
    
    (64
    )
    
    
    491
    
    
    
    (767.2
    )Medical liability expense
    
    
    1,078
    
    
    
    401
    
    
    
    677
    
    
    
    168.8Professional services
    
    $
    14,396
    
    
    $
    11,910
    
    
    $
    2,486
    
    
    
    20.9
   Sales, General and Administrative
 Three Months Ended
    
    Three Months Ended
    
    ChangeJune 30, 2009
    
    June 30, 2008
    
    In Dollars
    
    Percentage(dollars in thousands)Sales, general and administrative
    
    $
    10,526
    
    
    $
    9,332
    
    
    $
    1,194
    
    
    
    12.8
    %
  Depreciation and Amortization Expense.
 Income Tax Expense.
 25




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##### Table of Contents



Comparison of the Six Months Ended June 30, 2009 and June 30, 2008
 Revenue
 Six Months EndedJune 30,
    
    
    Change2009
    
    
    2008
    
    
    In Dollars
    
    
    Percentage(dollars in thousands)Revenue from reads
    
    $
    58,149
    
    
    $
    48,562
    
    
    $
    9,587
    
    
    
    19.7
    %Other revenue
    
    
    1,004
    
    
    
    679
    
    
    
    325
    
    
    
    47.9Total revenue
    
    $
    59,153
    
    
    $
    49,241
    
    
    $
    9,912
    
    
    
    20.1
  Operating Costs and Expenses
 Professional Services
 Six Months Ended
    
    
    Six Months Ended
    
    
    ChangeJune, 2009
    
    
    June 30, 2008
    
    
    In Dollars
    
    
    Percentage(dollars in thousands)Physician cash compensation expense
    
    $
    25,293
    
    
    $
    22,025
    
    
    $
    3,268
    
    
    
    14.8
    %Physician stock-basedcompensation income expense (income)
    
    
    284
    
    
    
    (559
    )
    
    
    843
    
    
    
    (150.8
    )Medical liability expense
    
    
    2,585
    
    
    
    811
    
    
    
    1,774
    
    
    
    218.7Professional services
    
    $
    28,162
    
    
    $
    22,277
    
    
    $
    5,885
    
    
    
    26.4
   26




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##### Table of Contents



Sales, General and Administrative
 Six Months Ended
    
    Six Months Ended
    
    ChangeJune 30, 2009
    
    June 30, 2008
    
    In Dollars
    
    Percentage(dollars in thousands)Sales, general and administrative
    
    $
    21,592
    
    
    $
    18,067
    
    
    $
    3,525
    
    
    
    19.5
    %
  Depreciation and Amortization Expense.
 Income Tax Expense.
 Liquidity and Capital Resources
 Cash, Cash Equivalents and Short-Term Investments
   27




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##### Table of Contents



Six Months Ended June 30,2009
    
    
    2008(in thousands)Net cash provided by operating activities
    
    $
    16,616
    
    
    $
    8,829Net cash used in investing activities
    
    
    (2,123
    )
    
    
    (11,645
    )Net cash provided by financing activities
    
    
    722
    
    
    
    1,752Increase (decrease) in cash and cash equivalents
    
    $
    15,215
    
    
    $
    (1,064
    )
 Cash Flows from Operating Activities
   Cash Flows from Investing Activities
   Cash Flows from Financing Activities
   28




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##### Table of Contents



Future Liquidity Requirements
  Contractual Obligations and Commitments
   (in thousands)2009
    
    $
    212010
    
    
    432011
    
    
    432012
    
    
    432013
    
    
    3153Less: Amount representing interest
    
    
    10Present value of minimum lease payments
    
    
    143Less: Current portion
    
    
    38Capital lease obligations, less current portion
    
    $
    105
 Critical Accounting Policies
  29




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##### Table of Contents



Principles of Consolidation
 Consolidation of Variable Interest Entities
  Condensed Consolidating Balance Sheets
(unaudited)
 As of June 30, 2009AffiliatedMedicalVRC
    
