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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K


(Mark One)
þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		FOR THE FISCAL YEAR 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 333-75984-12

INSIGHT HEALTH SERVICES HOLDINGS CORP.

(Exact name of Registrant as specified in its charter)


DELAWARE (State or other jurisdiction of incorporation or organization)				04-3570028 (I.R.S. Employer Identification No.)


26250 ENTERPRISE COURT, SUITE 100, LAKE FOREST, CA		92630
(Address of principal executive offices)		(Zip code)

(949) 282-6000
(Registrant’s telephone number including area code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
(Title of Class)

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes þ No o

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 o No þ

Indicate by check mark whether the registrant (1) 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 (Section 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 o No o

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

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


Large accelerated filer o	Accelerated filer o	Non-accelerated filer o	Smaller reporting company þ
		(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 Exchange Act). Yes þ No o

The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant as of December 31, 2008 (based on the price at which the common stock was last sold on the Over-The-Counter Bulletin Board on the last business day of the registrant’s most recent completed second fiscal quarter) was $118,336.

Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes þ No o

The number of shares outstanding of the Registrant’s common stock as of September 18, 2009 was 8,644,444.

PART I


ITEM 1.	*BUSINESS*

OVERVIEW

All references to “we,” “us,” “our,” “our company” or the “Company” in this annual report on Form 10-K, or Form 10-K, mean InSight Health Services Holdings Corp., a Delaware corporation incorporated in 2001, and all entities and subsidiaries owned or controlled by InSight Health Services Holdings Corp. All references to “Holdings” in this Form 10-K mean InSight Health Services Holdings Corp. by itself. All references to “InSight” in this Form 10-K mean InSight Health Services Corp., a Delaware corporation and a wholly owned subsidiary of Holdings, by itself. All references to “fiscal 2009” mean our fiscal year ended June 30, 2009.

We are a provider of diagnostic imaging services through a network of fixed-site centers and mobile facilities. Our services are noninvasive procedures that generate representations of internal anatomy on film or digital media, which are used by physicians for the diagnosis and assessment of diseases and disorders.

We serve a diverse portfolio of customers, including healthcare providers, such as hospitals and physicians, and payors, such as managed care organizations, Medicare, Medicaid and insurance companies. We operate in more than 30 states including the following targeted regional markets: California, Arizona, New England, the Carolinas, Florida and the Mid-Atlantic states. While we generated approximately 69% of our total revenues from MRI services during fiscal 2009, we provide a comprehensive offering of diagnostic imaging services, including PET, PET/CT, CT, mammography, bone densitometry, ultrasound and x-ray.

We have two reportable segments: mobile operations and fixed operations. Generally, our fixed operations consist of fixed-site centers that primarily generate patient services revenues from services billed, on a fee-for-service basis, directly to patients or third-party payors such as managed care organizations, Medicare, Medicaid, commercial insurance carriers and workers’ compensation funds, which we refer to as our retail operations. With respect to our retail operations we bear the direct risk of collections from third-party payors and patients. Our mobile operations consist of mobile facilities, which provide services to hospitals, physician groups and other healthcare providers. Our mobile operations primarily generate contract services revenues from fee-for-service arrangements and fixed-fee contracts billed directly to our healthcare provider customers, which we refer to as our wholesale operations. With respect to our wholesale operations we do not bear direct risk of collections from third-party payors or patients. Our 61 fixed-site centers include three parked mobile facilities, each of which serves a single customer. These parked mobile facilities are included in our mobile operations. Of our 112 mobile facilities, three mobile facilities are included as part of our fixed operations in Maine because they primarily generate retail revenues similar to our other fixed site centers.

Our principal executive offices are located at 26250 Enterprise Court, Suite 100, Lake Forest, California 92630, and our telephone number is (949) 282-6000. Our internet address is www.insighthealth.com. www.insighthealth.com is a textual reference only, meaning that the information contained on the website is not part of this Form 10-K and is not incorporated by reference in this Form 10-K or in any other filings we make with the Securities and Exchange Commission, or SEC.

We file annual, quarterly and special reports and other information with the SEC. You may read and copy materials that we have filed with the SEC at the following SEC public reference room:

100 F Street, N.E.
Washington, D.C. 20549

Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Our SEC filings are also available to the public on the SEC’s internet website at http://www.sec.gov.

Reorganization

On May 29, 2007, Holdings and InSight filed voluntary petitions to reorganize their business under chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware (Case No. 07-10700). The filing was in connection with a prepackaged plan of reorganization and related exchange offer. The other subsidiaries of Holdings were not included in the bankruptcy filing and continued to operate their business. On July 10, 2007, the bankruptcy court confirmed Holdings’ and InSight’s Second Amended Joint Plan of Reorganization pursuant to chapter 11 of the Bankruptcy Code. The plan of reorganization became effective and Holdings and InSight emerged from bankruptcy protection on August 1, 2007, or the effective date. Pursuant to the confirmed plan of reorganization and the related exchange offer, (1) all of Holdings’ common stock, all options for Holdings’ common stock and all of InSight’s 9.875% senior subordinated notes due 2011, or senior subordinated notes, were cancelled, and (2) holders of InSight’s senior subordinated notes and holders of Holdings’ common stock prior to the effective date received 7,780,000 and 864,444 shares of newly issued Holdings’ common stock, respectively, in each case after giving effect to a one for 6.326392 reverse stock split of Holdings’ common stock.

This reorganization significantly deleveraged our balance sheet and improved our projected cash flow after debt service. However, we still have a substantial amount of debt, which requires significant interest and principal payments. As of June 30, 2009, we had total indebtedness of approximately $298.2 million in aggregate principal amount, including InSight’s $293.5 million of senior secured floating rate notes due 2011, or floating rate notes. We believe that future net cash provided by operating and investing activities and our credit facility will be adequate to meet our operating cash and debt service requirements for at least the next twelve months. Nevertheless, the floating rate notes mature in November 2011 and unless our financial performance significantly improves, we can give no assurance that we will be able to refinance the floating rate notes on commercially reasonable terms, if at all.

Segments

Fixed Operations. Our fixed-site centers provide a full range of diagnostic imaging services to patients, physicians, insurance payors and managed care organizations. Of our 61 fixed-site centers, 31 offer MRI services. Our remaining 30 fixed-site centers are multi-modality sites typically offering MRI and one or more of CT, PET/CT, x-ray, mammography, ultrasound, nuclear medicine, bone densitometry and nuclear cardiology. Diagnostic services are provided to a patient upon referral by a physician. Physicians refer patients to our fixed-site centers based on our service reputation, equipment, breadth of managed care contracts and convenient locations. Our fixed-site centers provide the equipment and technologists for the procedures, contract with radiologists to interpret the procedures, and bill payors directly. Our fixed-site centers primarily generate patient services revenues from services billed, on a fee-for-service basis, directly to patients or third-party payors, which we refer to as our retail operations. With respect to our retail operations we bear the direct risk of collections from third-party payors and patients. We have contracts with managed care organizations for our fixed-site centers, which often last for a period of multiple years because (1) they do not have specific terms or specific termination dates or (2) they contain annual “evergreen” provisions that provide for the contract to automatically renew unless either party terminates the contract. In addition to our independent facilities, we enter into joint ventures with hospitals and radiology groups. Our joint ventures allow us to charge a management and billing fee for supporting their day-to-day operations.

Mobile Operations. Hospitals, physician groups and other healthcare providers can access our diagnostic imaging technology through our network of 112 mobile facilities. Our mobile operations primarily generate contract services revenues from fee-for-service arrangements and fixed-fee contracts billed directly to our healthcare provider customers, which we refer to as our wholesale operations. With respect to our wholesale operations we do not bear direct risk of collections from third-party payors or patients. We currently have contracts with more than 200 hospitals, physician groups and other healthcare providers. We enable hospitals, physician groups and other healthcare providers to benefit from our imaging equipment without investing their own capital directly. Interpretation services are generally provided by the hospital’s radiologists or physician groups and not by us.

After reviewing the needs of our customers, route patterns, travel times, fuel costs and equipment utilization, our field managers implement planning and route management to maximize the utilization of our mobile facilities while controlling the costs to transport the mobile facilities from one location to another. Our mobile facilities are scheduled for as little as one-half day and up to seven days per week at any particular site. We generally enter into one to five year-term contracts with our mobile customers under which they assume responsibility for billing and collections. Our mobile customers directly pay us a contracted amount for our services, regardless of whether they are reimbursed.

Our mobile operations provide a significant advantage for establishing long-term arrangements with hospitals, physician groups and other healthcare providers and expanding our fixed-site business. We establish mobile routes in selected markets with the intent of growing with our customers. Our mobile facilities give us the flexibility to (1) supplement fixed-site centers operating at or near capacity until volume has grown sufficiently to warrant additional fixed-site equipment or centers, and (2) test new markets on a short-term basis prior to establishing new mobile routes or opening new fixed-site centers. Our goal is to enter into long-term joint venture relationships with our mobile customers once the local market matures and sufficient patient volume is achieved to support a fixed-site center.

Additional Information. Financial information concerning our two segments is set forth in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in Note 19 of our consolidated financial statements, all of which are incorporated herein by reference.

DIAGNOSTIC IMAGING TECHNOLOGY

Our diagnostic imaging systems consist of MRI systems, PET/CT systems, PET systems, CT systems, ultrasound systems, x-ray, analog and digital mammography, radiography/fluoroscopy systems and bone densitometry. Each of these types of imaging systems (other than analog mammography) represents the marriage of computer technology and various medical imaging modalities. The following highlights our primary imaging systems:

Magnetic Resonance Imaging or MRI

MRI is a technique that involves the use of high-strength magnetic fields to produce computer-processed, three-dimensional, cross-sectional images of the body. The resulting image reproduces soft tissue anatomy (as found in the brain, breast tissue, spinal cord and interior ligaments of body joints such as the knee) with superior clarity, and without exposing patients to ionizing radiation. MRI systems are classified into two classes, conventional MRI systems and Open MRI systems. The structure of conventional MRI systems allows for higher magnet field strengths, better image quality and faster scanning times than Open MRI systems. However, Open MRI systems are able to service patients who have access difficulties with conventional MRI systems, including pediatric patients and patients suffering from post-traumatic stress, claustrophobia or significant obesity. A typical conventional MRI examination takes from 20 to 45 minutes. A typical Open MRI examination takes from 30 to 60 minutes. MRI systems are typically priced in the range of $0.9 million to $2.5 million each.

Computed Tomography or CT

In CT imaging, a computer analyzes the information received from x-ray beams to produce multiple cross-sectional images of a particular organ or area of the body. CT imaging is used to detect tumors and other conditions affecting bones and internal organs. A typical CT examination takes from five to 20 minutes. CT systems are typically priced in the range of $0.4 million to $1.5 million each.

Positron Emission Tomography or PET

PET is a nuclear medicine procedure that produces pictures of the body’s metabolic and biological functions. PET can provide earlier detection as well as monitoring of certain cancers, coronary diseases or neurological problems than other diagnostic imaging systems. The information provided by PET technology often obviates the need to perform further highly invasive or diagnostic surgical procedures. PET/CT systems fuse together the results of a PET scan and CT scan, which makes it possible to collect both anatomical and biological information during a

single procedure. A typical PET or PET/CT examination takes from 20 to 60 minutes. PET/CT systems are typically priced in the range of $1.6 million to $2.3 million each.

