The teleradiology services industry has developed rapidly within the last few years, and it is expected it will continue to develop due to an increasing volume of diagnostic imaging procedures, significant shortages in the number of radiologists, advances in digital diagnostic imaging technologies, advances in communications technologies and a wider acceptance of teleradiology services in hospital and clinical settings. In addition, teleradiology contributes to improved patient care through increased efficiency, accessibility of subspecialty expertise and optimized timing between the request for a radiographic image read and its interpretation.

According to Frost & Sullivan, digital diagnostic imaging procedure volume is expected to continue to grow at a rate of 15% per year from approximately 300 million images in 2004 to over 500 million images in 2009. The increase in diagnostic imaging procedures is driven by an aging population, advances in diagnostic imaging technologies, the growing availability of imaging equipment in hospitals and clinics, and more frequent physician referrals for diagnostic imaging warranted by additional medical indications.

According to studies published by the American College of Radiology, there is a nationwide shortage of radiologists when measured against the number of advertised positions and the increasing number of radiology studies performed. The American College of Radiology’s April 2004 study reported that the number of physicians in radiology residency programs decreased by 11% from 1996 to 2004. The number of radiologists in practice was estimated to be 25,557 in 2001 and is expected to increase to 29,174 in 2010, implying an annual growth rate of only 1.5%. Further, a 2002 American Journal of Roentgenology study estimated that, assuming traditional practice and education models, the shortage of radiologists necessary to fulfill projected demand for radiology services could increase as much as 50% to a shortage of approximately 15,000 radiologists by the year 2020.

Diagnostic radiology aids in the diagnosis and treatment of injuries, diseases and other medical conditions by interpreting images of the human body.

The Company provides coverage to its customers 24 hours per day, seven days a week, 365 days a year. The Company offers daytime service typically between the hours of 8 a.m. to 5 p.m., local time, Monday through Friday, and off-hours service between the hours of 5 p.m. to 8 a.m., local time, Monday through Friday, and 24 hours a day service on weekends and holidays.

A majority of the services that the Company provides are preliminary reads performed during off-hours for hospital emergency rooms during evenings, nights and weekends. Off-hours coverage typically consists of preliminary reads of diagnostic images, which are performed in order to immediately treat a patient’s condition in an emergency setting. The Company also provides its customers with emergent final reads in lieu of or ancillary to preliminary reads, as well as final reads performed for routine daytime coverage for non-emergent purposes.

The Company typically provides preliminary and final reads in emergent care settings within approximately 20 minutes from receipt of order. The Company typically provides final reads in non-emergent cases within 24 hours from receipt of patient images. Final reads, unlike preliminary reads, may be reimbursed by Medicare and other third party payers and, therefore, in order to comply with Medicare rules, must be performed by U.S.-based radiologists.

Professional services expenses was $6.7 million for the three months ended March 31, 2006 and $3.1 million for the three months ended March 31, 2005, an increase of $3.6 million, or 115.3%.

Depreciation and amortization expense increased from $94,000 for the three months ended March 31, 2005 to $268,000 for the three months ended March 31, 2006.

Interest (expense) income, net, increased from expense of $60,000 for the three months ended March 31, 2005 to income of $51,000 for the three months ended March 31, 2006.