    
    Practices
    
    
    Eliminations
    
    
    Consolidated(in thousands)Cash and cash equivalents
    
    $
    29,462
    
    
    $
    4,933
    
    
    $
    
    
    
    $
    34,395Short-term investments
    
    
    7,096
    
    
    
    
    
    
    
    
    
    
    
    7,096Accounts receivable, net
    
    
    8,855
    
    
    
    9,082
    
    
    
    
    
    
    
    17,937Other current assets
    
    
    21,648
    
    
    
    8,305
    
    
    
    (26,711
    )
    
    
    3,242Non-current assets
    
    
    22,022
    
    
    
    16
    
    
    
    (16
    )
    
    
    22,022Total assets
    
    $
    89,083
    
    
    $
    22,336
    
    
    $
    (26,727
    )
    
    $
    84,692Current liabilities
    
    $
    13,955
    
    
    $
    29,597
    
    
    $
    (26,711
    )
    
    $
    16,841Non-current liabilities
    
    
    5,273
    
    
    
    
    
    
    
    (16
    )
    
    
    5,257Total liabilities
    
    
    19,228
    
    
    
    29,597
    
    
    
    (26,727
    )
    
    
    22,098Total stockholders equity (deficiency)
    
    
    69,855
    
    
    
    (7,261
    )
    
    
    
    
    
    
    62,594Total liabilities and stockholders equity
    
    $
    89,083
    
    
    $
    22,336
    
    
    $
    (26,727
    )
    
    $
    84,692
 30




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##### Table of Contents



As of December 31, 2008AffiliatedMedicalVRC
    
    
    Practices
    
    
    Eliminations
    
    
    Consolidated(in thousands)Cash and cash equivalents
    
    $
    17,399
    
    
    $
    1,781
    
    
    $
    
    
    
    $
    19,180Short-term investments
    
    
    10,136
    
    
    
    
    
    
    
    
    
    
    
    10,136Accounts receivable, net
    
    
    8,842
    
    
    
    8,541
    
    
    
    
    
    
    
    17,383Other current assets
    
    
    20,677
    
    
    
    8,223
    
    
    
    (24,074
    )
    
    
    4,826Non-current assets
    
    
    19,292
    
    
    
    16
    
    
    
    168
    
    
    
    19,476Total assets
    
    $
    76,346
    
    
    $
    18,561
    
    
    $
    (23,906
    )
    
    $
    71,001Current liabilities
    
    $
    10,014
    
    
    $
    26,566
    
    
    $
    (24,074
    )
    
    $
    12,506Non-current liabilities
    
    
    1,810
    
    
    
    
    
    
    
    168
    
    
    
    1,978Total liabilities
    
    
    11,824
    
    
    
    26,566
    
    
    
    (23,906
    )
    
    
    14,484Total stockholders equity (deficiency)
    
    
    64,522
    
    
    
    (8,005
    )
    
    
    
    
    
    
    56,517Total liabilities and stockholders equity
    
    $
    76,346
    
    
    $
    18,561
    
    
    $
    (23,906
    )
    
    $
    71,001
 Condensed Consolidating Statements of Operations
(unaudited)
 Three Months Ended June 30, 2009AffiliatedMedicalVRC
    
    
    Practices
    
    
    Eliminations
    
    
    Consolidated(in thousands)Revenue
    
    $
    23,357
    
    
    $
    27,879
    
    
    $
    (20,651
    )
    
    $
    30,585Operating costs and expenses
    
    
    20,250
    
    
    
    27,046
    
    
    
    (20,651
    )
    
    
    26,645Operating income
    
    
    3,107
    
    
    
    833
    
    
    
    
    
    
    
    3,940Other income
    
    
    43
    
    
    
    
    
    
    
    
    
    
    
    43Income before income tax
    
    
    3,150
    
    
    
    833
    
    
    
    
    
    
    
    3,983Income tax expense
    
    
    1,285
    
    
    
    308
    
    
    
    
    
    
    
    1,593Non-controlling interest expense
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    4Net income attributable to VRC
    