Other Imaging Technologies


	•	Ultrasound systems use, detect and process high frequency sound waves to generate images of soft tissues and internal body organs.

	•	X-ray is the most common energy source used in imaging the body and is now employed in conventional x-ray systems, CT and digital x-ray systems.

	•	Mammography is a low-level conventional examination of the breasts, primarily for detecting lesions in the breast that may be too small or deeply buried to be felt in a regular breast examination.

	•	Bone densitometry uses an advanced technology called dual-energy x-ray absorptiometry, or DEXA, which safely, accurately and painlessly measures bone density and the mineral content of bone for the diagnosis of osteoporosis.

STRATEGY

We have pursued a strategy based on core markets. We believe this strategy will allow us more operating efficiencies and synergies than are available in a nationwide strategy. A core market is based on many factors, including, without limitation, demographic and population trends, utilization and reimbursement rates, existing and potential market share, the potential for profitability and return on assets, competition within the surrounding area, regulatory restrictions, such as certificates of need, and potential for alignment with radiologists, hospitals or payors. This strategy has resulted in us exiting some markets while increasing our presence in others or establishing new markets through acquisitions and dispositions. In implementing our core market strategy, we have taken the following actions:


	•	During the fiscal year ended June 30, 2008, we closed three fixed-site centers and sold seven fixed-site centers in California and our majority ownership interest in a joint venture that operated a fixed-site center in Ohio.

	•	During fiscal 2009, we sold eight fixed-site centers (six in California, one in Illinois and one in Tennessee), and equity interests in three joint ventures that operated five fixed-site centers (four in New York and one in California). In addition, we closed three fixed-site centers (two in California and one in Arizona) during fiscal 2009.

	•	During fiscal 2009, we acquired two fixed-site centers in Massachusetts and two fixed-site centers in Arizona.

	•	In July 2009, we sold two fixed-site centers in Pennsylvania.

As a result of implementing our core market strategy, we have reduced our cost of services as a percentage of revenues from 69.2% for the year ended June 30, 2008 to 67.1% for fiscal 2009. The decrease is primarily due to disposing of low margin fixed site centers, which had an average cost of services as a percentage of revenues of approximately 75%. Additionally, while revenues have been adversely affected due to the negative trends discussed below, our Adjusted EBITDA remained relatively consistent with the prior year. See our discussion regarding results of operations, our definition of Adjusted EBITDA and reconciliation of net cash provided by operating activities to Adjusted EBITDA in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

We are continuously evaluating opportunities for the acquisition and disposition of certain businesses. There can be no assurance that we can complete sales and/or purchases of these businesses on terms favorable to us in a timely manner to replace the loss of Adjusted EBITDA related to the businesses we sell.

BUSINESS DEVELOPMENT

Our objective is to be a leading provider of diagnostic imaging services in our core markets. Our efforts are focused on two components.

First, we strive to maximize utilization of our existing facilities by:


	•	broadening our physician referral base and generating new sources of revenues through selective marketing activities;

	•	focusing our marketing efforts on attracting additional managed care customers;

	•	emphasizing quality of care and convenience to our customers; and

	•	expanding current imaging applications of existing modalities to increase overall procedure volume.

Second, we continuously refine our core market strategy by:


	•	seeking to develop new fixed-site centers, mobile routes, and joint ventures with hospitals or radiologists and making disciplined acquisitions where attractive returns on investment can be achieved and sustained; and

	•	seeking opportunities to exit underperforming businesses or businesses in non-core markets and redeploying such capital to achieve more attractive returns.

Generally, these activities are aimed at increasing revenues and gross profit, maximizing utilization of existing capacity and increasing economies of scale. Incremental gross profit resulting from such activities will vary depending on geographic area, whether facilities are mobile or fixed, the range of services provided and the strength of our joint venture partners. We believe that our core market strategy is a key factor to improve our operating results.

GOVERNMENT REGULATION

The healthcare industry is highly regulated and changes in laws and regulations can be significant. Changes in the law or new interpretation of existing laws can have a material effect on our permissible activities, the relative costs associated with doing business and the amount of reimbursement by government and other third-party payors. The federal government and all states in which we currently operate regulate various aspects of our business. Failure to comply with these laws could adversely affect our ability to receive reimbursement for our services and subject us and our officers and agents to civil and criminal penalties.

Federal False Claims Act: The federal False Claims Act and, in particular, the False Claims Act’s “qui tam” or “whistleblower” provisions allow a private individual to bring actions in the name of the government alleging that a defendant has made false claims for payment from federal funds. After the individual has initiated the lawsuit, the government must decide whether to intervene in the lawsuit and to become the primary prosecutor. Until the government makes a decision, the lawsuit is kept secret. If the government declines to join the lawsuit, the individual may choose to pursue the case alone, in which case the individual’s counsel will have primary control over the prosecution, although the government must be kept apprised of the progress of the lawsuit, and may intervene later. Whether or not the federal government intervenes in the case, it will receive the majority of any recovery. If the litigation is successful, the individual is entitled to no less than 15%, but no more than 30%, of whatever amount the government recovers that is related to the whistleblower’s allegations. The percentage of the individual’s recovery varies, depending on whether the government intervened in the case and other factors. In recent years the number of suits brought against healthcare providers by government regulators and private individuals has increased dramatically. In addition, various states are considering or have enacted laws modeled after the federal False Claims Act, penalizing false claims against state funds. If a whistleblower action is brought against us, even if it is dismissed with no judgment or settlement, we may incur substantial legal fees and other costs relating to an investigation. Actions brought under the False Claims Act may result in significant fines and legal fees and distract our management’s attention, which would adversely affect our financial condition and results of operations.

When an entity is determined to have violated the federal False Claims Act, it must pay three times the actual damages sustained by the government, plus mandatory civil penalties of between $5,500 to $11,000 for each separate false claim, as well as the government’s attorneys’ fees. Liability arises when an entity knowingly submits, or causes someone else to submit, a false claim for reimbursement to the federal government or submits a false claim with reckless disregard for, or in deliberate ignorance of, its truth or falsity. Simple negligence should not give rise to liability. Examples of the other actions which may lead to liability under the False Claims Act:


	•	Failure to comply with the many technical billing requirements applicable to our Medicare and Medicaid business.

	•	Failure to comply with Medicare requirements concerning the circumstances in which a hospital, rather than we, must bill Medicare for diagnostic imaging services we provide to outpatients treated by the hospital.

	•	Failure of our hospital customers to accurately identify and report our reimbursable and allowable services to Medicare.

	•	Failure to comply with the prohibition against billing for services ordered or supervised by a physician who is excluded from any federal healthcare program, or the prohibition against employing or contracting with any person or entity excluded from any federal healthcare program.

	•	Failure to comply with the Medicare physician supervision requirements for the services we provide, or the Medicare documentation requirements concerning physician supervision.

	•	The past conduct of the businesses we have acquired.

In addition, recent changes to the federal False Claims Act have increased the compliance risks faced by healthcare providers furnishing Medicare and Medicaid services. These changes were enacted through the passage of the Fraud Enforcement Recovery Act of 2009. According to the changes to the False Claims Act, there will be a false claim any time a person knowingly retains a government overpayment, acts in deliberate ignorance of a government overpayment, or acts in reckless disregard of a government overpayment. Because Medicare and Medicaid overpayments can be predicated on a wide array of conduct, there is increased risk that we may incur substantial legal fees and other costs related to investigating any possible government overpayments, and making the appropriate repayment to the government.

We strive to ensure that we meet applicable billing requirements. However, the costs of defending claims under the False Claims Act, as well as sanctions imposed under the Act, could significantly affect our business, financial condition and results of operations.

Anti-kickback Statutes: We are subject to federal and state laws which govern financial and other arrangements between healthcare providers. These include the federal anti-kickback statute which, among other things, prohibits the knowing and willful solicitation, offer, payment or receipt of any remuneration, direct or indirect, in cash or in kind, in return for or to induce the referral of patients for items or services covered by Medicare, Medicaid and certain other governmental health programs. Violation of the anti-kickback statute may result in civil or criminal penalties and exclusion from the Medicare, Medicaid and other federal healthcare programs. In addition, it is possible that private parties may file “qui tam” actions based on claims resulting from relationships that violate this statute, seeking significant financial rewards. Many states have enacted similar statutes, which are not limited to items and services paid for under Medicare or a federally funded healthcare program. In recent years, there has been increasing scrutiny by law enforcement authorities, the Department of Health and Human Services, or HHS, the courts and Congress of financial arrangements between healthcare providers and potential sources of referrals to ensure that such arrangements do not violate the anti-kickback provisions. HHS and the federal courts interpret “remuneration” broadly to apply to a wide range of financial incentives, including, under certain circumstances, distributions of partnership and corporate profits to investors who refer federal healthcare program patients to a corporation or partnership in which they have an ownership interest and payments for service contracts and equipment leases that are designed, even if only in part, to provide direct or indirect remuneration for patient referrals or similar opportunities to furnish reimbursable items or services. HHS has issued “safe harbor” regulations that set forth certain provisions which, if met, will assure that healthcare providers and other parties who refer patients or other business opportunities, or who provide reimbursable items or services, will be deemed

not to violate the anti-kickback statutes. The safe harbors are narrowly drawn and some of our relationships may not qualify for any “safe harbor”; however, failure to comply with a “safe harbor” does not create a presumption of liability. We believe that our operations materially comply with the anti-kickback statutes; however, because these provisions are interpreted broadly by regulatory authorities, we cannot be assured that law enforcement officials or others will not challenge our operations under these statutes.

Civil Money Penalty Law and Other Federal Statutes: The Civil Money Penalty, or CMP, law covers a variety of practices. It provides a means of administrative enforcement of the anti-kickback statute, and prohibits false claims, claims for medically unnecessary services, violations of Medicare participating provider or assignment agreements and other practices. The statute gives the Office of Inspector General of the HHS the power to seek substantial civil fines, exclusion and other sanctions against providers or others who violate the CMP prohibitions.

In addition, in 1996, Congress created a new federal crime: healthcare fraud and false statements relating to healthcare matters. The healthcare fraud statute prohibits knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private payors. A violation of this statute is a felony and may result in fines, imprisonment or exclusion from government sponsored programs such as the Medicare and Medicaid programs. The false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services, including those provided by private payors. A violation of this statute is a felony and may result in fines or imprisonment.

We believe that our operations materially comply with the CMP law and the healthcare fraud and false statements statutes. These prohibitions, however, are broadly worded and there is limited authority interpreting their parameters. Therefore, we can give no assurance that the government will not pursue a claim against us based on these statutes. Such a claim would divert the attention of management and could result in substantial penalties, which could adversely affect our financial condition and results of operations.

Health Insurance Portability and Accountability Act: In 1996, Congress passed the Health Insurance Portability and Accountability Act, or HIPAA. Although the main focus of HIPAA was to make health insurance coverage portable, HIPAA has become a short-hand reference to new standards for electronic transactions and privacy and security obligations imposed on providers and others who handle personal health information. HIPAA requires healthcare providers to adopt standard formats for common electronic transactions with health plans, and to maintain the privacy and security of individual patients’ health information. A violation of HIPAA’s standard transactions, privacy and security provisions may result in criminal and civil penalties, which could adversely affect our financial condition and results of operations.

Stark and State Physician Self-Referral Laws: The federal Physician Self-Referral or “Stark” Law prohibits a physician from referring Medicare patients for certain “designated health services” to an entity with which the physician (or an immediate family member of the physician) has a financial relationship unless an exception applies. In addition, the receiving entity is prohibited from billing for services provided pursuant to the prohibited referral.

Designated health services under Stark include radiology services (MRI, CT, x-ray, ultrasound and others), radiation therapy, inpatient and outpatient hospital services and several other services. A violation of the Stark Law does not require a showing of intent. If a physician has a financial relationship with an entity that does not qualify for an exception, the referral of Medicare patients to that entity for designated health services is prohibited and, if the entity bills for such services, the Stark sanctions apply.

Sanctions for violating Stark include denial of payment, mandatory refunds, civil money penalties and/or exclusion from the Medicare program. In addition, some courts have allowed federal False Claims Act lawsuits premised on Stark Law violations.

The federal Stark Law prohibition is expansive, and its statutory language and implementing regulations are ambiguous. Consequently, the statute has been difficult to interpret. Since 1995, the Centers for Medicare and Medicaid Services, or CMS, has published numerous sets of regulations implementing the Stark Law with more to come. With each set of regulations, CMS’s interpretation of the statute has evolved. This has resulted in considerable confusion concerning the scope of the referral prohibition and the requirements of the various

exceptions. It is noteworthy, however, that CMS has taken the position that the Stark Law is self-effectuating and does not require implementing regulations. Thus, the government believes that physicians and others must comply with the Stark Law prohibitions regardless of the state of the regulatory guidance.

The Stark Law does not directly prohibit referral of Medicaid patients, but rather denies federal financial participation to state Medicaid programs for services provided pursuant to a tainted referral. Thus, Medicaid referrals are subject to whatever sanctions the relevant state has adopted. Several states in which we operate have enacted or are considering legislation that prohibits “self-referral” arrangements or requires physicians or other healthcare providers to disclose to patients any financial interest they have in a healthcare provider to whom they refer patients. Possible sanctions for violating these state statutes include loss of participation, civil fines and criminal penalties. The laws vary from state to state and seldom have been interpreted by the courts or regulatory agencies. Nonetheless, strict enforcement of these requirements is likely.

We believe our operations materially comply with the federal and state physician self-referral laws. However, given the ambiguity of these statutes, the uncertainty of the regulations and the lack of judicial guidance on many key issues, we can give no assurance that the Stark Law or other physician self-referral regulations will not be interpreted in a manner that could adversely affect our financial condition and results of operations.

FDA: The Food and Drug Administration, or FDA, has issued the requisite premarket approval for all of our MRI, PET, PET/CT and CT systems. We do not believe that any further FDA approval is required in connection with equipment currently in operation or proposed to be operated; however, under FDA regulations related to the Mammography Quality Standards Act of 1992, all mammography facilities must have a certificate issued by the FDA. In order to obtain a certificate, a mammography facility is required to be accredited by an FDA approved accrediting body (a private, non-profit organization or state agency) or other entity designated by the FDA. Pursuant to the accreditation process, each facility providing mammography services must comply with certain standards including annual inspection.

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

Radiologist and Facility Licensing: The radiologists with whom we contract to provide professional services are subject to licensing and related regulations by the states, including registrations to use radioactive materials. As a result, we require our radiologists to have and maintain appropriate licensure and registrations. In addition, some states also impose licensing or other requirements on us at our facilities and other states may impose similar requirements in the future. Some local authorities may also require us to obtain various licenses, permits and approvals. We believe that we have obtained all required licenses and permits; however, the criteria governing licensing or permitting may change or additional laws and licensing requirements governing our facilities may be enacted. These changes could adversely affect our financial condition and results of operations.

Liability Insurance: The hospitals, physician groups and other healthcare providers who use our diagnostic imaging systems are involved in the delivery of healthcare services to the public and, therefore, are exposed to the risk of liability claims. Our position is that we do not engage in the practice of medicine. We provide only the equipment and technical components of diagnostic imaging, including certain limited nursing services, and we have not experienced any material losses due to claims for malpractice. Nevertheless, claims for malpractice have been asserted against us in the past and any future claims, if successful, could entail significant defense costs and could result in substantial damage awards to the claimants, which may exceed the limits of any applicable insurance coverage. We maintain professional liability insurance in amounts we believe are adequate for our business of providing diagnostic imaging, treatment and management services. In addition, the radiologists or other healthcare professionals with whom we contract are required by such contracts to carry adequate medical malpractice

insurance. Successful malpractice claims asserted against us, to the extent not covered by our liability insurance, could adversely affect our financial condition and results of operations.

Independent Diagnostic Treatment Facilities: CMS has established a category of Medicare provider referred to as Independent Diagnostic Treatment Facilities, or IDTFs. Imaging centers have the option to participate in the Medicare program as either IDTFs or medical groups. Most of our fixed-site centers are IDTFs, which must comply with certain certification standards. In addition, the Medicare Improvements for Patients and Providers Act of 2008 requires imaging centers to be accredited by 2012. Although we expect our IDTFs to meet these certification and accreditation standards, increased oversight by CMS could adversely affect our financial condition and results of operations.

Certificates of Need: Some states require hospitals and certain other healthcare facilities and providers to obtain a certificate of need, or CON, or similar regulatory approval prior to establishing certain healthcare operations or services, incurring certain capital projects and/or the acquisition of major medical equipment including MRI, PET and PET/CT systems. We believe that we have complied or will comply with applicable requirements in those states where we operate. Nevertheless, this is an area of continuing legislative activity, and statutes and regulations may be modified in the future in a manner that could adversely affect our financial condition and results of operations.

Environmental, Health and Safety Laws: Our PET and PET/CT services and some of our other imaging services require the use of radioactive materials, which are subject to federal, state and local regulations governing the storage, use and disposal of materials and waste products. We could incur significant costs in order to comply with current or future environmental, health and safety laws and regulations. However, we believe that environmental, health and safety laws and regulations will not (1) cause us to incur any material capital expenditures in our current year or the succeeding year, including costs for environmental control facilities or (2) materially impact our revenues or our competitive position.

SALES AND MARKETING

We engage in sales and marketing activities to obtain new sources of revenues, expand business relationships, grow revenues at existing facilities, and maintain present business alliances and contractual relationships. Sales and marketing activities for our fixed operations include educating physicians on new applications and uses of the technology and customer service programs. In addition, we seek to leverage our core market concentration to continue to develop contractual relationships with managed care payors to increase patient volume. Sales and marketing activities for our mobile business include direct marketing to hospitals and developing leads through current customers, equipment manufacturers, and other vendors. In addition, marketing activities for our mobile operations include contacting referring physicians associated with hospital customers and educating physicians.

COMPETITION

The healthcare industry in general, and the market for diagnostic imaging services in particular, is highly competitive and fragmented, with only a few national providers. We compete principally on the basis of our service reputation, equipment, breadth of managed care contracts and convenient locations. Our operations must compete with hospitals, physician groups and certain other independent organizations, including equipment manufacturers and leasing companies that own and operate imaging equipment. We will continue to encounter substantial competition from hospitals and independent organizations, including Alliance Healthcare Services, Inc., Radnet, Inc., Diagnostic Health Corporation, MedQuest, Inc., Shared Imaging and Otter Tail Corporation doing business as DMS Imaging. Some of our direct competitors may have access to greater financial resources than we do.

Certain hospitals, particularly the larger or more financially stable hospitals, have and may be expected to directly acquire and operate imaging equipment on-site as part of their overall inpatient servicing capability. Historically, smaller hospitals have been reluctant to purchase imaging equipment, but some have chosen to do so with attractive financing offered by equipment manufacturers. Some physician practices have also established diagnostic imaging centers or purchased imaging equipment for their own offices, and we anticipate that others will as well. In addition, attractive financing from equipment manufacturers, as well as attractive gross margins, have caused hospitals and physician groups who have utilized mobile services from our company and our competitors to

purchase and operate their own equipment. Although reimbursement reductions and reduced access to credit may dissuade physician groups from operating their own equipment, we expect that some high volume customer accounts will continue to elect not to renew their contracts with us and instead acquire their own diagnostic imaging equipment.

CUSTOMERS AND CONTRACTS

Our revenues are primarily generated from patient services and contract services. Our fixed-site centers primarily generate patient services revenues from services billed, on a fee-for-service basis, directly to patients or third-party payors, which we refer to as our retail operations. With respect to our retail operations we bear the direct risk of collections from third-party payors and patients. Contract services revenues are generally earned from services billed to a hospital, physician group or other healthcare provider, which include fee-for-service arrangements in which revenues are based upon a contractual rate per procedure and fixed fee contracts, which we refer to as our wholesale operations. With respect to our wholesale operations we do not bear direct risk of collections from third- party payors or patients. Contract services revenues are primarily earned through mobile facilities pursuant to contracts with a term from one to five years. A significant number of our mobile contracts will expire each year. We expect that some high volume customer accounts will elect not to renew their contracts and instead will purchase or lease their own diagnostic imaging equipment and some customers may choose an alternative services provider.

During fiscal 2009, approximately 54% of our revenues were generated from patient services and approximately 46% were generated from contract services.

DIAGNOSTIC IMAGING AND OTHER EQUIPMENT

As of June 30, 2009, we owned or leased 220 diagnostic imaging systems, with the following classifications: 3.0 Tesla MRI, 1.5 Tesla MRI, 1.0 Tesla MRI, Open MRI, PET, PET/CT, CT and other technology. Magnetic field strength is the measurement of the magnet used inside an MRI system. If the magnetic field strength is increased the image quality of scans is improved and the time required to complete scans is decreased. Magnetic field strength on our MRI systems currently ranges from 0.2 to 3.0 Tesla. Of our 162 conventional MRI systems, two have a magnetic field strength of 3.0 Tesla, while 140 have a magnetic field strength of 1.5 Tesla, which is the industry standard magnetic strength for conventional fixed and mobile MRI systems. Other than ultra-high field MRI systems and 256-slice CT systems, we are aware of no substantial technological changes; however, should such changes occur, we may not be able to acquire the new or improved systems.

We continue to evaluate the mix of our diagnostic imaging equipment in response to changes in technology and to any overcapacity in the marketplace. We improve our equipment through upgrades, disposal and/or trade-in of older equipment and the purchase or execution of leases for new equipment in response to market demands.

Several large companies presently manufacture MRI (including Open MRI), PET/CT, CT and other diagnostic imaging equipment, including General Electric Healthcare, Hitachi Medical Systems, Siemens Medical Systems, Toshiba American Medical Systems and Phillips Medical Systems. We have acquired MRI and CT systems that were manufactured by each of the foregoing companies. We have acquired PET or PET/CT systems that were manufactured by General Electric Healthcare and Siemens Medical Systems. We enter into individual purchase orders for each system that we acquire, and we do not have long-term purchase arrangements with any equipment manufacturer. We maintain good working relationships with many of the major manufacturers to better ensure adequate supply as well as access to those types of diagnostic imaging systems which appear most appropriate for the specific imaging facility to be established.