    $
    1,865
    
    
    $
    525
    
    
    $
    (4
    )
    
    $
    2,386
 Three Months Ended June 30, 2008AffiliatedMedicalVRC
    
    
    Practices
    
    
    Eliminations
    
    
    Consolidated(in thousands)Revenue
    
    $
    19,955
    
    
    $
    23,352
    
    
    $
    (17,386
    )
    
    $
    25,921Operating costs and expenses
    
    
    16,206
    
    
    
    23,638
    
    
    
    (17,386
    )
    
    
    22,458Operating income (loss)
    
    
    3,749
    
    
    
    (286
    )
    
    
    
    
    
    
    3,463Other income
    
    
    89
    
    
    
    
    
    
    
    
    
    
    
    89Income (loss) before income tax
    
    
    3,838
    
    
    
    (286
    )
    
    
    
    
    
    
    3,552Income tax expense
    
    
    1,545
    
    
    
    3
    
    
    
    
    
    
    
    1,548Non-controlling interest expense
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    4Net income (loss) attributable to VRC
    
    $
    2,293
    
    
    $
    (289
    )
    
    $
    (4
    )
    
    $
    2,000
 31




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##### Table of Contents



Six Months Ended June 30, 2009AffiliatedMedicalVRC
    
    
    Practices
    
    
    Eliminations
    
    
    Consolidated(in thousands)Revenue
    
    $
    45,220
    
    
    $
    53,899
    
    
    $
    (39,966
    )
    
    $
    59,153Operating costs and expenses
    
    
    40,215
    
    
    
    52,678
    
    
    
    (39,966
    )
    
    
    52,927Operating income
    
    
    5,005
    
    
    
    1,221
    
    
    
    
    
    
    
    6,226Other income
    
    
    99
    
    
    
    
    
    
    
    
    
    
    
    99Income before income tax
    
    
    5,104
    
    
    
    1,221
    
    
    
    
    
    
    
    6,325Income tax expense
    
    
    2,067
    
    
    
    476
    
    
    
    
    
    
    
    2,543Non-controlling interest expense
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    4Net income attributable to VRC
    
    $
    3,037
    
    
    $
    745
    
    
    $
    (4
    )
    
    $
    3,778
 Six Months Ended June 30, 2008AffiliatedMedicalVRC
    
    
    Practices
    
    
    Eliminations
    
    
    Consolidated(in thousands)Revenue
    
    $
    38,144
    
    
    $
    43,847
    
    
    $
    (32,750
    )
    
    $
    49,241Operating costs and expenses
    
    
    30,757
    
    
    
    44,408
    
    
    
    (32,750
    )
    
    
    42,415Operating income (loss)
    
    
    7,387
    
    
    
    (561
    )
    
    
    
    
    
    
    6,826Other income
    
    
    265
    
    
    
    
    
    
    
    
    
    
    
    265Income (loss) before
income tax
    
    
    7,652
    
    
    
    (561
    )
    
    
    
    
    
    
    7,091Income tax expense
    
    
    3,078
    
    
    
    5
    
    
    
    
    
    
    
    3,083Non-controlling interest
expense
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    8Net income (loss)
attributable to VRC
    
    $
    4,574
    
    
    $
    (566
    )
    
    $
    (8
    )
    
    $
    4,000
 Revenue Recognition and Allowance for Doubtful Accounts
  Stock-Based Compensation
 Accounting for Stock Based Compensation Accounting for Equity Instruments that are
Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or Services
 32




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##### Table of Contents



Physician Stock-Based Compensation.
 Employee Stock-Based Compensation. Accounting for Stock Issued
to Employees
 Medical Malpractice Loss Reserves
  Intangible Assets and Goodwill
 Business Combinations Goodwill and Other Intangible
Assets
   33




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##### Table of Contents



Income Taxes
      Recent Accounting Pronouncements
 Fair Value Measurements, Effective Date of FASB
Statement No. 157,
 Non-controlling Interests in Consolidated
Financial Statements an amendment of ARB 51
 34




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##### Table of Contents



Determination of the Useful Life of Intangible
Assets
 Subsequent Events,
 Amendments to FASB Interpretation No. 46(R)
 The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles The Hierarchy of Generally Accepted Accounting Principles
 35




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##### Table of Contents



ITEM 3.
    