INFORMATION SYSTEMS

Our internal information technology systems allow us to manage our operations, accounting and finance, human resources, payroll, document imaging, and data warehousing. Our primary operating system is the InSight Radiology Information System, or IRIS, our proprietary information system. IRIS provides front-office support for scheduling and administration of imaging procedures and back office support for billing and collections. Additional functionality includes workflow, transcription, and image management. We have recently purchased new billing system software to substantially replace the billing and collection component of IRIS and we expect to implement

the new software in early calendar year 2010. We use picture archiving and communication systems, or PACS, at certain of our fixed-site centers for the digital management of diagnostic images.

COMPLIANCE PROGRAM

We have voluntarily implemented a program to monitor compliance with federal and state laws and regulations applicable to healthcare organizations. We have appointed a compliance officer who is charged with implementing and supervising our compliance program, which includes a code of ethical conduct for our employees and a process for reporting regulatory or ethical concerns to our compliance officer, including a toll-free telephone hotline. We believe that our compliance program meets the relevant standards provided by the Office of Inspector General of the HHS. An important part of our compliance program consists of conducting periodic reviews of various aspects of our operations. Our compliance program also contemplates mandatory education programs designed to familiarize our employees with the regulatory requirements and specific elements of our compliance program.

EMPLOYEES

As of August 31, 2009, we had approximately 1,110 full-time and 450 part-part time employees. None of our employees is covered by a collective bargaining agreement. Management believes its employee relations to be satisfactory.

FORWARD-LOOKING STATEMENTS DISCLOSURE

This Form 10-K includes “forward-looking statements.” Forward-looking statements include statements concerning our plans, objectives, goals, strategies, future events, future revenues or performance, capital projects, financing needs, debt repurchases, plans or intentions relating to asset dispositions, acquisitions and new fixed-site developments, competitive strengths and weaknesses, business strategy and the trends that we anticipate in the industry and economies in which we operate and other information that is not historical information. When used in this Form 10-K the words “estimates,” “expects,” “anticipates,” “projects,” “plans,” “intends,” “believes,” and variations of such words or similar expressions are intended to identify forward-looking statements. All forward-looking statements, including, without limitation, our examination of historical operating trends, are based upon our current expectations and various assumptions. Our expectations, beliefs and projections are expressed in good faith, and we believe there is a reasonable basis for them, but we can give no assurance that our expectations, beliefs and projections will be realized.

There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in this Form 10-K. Important factors that could cause our actual results to differ materially from the forward-looking statements made in this Form 10-K are set forth in this Form 10-K, including the factors described in Item 1A. “Risk Factors” below and the following:


	•	our ability to successfully implement our core market strategy;

	•	overcapacity and competition in our markets;

	•	reductions, limitations and delays in reimbursement by third-party payors;

	•	contract renewals and financial stability of customers;

	•	changes in the nature of commercial health care insurance arrangements, so that individuals bear greater financial responsibility through high deductible plans, co-insurance and co-payments;

	•	conditions within the healthcare environment;

	•	the potential for rapid and significant changes in technology and their effect on our operations;

	•	operating, legal, governmental and regulatory risks;

	•	conditions within the capital markets, including liquidity and interest rates; and

	•	economic (including financial and employment markets), political and competitive forces affecting our business, and the country’s economic condition as a whole.

If any of these risks or uncertainties materializes, or if any of our underlying assumptions is incorrect, our actual results may differ significantly from the results that we express in or imply by any of our forward-looking statements. We disclaim any intention or obligation to update or revise forward-looking statements to reflect future events or circumstances.


ITEM 1A.	*RISK FACTORS*

In addition to the other information contained in this Form 10-K, the following risk factors should be carefully considered. If any of these risks actually occurs, our financial condition and results of operations could be adversely affected.

RISKS RELATING TO OUR INDEBTEDNESS

Our substantial indebtedness could adversely affect our financial condition.

We have a substantial amount of debt, which requires significant interest and principal payments. As of June 30, 2009, we had total indebtedness of approximately $298.2 million in aggregate principal amount. In addition, subject to the restrictions contained in the indenture governing the floating rate notes and in our other debt instruments, we may be able to incur additional indebtedness from time to time to finance working capital, capital projects, investments or acquisitions, or for other purposes. If we do so, the risks related to our high level of debt could intensify. Specifically, our high level of debt could have important consequences, including the following:


	•	making it more difficult for us to satisfy our obligations with respect to the floating rate notes and our other debt;

	•	limiting our ability to obtain additional financing to fund future working capital, capital projects, acquisitions or other general corporate requirements;

	•	requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes;

	•	increasing our vulnerability to general adverse economic and industry conditions;

	•	limiting our flexibility in planning for, or reacting to, changes in our business and the markets in which we operate;

	•	placing us at a competitive disadvantage compared to our competitors that have stronger capital structures, more flexibility in operating their businesses and greater access to capital; and

	•	increasing our cost of borrowing.

We may be unable to service our debt.

Our ability to make scheduled payments on or to refinance our obligations with respect to our debt, including, but not limited to, the floating rate notes, will depend on our financial and operating performance, which will be affected by general economic, financial, competitive, business and other factors beyond our control. We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us in an amount sufficient to enable us to service our debt, including, but not limited to, the floating rate notes, or to fund our other liquidity needs.

If we are unable to meet our debt obligations or fund our other liquidity needs, we may need to sell certain of our assets, restructure or refinance all or a portion of our debt on or before maturity, including, but not limited to, the floating rate notes, or sell. The floating rate notes mature in November 2011 and unless our financial performance significantly improves, we can give no assurance that we will be able to refinance the floating rate notes on commercially reasonable terms, if at all.

Our operations may be restricted by the terms of our debt, which could adversely affect us and increase our credit risk.

The agreements governing our material indebtedness include a number of significant restrictive covenants. These covenants could adversely affect us, and adversely affect investors, by limiting our ability to plan for or react to market conditions or to meet our capital needs. These covenants, among other things, restrict our ability to:


	•	incur more debt;

	•	create liens;

	•	pay dividends and make distributions or repurchase stock;

	•	make certain investments;

	•	merge, consolidate or transfer or sell assets; and

	•	engage in transactions with affiliates.

A breach of a covenant or other provision in any debt instrument governing our current or future indebtedness could result in a default under that instrument and, due to cross-default and cross-acceleration provisions, could result in a default under our other debt instruments. Upon the occurrence of an event of default under our debt instruments, the lenders may be able to elect to declare all amounts outstanding to be immediately due and payable and terminate all commitments to extend further credit. If we are unable to repay those amounts, the lenders could proceed against the collateral granted to them, if any, to secure the indebtedness. If the lenders under our current or future indebtedness accelerate the payment of the indebtedness, we can give no assurance that our assets or cash flow would be sufficient to repay in full our outstanding indebtedness. Substantially all of our assets, other than those assets consisting of accounts receivables and related assets or cash accounts related to receivables, which secure our credit facility, and a portion of InSight’s stock and the stock of its subsidiaries, are subject to the liens in favor of the holders of the floating rate notes. This may further limit our flexibility in obtaining secured or unsecured financing in the future.

We may not have sufficient funds to purchase all outstanding floating rate notes and our other debt upon a change of control.

Upon a change of control, we will be required to make an offer to purchase all outstanding floating rate notes at a price equal to 101% of their principal amount plus accrued and unpaid interest. Under the terms of the indenture for the floating rate notes, a change of control includes, among things, if a person or group becomes directly or indirectly the beneficial owner of 35% or more of Holdings’ common stock. We believe that as of September 15, 2009, one person holds beneficial ownership in excess of 20% of Holdings’ common stock and another holds beneficial ownership in excess of 10% of Holdings’ common stock. Because of the low trading price of our common stock, $0.05, as of June 30, 2009, a person or group may be able to acquire 35% or more of Holdings’ common stock for a relatively small amount of money. We cannot assure you that we will have or will be able to borrow sufficient funds at the time of any change of control to make any required purchases of such notes or our other debt. If we failed to make a change of control offer and to purchase all of the tendered notes, it would constitute an event of default under the indenture for the floating rate notes, and potentially, other debt. Any future credit arrangements or other debt agreements to which we become party may contain similar agreements.

If there is a default under the agreements governing our material indebtedness, the value of our assets may not be sufficient to repay our creditors.

Our property and equipment (other than land, building and leasehold improvements and assets securing our capital lease obligations), which make up a significant portion of our tangible assets, had a net book value as of June 30, 2009 of approximately $69.8 million. The book value of these assets should not be relied on as a measure of realizable value for such assets. The realizable value of our assets may be greater or lower than such net book value. The value of our assets in the event of liquidation will depend upon market, credit and economic conditions, the availability of buyers and similar factors. A sale of these assets in a bankruptcy or similar proceeding would likely be made under duress, which would reduce the amounts that could be recovered. Furthermore, such a sale could

occur when other companies in our industry also are distressed, which might increase the supply of similar assets and therefore reduce the amounts that could be recovered. Our intangible assets had a net book value as of June 30, 2009 of approximately $24.9 million. As a result, in the event of a default under the agreements governing our material indebtedness or any bankruptcy or dissolution of our company, the realizable value of these assets will likely be substantially lower and may be insufficient to satisfy the claims of our creditors.

The condition of our assets will likely deteriorate during any period of financial distress preceding a sale of our assets. In addition, a material amount of our assets consist of illiquid assets that may have to be sold at a substantial discount in an insolvency situation.

Accordingly, the proceeds of any such sale of our assets may not be sufficient to satisfy, and may be substantially less than, amounts due to our creditors.

We may be unable to obtain necessary capital to finance certain projects or refinance our existing indebtedness because of conditions in the financial markets and economic conditions generally.

Our ability to obtain necessary capital is affected by conditions in the financial markets and economic conditions generally. Slowing growth, contraction of credit, increasing energy prices, declines in business or investor confidence or risk tolerance, increases in inflation, higher unemployment, outbreaks of hostilities or other geopolitical instability, corporate, political or other scandals that reduce investor confidence in capital markets and natural disasters, among other things, can affect the financial markets and economic conditions generally. If we are unable to obtain sufficient capital at commercially reasonable rates, we may be unable to fund certain capital projects or refinance our existing indebtedness, including the floating rate notes or (ii) fund certain capital projects, which may erode our competitive positions in various markets.

Increases in interest rates could adversely affect our financial condition and results of operations.

An increase in prevailing interest rates would have an immediate effect on the interest rates charged on our variable rate indebtedness, which rise and fall upon changes in interest rates. At June 30, 2009, approximately 98% of our indebtedness was variable rate indebtedness. We have an interest rate collar contract that expires in February 2010, with a notional amount of $190 million with a LIBOR cap of 3.25% and a LIBOR floor of 2.59%. As a result of this contract our exposure on variable rate indebtedness was reduced by $190 million, or to approximately 35% as of June 30, 2009. We have also entered into an agreement that caps $190 million of our variable rate exposure to a maximum LIBOR margin of 3% between February 1, 2010 and January 31, 2011. Increases in interest rates could also impact the refinancing of our existing indebtedness, including the floating rate notes. Moreover, the increased interest expense would adversely affect our cash flow and our ability to service our indebtedness. As a protection against rising interest rates, we may enter into agreements such as interest rate swaps, caps, floors and other interest rate exchange contracts. These agreements, however, subject us to the risk that the other parties to the agreements may not perform their obligations thereunder or that the agreements could be unenforceable.

RISKS RELATING TO OUR BUSINESS

Changes in the rates or methods of third-party reimbursements for our services could result in reduced demand for our services or create downward pricing pressure, which would result in a decline in our revenues and adversely affect our financial condition and results of operations.

For fiscal 2009, we derived approximately 54% of our revenues from direct billings to patients and third-party payors such as Medicare, Medicaid, managed care and private health insurance companies. Certain third-party payors have proposed and implemented changes in the methods and rates of reimbursement that have had the effect of substantially decreasing reimbursement for diagnostic imaging services that we provide. Moreover, our healthcare provider customers, which provided approximately 46% of our revenues during fiscal 2009, generally rely on reimbursement from third-party payors. To the extent our healthcare provider customers’ reimbursement from third-party payors is reduced, it will likely have an adverse impact on the rates they pay us as they would seek to offset such decreased reimbursement rates. Furthermore, many commercial health care insurance arrangements are changing, so that individuals bear greater financial responsibility through high deductible plans, co-insurance and higher co-payments, which may result in patients delaying or foregoing medical procedures. We expect that any

further changes to the rates or methods of reimbursement for our services, whether directly through billings to third-party payors or indirectly through our healthcare provider customers, will result in a further decline in our revenues and adversely affect our financial condition and results of operations. See our discussion regarding reimbursement changes in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Reimbursement”.

Negative trends could continue to adversely affect our financial condition and results of operations.

As a result of the various factors that affect our industry generally and our business specifically, we have experienced declines in Adjusted EBITDA as compared to prior year periods (see our definition of Adjusted EBITDA and reconciliation of net cash provided by operating activities to Adjusted EBITDA in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition, Liquidity and Capital Resources”). Our Adjusted EBITDA for fiscal 2009, declined approximately 1.2% as compared to our Adjusted EBITDA for the year ended June 30, 2008. Our Adjusted EBITDA declined approximately 33.1% for the year ended June 30, 2008 as compared to the year ended June 30, 2007. We have had a negative historical trend of declining Adjusted EBITDA for the past five fiscal years, which may continue and be exacerbated by negative effects of the recession and the reimbursement reductions discussed in the subsection entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Reimbursement”.

If we are unable to renew our existing customer contracts on favorable terms or at all, our financial condition and results of operations would be adversely affected.

Our financial condition and results of operations depend on our ability to sustain and grow our revenues from existing customers. Our revenues would decline if we are unable to renew our existing customer contracts on favorable terms. For our mobile facilities, we generally enter into contracts with hospitals having one to five year terms. A significant number of our mobile contracts will expire each year. To the extent we do not renew a customer contract it is not always possible to immediately obtain replacement customers. Historically, many replacement customers have been smaller, with lower procedural volumes. Recent competitive pressures have resulted in a lower than normal success rate in replacing lost revenues. In addition, attractive financing from equipment manufacturers, as well as attractive gross margins have caused hospitals and physician groups who have utilized mobile services from our company and our competitors to purchase and operate their own equipment. Although reimbursement reductions may dissuade physician groups from operating their own equipment, we expect that some high volume customer accounts will continue to elect not to renew their contracts with us and instead acquire their own diagnostic imaging equipment. As a result of the age of our imaging equipment, we may not be able to renew contracts of existing customers or attract new customers on favorable terms. This would adversely affect our financial condition and results of operations.

We have experienced, and will continue to experience, competition from hospitals, physician groups and other diagnostic imaging companies and this competition could adversely affect our financial condition and results of operations.

The healthcare industry in general and the market for diagnostic imaging services in particular, is highly competitive and fragmented, with only a few national providers. We compete principally on the basis of our service reputation, equipment, breadth of managed care contracts and convenient locations. Our operations must compete with hospitals, physician groups and certain other independent organizations, including equipment manufacturers and leasing companies that own and operate imaging equipment. We have encountered and we will continue to encounter competition from hospitals and physician groups that purchase their own diagnostic imaging equipment. Some of our direct competitors may have access to greater financial resources than we do. If we are unable to successfully compete, our customer base would decline and our financial condition and results of operations would be adversely affected.

Our failure to effectively integrate acquisitions and establish joint venture arrangements through partnerships with hospitals and other healthcare providers could impair our business.

As part of our core market strategy, we have pursued, and may continue to pursue, selective acquisitions and arrangements through partnerships and joint ventures with hospitals and other healthcare providers. Acquisitions and joint ventures require substantial capital which may exceed the funds available to us from internally generated funds and our available financing arrangements. We may not be able to raise any necessary additional funds through bank or equipment vendor financing or through the issuance of equity or debt securities on terms acceptable to us, if at all.

Additionally, acquisitions involve the integration of acquired operations with our operations. Integration involves a number of risks, including:


	•	demands on management related to the increase in our size after an acquisition;

	•	the diversion of our management’s attention from daily operations to the integration of operations;

	•	integration of information systems;

	•	risks associated with unanticipated events or liabilities;

	•	difficulties in the assimilation and retention of employees;

	•	potential adverse effects on operating results;

	•	challenges in retaining customers and referral sources; and

	•	amortization or write-offs of acquired intangible assets.

If we do not successfully identify, complete and integrate our acquisitions, we may not realize anticipated operating advantages, economies of scale and cost savings. Also, we may not be able to maintain the levels of operating efficiency that the acquired companies would have achieved or might have achieved separately. Successful integration of acquisitions will depend upon our ability to manage their operations and to eliminate excess costs.

Our efforts to implement initiatives to enhance revenues and reduce costs may not be adequate or successful.

We have attempted to implement, and will continue to develop and implement, various revenue enhancement, revenue cycle management and cost reduction initiatives. Revenue enhancement initiatives will focus on our sales and marketing efforts to maintain or improve our procedural volume and contractual rates, and our InSight Imaging Solutions initiative. Revenue cycle management initiatives have and will continue to focus on collections at point of service for patients with commercial insurance, technology improvements to create greater efficiency in the gathering of patient and claim information when a procedure is scheduled or completed, and our initiative with Perot Systems Corporation. Cost reduction initiatives have and will continue to focus on streamlining our organizational structure and expenses including enhancing and leveraging our technology to create greater efficiencies, and leveraging relationships with strategic vendors. While we have experienced some improvements through our revenue cycle management and cost reduction initiatives, our revenue enhancement initiatives have produced minimal improvements to date. Moreover, future revenue enhancement initiatives will face significant challenges because of the continued overcapacity in the diagnostic imaging industry, reimbursement reductions and the effects of the country’s recession, including higher unemployment. The adequacy and ultimate success of our initiatives cannot be assured.

Consolidation in the imaging industry could adversely affect our financial condition and results of operations.

We compete with several national and regional providers of diagnostic imaging services, as well as local providers. As a result of the reimbursement reductions by Medicare and other third-party payors, some of these competitors may consolidate their operations in order to obtain certain cost structure advantages and improve

equipment utilization. Certain of our competitors have certain advantages over us including larger financial and business resources, economies of scale, breadth of service offerings, and favored relationships with equipment vendors, hospital systems, leading radiologists and third-party payors. We may be forced to exit certain markets, reduce our prices or provide state-of-the-art equipment in order to retain and attract customers. These pressures could adversely affect our financial condition and results of operations.

Failure to attract and retain qualified employees and contracted radiologists could hinder our business strategy and negatively impact our financial condition and results of operations.

Our future success depends on our continuing ability to identify, hire or contract with, develop, motivate and retain highly skilled persons for all areas of our organization, including senior executives and contracted radiologists. Competition in our industry for qualified employees is intense. There is a very high demand for qualified technologists, particularly MRI, PET and PET/CT technologists, and we may not be able to hire and retain a sufficient number of technologists. Failure to attract and retain qualified employees and contracted radiologists could hinder our business strategy and negatively impact our financial condition and results of operations.

Managed care organizations may limit healthcare providers from using our services, causing us to lose procedural volume.

Our fixed-site centers are dependent on our ability to attract referrals from physicians and other healthcare providers representing a variety of specialties. Our eligibility to provide services in response to a referral is often dependent on the existence of a contractual arrangement with the referred patient’s managed care organization. Despite having a large number of contracts with managed care organizations, healthcare providers may be inhibited from referring patients to us in cases where the patient is not associated with one of the managed care organizations with which we have contracted. A significant decline in referrals would have a material adverse effect on our financial condition and results of operations.

Technological change in our industry could reduce the demand for our services and our ability to maintain a competitive position.

We operate in a competitive, capital intensive, high fixed-cost industry. The development of new technologies or refinements of existing ones have made and continue to make our existing systems technologically or economically obsolete, or reduce the need for our systems. Competition among manufacturers has resulted in and likely will continue to result in technological advances in the speed and imaging capacity of new systems. Consequently, the obsolescence of our systems may be accelerated. Other than ultra-high field MRI systems and 256-slice CT systems, we are aware of no substantial technological changes; however, should such changes occur, we may not be able to acquire the new or improved systems. In the future, to the extent we are unable to generate sufficient cash from our operations or obtain additional funds through bank or equipment vendor financing, the issuance of equity or debt securities, and operating leases, we may be unable to maintain a competitive equipment base. In addition, advancing technology may enable hospitals, physicians or other diagnostic imaging service providers to perform procedures without the assistance of diagnostic imaging service providers such as ourselves. As a result of the age of our imaging equipment, we may not be able to maintain our competitive position in our core markets or expand our business.

Because a high percentage of our operating expenses are fixed, a relatively small decrease in revenues could have a significant negative impact on our financial condition and results of operations.

A high percentage of our expenses are fixed, meaning they do not vary significantly with the increase or decrease in revenues. Such expenses include, but are not limited to, debt service, lease payments, depreciation and amortization, salaries and benefit obligations, equipment maintenance expenses, insurance and vehicle operations costs. As a result, a relatively small reduction in the prices we charge for our services or procedural volume could have a disproportionate negative effect on our financial condition and results of operations.

We may be subject to professional liability risks which could be costly and negatively impact our financial condition and results of operations.

We have not experienced any material losses due to claims for malpractice. However, claims for malpractice have been asserted against us in the past and any future claims, if successful, could entail significant defense costs and could result in substantial damage awards to the claimants, which may exceed the limits of any applicable insurance coverage. Successful malpractice claims asserted against us, to the extent not covered by our liability insurance, could have a material adverse effect on our financial condition and results of operations. In addition to claims for malpractice, there are other professional liability risks to which we are exposed through our operation of diagnostic imaging systems, including liabilities associated with the improper use or malfunction of our diagnostic imaging equipment.

To protect against possible professional liability from malpractice claims, we maintain professional liability insurance in amounts that we believe are appropriate in light of the risks and industry practice. However, if we are unable to maintain insurance in the future at an acceptable cost or at all or if our insurance does not fully cover us in the event a successful claim was made against us, we could incur substantial losses. Any successful malpractice or other professional liability claim made against us not fully covered by insurance could be costly to defend against, result in a substantial damage award against us and divert the attention of our management from our operations, which could have a material adverse effect on our financial condition and results of operations.