    Quantitative and Qualitative Disclosure About Market Risk
 Foreign Currency Exchange Risk
  Interest Rate Market Risk
  
 ITEM 4.
    
    Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Controls
  36




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##### Table of Contents



PART II  Other Information
 
 ITEM 1.
    
    Legal Proceedings
  
 ITEM 1A.
    
    Risk Factors
  Current health care reform initiatives targeting diagnostic imaging could adversely impact our
customers or the overall imaging market, resulting in an adverse impact on our business.
  
 ITEM 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
 Issuer Purchases of Equity Securities
  Total Number ofSharesTotal Number
    
    Average Price
    
    Purchased as
    
    Maximum Value thatof Shares
    
    Paid per
    
    Part of Publicly
    
    May Yet Be PurchasedPeriod
    
    Purchased
    
    Share
    
    Announced Plans
    
    Under the PlanApril 23, 2009 - April 27, 2009
    
    
    2,428
    
    
    $
    6.24
    
    
    
    2,428
    
    
    $
    4,868,733June 1, 2009 - June 30, 2009
    
    
    78,938
    
    
    $
    8.96
    
    
    
    78,938
    
    
    $
    4,158,748Total
    
    
    81,366
    
    
    $
    8.88
    
    
    
    81,366
 
 ITEM 4.
    
    Submission of Matters to a Vote of Security Holders
  37




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##### Table of Contents



For
    
    Withhold AuthorityRobert C. Kill
    
    
    14,942,012
    
    
    
    60,267Mark E. Jennings
    
    
    10,654,930
    
    
    
    4,347,349David L. Schlotterbeck
    
    
    10,487,853
    
    
    
    4,514,426
   
 ITEM 5.
    
    Other Information
 Employment Terms and New Employment Agreement - Dr. Eduard Michel
        38




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##### Table of Contents



New Executive Employment Agreements for Other Executive Officers
    39




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##### Table of Contents



ITEM 6.
    
    Exhibits
  EXHIBIT INDEX
 Exhibit No.
    
    Description10.1
    
    
    Employment Agreement, effective July 1, 2009, between Virtual
Radiologic Corporation and Eduard Michel, M.D., Ph.D.***10.2
    
    
    Independent Physician Agreement, effective July 1, 2009,
between Virtual Radiologic Professionals, LLC and Eduard
Michel, M.D., Ph.D. ***10.3
    
    
    Employment Agreement, effective July 30, 2009, between Virtual
Radiologic Corporation and Robert C. Kill***10.4
    
    
    Employment Agreement, effective July 30, 2009, between Virtual
Radiologic Corporation and Leonard C. Purkis***10.5
    
    
    Employment Agreement, effective July 30, 2009, between Virtual
Radiologic Corporation and Richard W. Jennings***10.6
    
    
    Employment Agreement, effective July 30, 2009, between Virtual
Radiologic Corporation and Michael J. Kolar***31.1
    
    
    Certification by Principal Executive Officer pursuant to Rule
13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934,
as amended, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.***31.2
    
    
    Certification of Principal Financial Officer pursuant to Rule
13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934,
as amended, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.***32.1
    
    
    Certification by Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.***32.2
    
    
    Certification by Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.***
 
 ***
    
    Filed herewith. 40




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##### Table of Contents



SIGNATURES
  Signature
    
    Title
    
    Date/s/ Robert C. Kill
    
    President and Chief Executive OfficerRobert C. Kill
    
    (Principal Executive Officer)
    
    July 30,
2009/s/ Leonard C. Purkis
    
    Chief Financial Officer (PrincipalLeonard C. Purkis
    
    Financial and Accounting Officer)
    
    July 30,
2009
 41