Our PET and PET/CT service and some of our other imaging services require the use of radioactive materials, which could subject us to regulation, related costs and delays and potential liabilities for injuries or violations of environmental, health and safety laws.

Our PET and PET/CT services and some of our other imaging services require the use of radioactive materials to produce images. While this radioactive material has a short half-life, meaning it quickly breaks down into non-radioactive substances, storage, use and disposal of these materials present the risk of accidental environmental contamination and physical injury. We are subject to federal, state and local regulations governing storage, handling and disposal of these materials and waste products. Although we believe that our safety procedures for storing, handling and disposing of these hazardous materials comply with the standards prescribed by law and regulation, we cannot completely eliminate the risk of accidental contamination or injury from those hazardous materials. In the event of an accident, we would be held liable for any resulting damages, and any liability could exceed the limits of or fall outside the coverage of our insurance. In addition, we may not be able to maintain insurance on acceptable terms, or at all. We could incur significant costs in order to comply with current or future environmental, health and safety laws and regulations which would adversely affect our financial condition and results of operations.

We may not receive payment from some of our healthcare provider customers because of their financial circumstances.

Some of our healthcare provider customers do not have significant financial resources, liquidity or access to capital. If these customers experience financial difficulties they may be unable to pay us for the equipment and services that we provide. We have experienced, and expect to continue to experience, write-offs of accounts receivables from healthcare provider customers that become insolvent, file for bankruptcy or are otherwise unable to pay amounts owed to us. A significant deterioration in general or local economic conditions could have a material adverse affect on the financial health of certain of our healthcare provider customers. As a result, we may have to increase the amounts of accounts receivables that we write-off, which would adversely affect our financial condition and results of operations.

We may be unable to generate revenue when our equipment is not operational.

Timely, effective service is essential to maintaining our reputation and utilization rates on our imaging equipment. Our warranties and maintenance contracts do not compensate us for the loss of revenue when our systems are not fully operational. Equipment manufacturers may not be able to perform repairs or supply needed parts in a timely manner. Thus, if we experience more equipment malfunctions than anticipated or if we are unable

to promptly obtain the service necessary to keep our equipment functioning effectively, our financial condition and results of operations would be adversely affected.

Natural disasters and harsh weather conditions could adversely affect our business and operations.

Our corporate headquarters, including our information technology center, and a material number of our fixed-site centers are located in California, which has a high risk for natural disasters, including earthquakes and wildfires. Depending upon its severity, a natural disaster could severely damage our facilities or our information technology system, interrupt our business or prevent potential patients from traveling to our centers, each of which would adversely affect our financial condition and results of operations. We currently do not maintain a secondary disaster recovery facility for our information technology system. In addition, while we presently carry earthquake and business interruption insurance in amounts we believe are appropriate in light of the risks, the amount of our earthquake insurance coverage may not be sufficient to cover losses from earthquakes. We may discontinue some or all of this insurance coverage on some or all of our centers in the future if the cost of premiums exceeds the value of the coverage discounted for the risk of loss. If we experience a loss which is uninsured or which exceeds policy limits, we could lose the capital invested in the damaged centers as well as the anticipated future cash flows from those centers.

To the extent severe weather patterns affect the regions in which we operate (e.g., hurricanes and snow storms), potential patients may find it difficult to travel to our centers and we may have difficulty moving our mobile facilities along their scheduled routes. As a result, we would experience a decrease in procedural volume during that period. Accordingly, harsh weather conditions could adversely impact our financial condition and results of operations.

High fuel costs would adversely affect our financial condition and results of operations.

Fuel costs constitute a significant portion of our mobile operating expenses. Historically, fuel costs have been subject to wide price fluctuations based on geopolitical issues and supply and demand. Fuel availability is also affected by demand for home heating oil, diesel, gasoline and other petroleum products. Because of the effect of these events on the price and availability of fuel, the cost and future availability of fuel cannot be predicted with any degree of certainty. In the event of a fuel supply shortage or further increases in fuel prices, we may need to curtail certain mobile routes or redeploy our mobile facilities. There have been significant fluctuations in fuel costs and any further increases to already high fuel costs would adversely affect our financial condition and results of operations.

If we fail to comply with various licensure, certification and accreditation standards we may be subject to loss of licensure, certification or accreditation which would adversely affect our financial condition and results of operations.

All of the states in which we operate require that technologists who operate our CT, PET/CT and PET systems be licensed or certified. Also, each of our fixed-site centers must continue to meet various requirements in order to receive payments from Medicare. In addition, our mobile facilities are currently accredited by The Joint Commission, formerly the Joint Commission on Accreditation of Healthcare Organizations, an independent, non-profit organization that accredits various types of healthcare providers, such as hospitals, nursing homes, outpatient ambulatory care centers and diagnostic imaging providers. If we were to lose such accreditation for our mobile facilities, it could adversely affect our mobile operations because some of our mobile customer contracts require accreditation by The Joint Commission and one of our primary competitors has such accreditation.

Managed care providers prefer to contract with accredited organizations. Any lapse in our licenses, certifications or accreditations, or those of our technologists, or the failure of any of our fixed-site centers to satisfy the necessary requirements under Medicare could adversely affect our financial condition and results of operations.

RISKS RELATING TO GOVERNMENT REGULATION OF OUR BUSINESS

Complying with federal and state regulations pertaining to our business is an expensive and time-consuming process, and any failure to comply could result in substantial penalties and adversely affect our ability to operate our business and our financial condition and results of operations.

We are directly or indirectly through our customers subject to extensive regulation by both the federal government and the states in which we conduct our business, including:


	•	the federal False Claims Act;

	•	the federal Medicare and Medicaid Anti-kickback Law, and state anti-kickback prohibitions;

	•	the federal Civil Money Penalty law;

	•	the Health Insurance Portability and Accountability Act of 1996 and other state and federal legislation dealing with patient privacy;

	•	the federal physician self-referral prohibition commonly known as the Stark Law and the state law equivalents of the Stark Law;

	•	state laws that prohibit the practice of medicine by non-physicians, and prohibit fee-splitting arrangements involving physicians;

	•	Food and Drug Administration requirements;

	•	state licensing and certification requirements, including certificates of need; and

	•	federal and state laws governing the diagnostic imaging equipment used in our business concerning patient safety, equipment operating specifications and radiation exposure levels.

If our operations are found to be in violation of any of the laws and regulations to which we or our customers are subject, we may be subject to the applicable penalty associated with the violation, including civil and criminal penalties, damages, fines, exclusion from Medicare, Medicaid or other governmental programs and the curtailment of our operations. Any penalties, damages, fines or curtailment of our operations, individually or in the aggregate, could adversely affect our ability to operate our business and our financial condition and results of operations. The risks of our being found in violation of these laws and regulations is increased by the fact that many of them have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Any action brought against us for violation of these laws or regulations, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. Moreover, if we are unsuccessful in defending against such action, the imposition of certain penalties would adversely affect our financial condition and results of operations. If we were excluded from Medicare, Medicaid or other governmental programs, not only would we lose the revenues associated with such payors, but we anticipate that our other customers and partners would terminate their contracts or relationships with us.

The regulatory and political framework is uncertain and evolving.

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

President Obama and the 111th Congress have made significant proposals affecting the healthcare industry. We are unable to predict whether any of their proposals will be implemented or in what form, whether any additional or similar changes to statutes or regulations (including interpretations), will occur in the future, or what effect any legislation or regulation would have on our business. We do believe, however, that the federal government

will likely have greater involvement in the healthcare industry than in prior years, and such greater involvement may adversely affect our financial condition and results of operations. See our discussion regarding certain potential changes in “Management’s Discussion and Analysis and Results of Operation — Reimbursement”.

RISKS RELATED TO RELATIONSHIPS WITH STOCKHOLDERS, AFFILIATES AND RELATED PARTIES

A small number of stockholders may control a significant portion of Holdings’ common stock.

A significant portion of Holdings’ outstanding common stock is held by a small number of holders. We believe that as of September 18, 2009, one person holds beneficial ownership in excess of 20% of Holdings’ common stock and another holds beneficial ownership in excess of 10% of Holdings’ common stock. As a result, these stockholders will have significant voting power with respect to the ability to:


	•	authorize additional shares of Holdings’ capital stock;

	•	amend Holdings’ certificate of incorporation or bylaws;

	•	elect Holdings’ directors; or

	•	effect or reject a merger, sale of assets or other fundamental transaction.

The extent of ownership by these stockholders may also discourage a potential acquirer from making an offer to acquire us. This could reduce the value of Holdings’ common stock.


ITEM 2.	*PROPERTIES*

As of September 15, 2009, we lease approximately 42,000 square feet of office space for our corporate headquarters at 26250 Enterprise Court, Lake Forest, California 92630; however, in April, 2010, this lease will be reduced to approximately 30,000 square feet. The lease for this location expires in 2013.

As of September 15, 2009, in addition to our corporate headquarters we leased approximately 59 facilities or offices and owned one facility. A substantial majority of these facilities and offices were in the following states: California, Arizona, Texas, Maine and Virginia.


ITEM 3.	*LEGAL PROCEEDINGS*

We are engaged from time to time in the defense of lawsuits arising out of the ordinary course and conduct of our business and have insurance policies covering such potential insurable losses where such coverage is cost-effective. We believe that the outcome of any such lawsuits will not have a material adverse impact on our financial condition and results of operations.


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

None.

PART II


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

Holdings’ common stock is listed on the Over-The-Counter Bulletin Board, or the OTCBB, under the symbol “ISGT”. As of September 15, 2009, there were six record holders of Holdings’ common stock and we believe approximately 350 beneficial holders of Holdings’ common stock. Holdings’ has never paid a cash dividend on its common stock and does not expect to do so in the foreseeable future. The agreements governing our material indebtedness contain restrictions on Holdings’ ability to pay dividends on its common stock.

The following table sets forth the high and low prices as reported by the OTCBB for Holdings’ common stock for the quarters indicated. Holdings’ common stock began trading on the OTCBB on August 3, 2007. The prices represent quotations between dealers without adjustment for mark-up, mark-down or commission, and may not necessarily represent actual transactions.


	2009				2008
	Low		High		Low		High

First Quarter	$	0.08	$	0.63	$	4.00	$	12.50
Second Quarter		0.01		0.20		3.00		9.00
Third Quarter		0.02		0.55		0.75		3.25
Fourth Quarter		0.03		0.28		0.25		1.01


ITEM 6.	*SELECTED FINANCIAL DATA*

The selected consolidated financial data presented as of, and for the year ended, June 30, 2009, the eleven months ended June 30, 2008, the one month ended July 31, 2008, and the years ended June 30, 2007, 2006 and 2005 has been derived from our audited consolidated financial statements. The information in the following table should be read together with our audited consolidated financial statements and related notes, and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included elsewhere in this Form 10-K.

On August 1, 2007, we implemented fresh-start reporting in accordance with American Institute of Certified Public Accountants’ Statement of Position 90-7, “Financial Reporting by Entities in Reorganization under the Bankruptcy Code”, or SOP 90-7. The provisions of fresh-start reporting required that we revalue our assets and liabilities to fair value, reestablish stockholders’ equity and record any applicable reorganization value in excess of amounts allocable to identifiable assets as an intangible asset. Under fresh-start reporting, our asset values are remeasured using fair value, and are allocated in conformity with Statement of Financial Accounting Standards (SFAS) No. 141, “Business Combinations”, or SFAS 141. Fresh-start reporting also requires that all liabilities, other than deferred taxes, should be stated at fair value or at the present value of the amounts to be paid using appropriate market interest rates. Deferred taxes are determined in conformity with SFAS No. 109, “Accounting for Income Taxes.”

References to “Successor” refer to our company on or after August 1, 2007, after giving effect to (1) the cancellation of Holdings’ common stock prior to the effective date; (2) the issuance of new Holdings’ common stock in exchange for all of InSight’s senior subordinated notes and the cancelled Holdings’ common stock; and (3) the application of fresh-start reporting. References to “Predecessor” refer to our company prior to August 1, 2007.



	Successor						Predecessor
	Year			Eleven Months			One Month
	Ended			Ended			Ended
	June 30,			June 30,			July 31,		Years Ended June 30,
	2009			2008			2007		2007			2006			2005
	(Amounts in thousands)
STATEMENT OF OPERATIONS DATA:
Revenues	$	229,250		$	242,585		$	22,362	$	286,914		$	306,298		$	316,873
Costs of operations		216,212			237,031			20,550		261,426			271,272			268,157
Interest expense, net		30,164			32,480			2,918		52,780			50,754			44,860
Net (loss) income(1)(2)(3)		(19,754	)		(169,185	)		196,326		(99,041	)		(210,218	)		(27,217	)
Net (loss) income per common share:
Basic	$	(2.29	)	$	(19.57	)	$	227.23	$	(114.63	)	$	(243.31	)	$	(31.50	)
Diluted		(2.29	)		(19.57	)		227.23		(114.63	)		(243.31	)		(31.50	)



	June 30,						June 30,
	2009			2008			2007			2006			2005
BALANCE SHEET DATA:
Working capital	$	17,475		$	28,207		$	24,567		$	34,550		$	36,068
Property and equipment, net		79,837			113,684			144,823			181,026			209,461
Goodwill and other intangible assets		24,878			24,370			95,084			125,936			314,989
Total assets		176,124			217,691			323,051			408,204			624,523
Total long-term liabilities		292,299			312,915			517,200			504,360			512,608
Stockholders’ (deficit) equity		(153,922	)		(130,712	)		(241,432	)		(141,893	)		67,724


(1)		No cash dividends have been paid on Holdings’ common stock for the periods indicated above.

(2)		Includes impairment charges related to our other intangible assets of approximately $4.6 million for fiscal 2009, goodwill and other intangible assets of approximately $119.8 million for the eleven months ended June 30, 2008, goodwill of approximately $29.6 million for the year ended June 30, 2007, and goodwill and other intangible assets of approximately $190.8 million for the year ended June 30, 2006.

(3)		Includes reorganization items, net of approximately $199.0 million of income for the one month ended July 31, 2007 and approximately $17.5 million of expense for the year ended June 30, 2007, respectively.


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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and accompanying notes which appear elsewhere in this Form 10-K. It contains forward-looking statements that reflect our plans, estimates and beliefs, and which involve risks, uncertainties and assumptions. Please see “Forward-Looking Statements Disclosure” for more information. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Form 10-K, particularly under the headings “Forward-Looking Statements Disclosure” and Item 1A. “Risk Factors”.

Overview

As of June 30, 2009, our network consists of 61 fixed-site centers and 112 mobile facilities. This combination allows us to provide a full range of imaging services to better meet the varying needs of our customers. Our fixed-site centers include freestanding centers and joint ventures with hospitals and radiology groups. Our mobile facilities provide hospitals and physician groups access to imaging technologies when they lack either the resources or patient volume to provide their own imaging services or require incremental capacity. We do not engage in the practice of medicine, instead we contract with radiologists to provide professional services, including supervision, interpretation and quality assurance. We have two reportable segments: mobile operations and fixed operations. Our 61 fixed-site centers include three parked mobile facilities, each of which serves a single customer. These parked mobile facilities are included in our mobile operations. Of our 112 mobile facilities, three mobile facilities are included as part of our fixed operations in Maine because they primarily generate retail revenues similar to our other fixed-site centers.

The diagnostic imaging industry has grown, and we believe will continue to grow, because of (1) an aging population, (2) the increasing acceptance of diagnostic imaging, particularly PET/CT and (3) expanding applications of CT, MRI and PET technologies. Notwithstanding the growth in the industry, as a result of the various factors that affect our industry generally and our business specifically, we have experienced declines in Adjusted EBITDA as compared to prior year periods (see our definition of Adjusted EBITDA and reconciliation of net cash provided by operating activities to Adjusted EBITDA in the subsection “Financial Condition, Liquidity and Capital Resources” below). Our Adjusted EBITDA for fiscal 2009 declined approximately 1.2% as compared to our Adjusted EBITDA for the year ended June 30, 2008. Our Adjusted EBITDA declined approximately 33.1% for the year ended June 30, 2008 as compared to the year ended June 30, 2007. We have had a negative historical trend of declining Adjusted EBITDA for the past five fiscal years, which may continue and be exacerbated by negative effects of the recession and the reimbursement reductions discussed in the subsection “Reimbursement” below.

We have implemented the following steps in an attempt to reverse the negative trend in Adjusted EBITDA:

Core Market Strategy. We have pursued a strategy based on core markets. We believe this strategy will allow us more operating efficiencies and synergies than are available in a nationwide strategy. A core market is based on many factors, including, without limitation, demographic and population trends, utilization and reimbursement rates, existing and potential market share, the potential for profitability and return on assets, competition within the surrounding area, regulatory restrictions, such as certificates of need, and potential for alignment with radiologists, hospitals or payors. This strategy has resulted in us exiting some markets while increasing our presence in others or

establishing new markets through acquisitions and dispositions. In implementing our core market strategy, we have taken the following actions:


	•	During the fiscal year ended June 30, 2008, we closed three fixed-site centers and sold seven fixed-site centers in California and our majority ownership interest in a joint venture that operated a fixed-site center in Ohio.

	•	During fiscal 2009, we sold eight fixed-site centers (six in California, one in Illinois and one in Tennessee), and equity interests in three joint ventures that operated five fixed-site centers (four in New York and one in California). In addition, we closed three fixed-site centers (two in California and one in Arizona) during fiscal 2009.

	•	During fiscal 2009, we acquired two fixed-site centers in Massachusetts and two fixed-site centers in Arizona.

	•	In July 2009, we sold two fixed-site centers in Pennsylvania.

Initiatives. We have attempted to implement, and will continue to develop and implement, various revenue enhancement, revenue cycle management and cost reduction initiatives:


	•	Revenue enhancement initiatives will focus on our sales and marketing efforts to maintain or improve our procedural volume and contractual rates, and our InSight Imaging Solutions initiative discussed below.

	•	Revenue cycle management initiatives have and will continue to focus on collections at point of service for patients with commercial insurance, technology improvements to create greater efficiency in the gathering of patient and claim information when a procedure is scheduled or completed, and the initiative with Perot Systems Corporation discussed below.

	•	Cost reduction initiatives have and will continue to focus on streamlining our organizational structure and expenses including enhancing and leveraging our technology to create greater efficiencies, and leveraging relationships with strategic vendors.

While we have experienced some improvements through our revenue cycle management and cost reduction initiatives, our revenue enhancement initiatives have produced minimal improvements to date. Moreover, future revenue enhancement initiatives will face significant challenges because of the continued overcapacity in the diagnostic imaging industry, reimbursement reductions and the effects of the country’s recession, including higher unemployment. Additional cost reduction initiatives have been identified and we expect to generate incremental savings in future periods including a reduction in our operating costs of approximately $1.0 million per quarter that we expect will be fully implemented by the end of calendar year 2009 as compared to the quarter ended June 30, 2009. These costs savings will be derived primarily from improved vendor cost management and suspension of our 401(k) matching contributions.

In February 2009, we entered into a seven-year agreement with Perot Systems Corporation to provide enhanced revenue cycle services and implementation of upgraded technology and IT services, which will provide new technology to manage our back-office billing and accounts receivable collections functions. As a result of this agreement we terminated certain employees and transitioned certain other employees to Perot Systems Corporation. We implemented the revenue cycle services in June 2009 and we expect to implement the new upgraded technology and IT services during the second half of fiscal year 2010. We estimate start-up costs of this initiative to be approximately $3.5 million (including approximately $3.0 million of capital expenditures), of which

approximately $1.6 million (including approximately $1.1 million of capital expenditure) was incurred during the year fiscal, 2009. We expect to experience significant operating cost savings and improved collection rates as a result of this initiative.

In addition to our traditional offerings of equipment and management services, we believe that we have the ability to offer packaged technology solutions to hospitals and other medical imaging services providers. Besides our traditional offerings, these customers would have the ability to choose from a broad spectrum of systems and services, including, but not limited to, image archiving and PACS services, patient registration portals, radiology information systems, revenue cycle management services, and financial and operational tools. We are launching this offering of solutions in fiscal 2010 under the name InSight Imaging Solutions.

Reorganization

On May 29, 2007, Holdings and InSight filed voluntary petitions to reorganize their business under chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware (Case No. 07-10700). The filing was in connection with a prepackaged plan of reorganization and related exchange offer. The other subsidiaries of Holdings were not included in the bankruptcy filing and continued to operate their business. On July 10, 2007, the bankruptcy court confirmed Holdings’ and InSight’s Second Amended Joint Plan of Reorganization pursuant to chapter 11 of the Bankruptcy Code. The plan of reorganization became effective and Holdings and InSight emerged from bankruptcy protection on August 1, 2007, or the effective date. Pursuant to the confirmed plan of reorganization and the related exchange offer, (1) all of Holdings’ common stock, all options for Holdings’ common stock and all of InSight’s senior subordinated notes were cancelled, and (2) holders of InSight’s senior subordinated notes and holders of Holdings’ common stock prior to the effective date received 7,780,000 and 864,444 shares of newly issued Holdings’ common stock, respectively, in each case after giving effect to a one for 6.326392 reverse stock split of Holdings’ common stock.

The reorganization significantly deleveraged our balance sheet and improved our projected cash flow after debt service. However, we still have a substantial amount of debt, which requires significant interest and principal payments. As of June 30, 2009, we had total indebtedness of approximately $298.2 million in aggregate principal amount, including InSight’s $293.5 million of senior secured floating rate notes. We believe that future net cash provided by operating and investing activities and our credit facility will be adequate to meet our operating cash and debt service requirements for at least the next twelve months. Nevertheless, the floating rate notes mature in November 2011 and unless our financial performance significantly improves, we can give no assurance that we will be able to refinance the floating rate notes on commercially reasonable terms, if at all.

Segments

We have two reportable segments, fixed operations and mobile operations:

Fixed Operations: Generally, our fixed operations consist of freestanding imaging centers which we refer to as fixed-site centers. Our fixed-site centers primarily generate patient services revenues from services billed, on a fee-for-service basis, directly to patients or third-party payors such as managed care organizations, Medicare, Medicaid, commercial insurance carriers and workers’ compensation funds, which we refer to as our retail operations. With respect to our retail operations we bear the direct risk of collections from third-party payors and patients. Revenues from our fixed operations have been and will continue to be driven by the growth in the diagnostic imaging industry and are dependent on our ability to:


	•	attract and maintain patient referrals from physician groups and hospitals;

	•	maximize procedural volume, which includes ensuring that a patient attends his or her scheduled procedure;

	•	appropriately billing and collecting directly from patients their share of the procedure charge (i.e., co-payment, co-insurance and/or deductible);

	•	maintain our existing contracts and enter into new ones with managed care organizations and commercial insurance carriers; and

	•	acquire or develop new fixed-site centers.

Mobile Operations: Our mobile operations consist of mobile facilities, which provide services to hospitals, physician groups and other healthcare providers. Our mobile operations primarily generate contract services revenues from fee-for-service arrangements and fixed-fee contracts billed directly to our healthcare provider customers, which we refer to as our wholesale operations. With respect to our wholesale operations we do not bear direct risk of collections from third-party payors or patients. Revenues from our mobile operations have been and will continue to be driven by the growth in the diagnostic imaging industry and are dependent on our ability to:


	•	establish new mobile customers within our core markets;

	•	structure efficient mobile routes that maximize equipment utilization and reduce vehicle operations costs;

	•	timely collect payments from our mobile customers some of which face financial liquidity and stability concerns; and

	•	renew existing contracts with our mobile customers.

Negative Trends

Our operations have been and will continue to be adversely affected by the following negative trends:


	•	overcapacity in the diagnostic imaging industry;

	•	reductions in reimbursement from certain third-party payors including Medicare;

	•	reductions in compensation paid by our mobile customers;

	•	shifting of health care costs from private insurers and employers to patients, who may elect to delay or forego medical procedures;

	•	lower revenues due to our aging equipment in both of our operating segments;

	•	competition from other mobile and fixed-site providers;

	•	competition from equipment manufacturers;

	•	loss of revenues from former referral sources that invested in their own diagnostic imaging equipment; and

	•	loss of revenues from former mobile customers that invested in their own diagnostic imaging equipment.

Recently, we have experienced an increase in the number of our idle mobile systems due to competition and a decline in demand for our mobile systems.

Reimbursement

Medicare. The Medicare program provides reimbursement for hospitalization, physician, diagnostic and certain other services to eligible persons 65 years of age and over and certain other individuals. Providers are paid by the federal government in accordance with regulations promulgated by the HHS and generally accept the payment with nominal deductible and co-insurance amounts required to be paid by the service recipient, as payment in full. Hospital inpatient services are reimbursed under a prospective payment system. Hospitals receive a specific prospective payment for inpatient treatment services based upon the diagnosis of the patient.

Under Medicare’s prospective payment system for hospital outpatient services, or OPPS, a hospital is paid for outpatient services on a rate per service basis that varies according to the ambulatory payment classification group, or APC, to which the service is assigned rather than on a hospital’s costs. Each year CMS publishes new APC rates that are determined in accordance with the promulgated methodology.

Under the final rule for OPPS effective January 1, 2008, CMS packaged many radiology and radiation oncology services and drugs into procedural codes, thereby paying one consolidated payment for a service that commonly involves several coding components. The practical overall effect in many cases is to decrease the total reimbursement received by hospitals for certain outpatient radiological services, including PET/CT. Because unfavorable reimbursement policies constrict the profit margins of the mobile customers we bill directly, we have and may continue to lower our fees to retain existing PET and PET/CT customers and attract new ones. Although

CMS continues to expand reimbursement for new applications of PET and PET/CT, broader applications are unlikely to significantly offset the anticipated overall reductions in PET and PET/CT reimbursement. Any modifications under OPPS further reducing reimbursement to hospitals may adversely impact our financial condition and results of operations since hospitals will seek to offset such modifications.

Services provided in non-hospital based freestanding facilities, such as independent diagnostic treatment facilities, are paid under the Medicare Part B fee schedule. In November 2005, CMS published final regulations that decreased the reimbursement for diagnostic procedures performed together on the same day. Under these regulations, CMS identified families of imaging procedures by imaging modality and contiguous body area. Medicare would pay 100% of the technical component of the higher priced procedure and 50% for the technical component of each additional procedure for procedures involving contiguous body parts within a family of codes when performed in the same session. CMS anticipated phasing in this 50% rate reduction over two years, 25% in 2006, and another 25% in 2007. The first phase of the rate reduction was effective January 1, 2006; however, pursuant to final regulations released in November 2006, CMS did not implement the second phase of the rate reduction in 2007. CMS has not yet stated whether it will implement the second phase.

CMS has also published proposed regulations for hospital outpatient services that would implement the same multi procedure reimbursement methodology set forth under the Medicare Part B fee schedule; however it has delayed the implementation of this reimbursement methodology for an indefinite period of time. As a result Medicare continues to pay 100% of the technical component of each procedure for hospital outpatient services. If CMS implements this reimbursement methodology, it would adversely impact our financial condition and results of operations since our hospital customers would seek to offset their reduced reimbursement through lower rates with us.

The Deficit Reduction Act, or the DRA, became effective January 1, 2007 and has resulted in significant reductions in reimbursement for radiology services for Medicare beneficiaries. The DRA provides, among other things, that reimbursement for the technical component for imaging services (excluding diagnostic and screening mammography) in non-hospital based freestanding facilities will be the lesser of OPPS or the Medicare Part B fee schedule. The implementation of the reimbursement reductions in the DRA has had, and we believe will continue to have, a material adverse effect on our financial condition and results of operations.

President Obama and the 111th Congress have significant proposals affecting the healthcare industry, including medical imaging services. The President’s budget for fiscal year 2010 includes provisions that may require the use of radiology benefit managers to preauthorize certain imaging services for Medicare enrollees. In addition, the America’s Affordable Health Choices Act of 2009 (H.R. 3200) was introduced in the House of Representatives, which would reduce payment rates for imaging services paid under the Medicare Part B fee schedule. The legislation would require payment rates for services using equipment that costs over $1 million to be calculated using revised equipment usage assumptions. The current 50% usage assumption rate would be replaced with a 75% usage rate for such equipment (compared to CMS’s 2010 proposed usage rate of 90%, discussed below). The bill also proposes to change the technical component discount on imaging of contiguous body parts during a single imaging session from 25% to 50%.

Medicare reimbursement rates under the Medicare Part B fee schedule are calculated in accordance with a statutory formula. As a result, for calendar years 2007, 2008 and 2009, CMS published regulations decreasing the Part B reimbursement rates by 5.0%, 10.1% and 5.4%, respectively. In each instance, Congress enacted legislation preventing the decreases from taking effect. We anticipate that CMS will continue to release regulations for decreases in reimbursement rates under the Medicare Part B fee schedule until the statutory formula is changed through enactment of new legislation. In fact, CMS (under the Proposed Rule cited below) is projecting a 21.5% decrease under the Medicare Part B fee schedule for calendar year 2010 which has been blocked by Congress through December 31, 2009. If the projected 21.5% or similar decrease in the Medicare Part B fee schedule becomes effective January 1, 2010 it would have a significant adverse effect on our financial condition and results of operations.

On July 13, 2009, CMS published in the Federal Register a proposed rule (the “Proposed Rule”) for new relative value units, or RVUs, that determine the payment rates under the Medicare Part B fee schedule. In addition to other changes to the RVUs, CMS is proposing to (i) reduce payment rates for services using equipment costing more than $1 million by increasing the usage assumptions from the current 50% usage rate to a 90% usage rate, and (ii) reduce payment for services primarily involving the technical component rather than the physician services component.

These two reductions primarily impact radiology and other diagnostic tests. Thus, even if the projected 21.5% decrease mentioned above is not implemented, these changes to the RVUs, could have an adverse effect on our financial condition and results of operations. For our fiscal year ended June 30, 2009, Medicare revenues represented approximately $22.2 million, or approximately 10.0% of our total revenues for such period. If the Proposed Rule had been in effect during that period, we estimate that our total revenues would have been reduced by approximately $2.6 million, or 1.1%. We would expect to experience comparable reductions in our Medicare revenues in the future if the Proposed Rule becomes final; however, because our fiscal year ends June 30, our financial statements will not reflect the full effect of this reductions until our fiscal year ending June 30, 2011. The foregoing estimate does not reflect potential reductions if any of the following were implemented (a) the 21.5% projected decrease under the Medicare Part B fee schedule, or (b) any comparable reductions by third-party payors other than Medicare.

All of the congressional and regulatory actions described above reflect industry-wide cost-containment pressures that we believe will continue to affect healthcare providers for the foreseeable future.

Medicaid. The Medicaid program is a jointly-funded federal and state program providing coverage for low-income persons. In addition to federally-mandated basic services, the services offered and reimbursement methods vary from state to state. In many states, Medicaid reimbursement is patterned after the Medicare program; however, an increasing number of states have established or are establishing payment methodologies intended to provide healthcare services to Medicaid patients through managed care arrangements.

Managed Care and Private Insurance. Health Maintenance Organizations, or HMOs, Preferred Provider Organizations, or PPOs, and other managed care organizations attempt to control the cost of healthcare services by a variety of measures, including imposing lower payment rates, preauthorization requirements, limiting services and mandating less costly treatment alternatives. Managed care contracting is competitive and reimbursement schedules are at or below Medicare reimbursement levels. However, some managed care organizations have reduced or otherwise limited, and we believe that other managed care organizations may reduce or otherwise limit, reimbursement in response to reductions in government reimbursement. These reductions have had, and any future reductions could have, an adverse impact on our financial condition and results of operations. These reductions have been, and any future reductions may be, similar to the reimbursement reductions set forth in the DRA. The development and expansion of HMOs, PPOs and other managed care organizations within our core markets could have a negative impact on utilization of our services in certain markets and/or affect the revenues per procedure which we can collect, since such organizations will exert greater control over patients’ access to diagnostic imaging services, the selection of the provider of such services and the reimbursement thereof.

Some states have adopted or expanded laws or regulations restricting the assumption of financial risk by healthcare providers which contract with health plans. While we are not currently subject to such regulation, we or our customers may in the future be restricted in our ability to assume financial risk, or may be subjected to reporting requirements if we do so. Any such restrictions or reporting requirements could negatively affect our contracting relationships with health plans.

Private health insurance programs generally have authorized payment for our services on satisfactory terms. However, we believe that private health insurance programs may also reduce or otherwise limit reimbursement in response to reductions in government reimbursement, which could have an adverse impact on our financial condition and results of operations.

Several significant third-party payors implemented the reduction for multiple images on contiguous body parts (as currently in effect under CMS regulations) and additional payors may propose to implement this reduction as well. If the government implements a discount on the technical component discount on imaging of contiguous body parts third-party payors may follow this practice and implement a similar reduction. Such reduction would further negatively affect our financial condition and results of operations.

Furthermore, certain third-party payors have proposed and implemented initiatives which have the effect of substantially decreasing reimbursement rates for diagnostic imaging services provided at non-hospital facilities, and payors are continuing to monitor reimbursement for diagnostic imaging services. A third-party payor has instituted a requirement of participation that requires freestanding imaging center providers to offer multi-modality imaging services and not simply offer one type of diagnostic imaging service. Other third-party payors have

instituted specific credentialing requirements on imaging center providers and physicians performing interpretations and providing supervision. Similar initiatives enacted in the future by a significant number of additional third-party payors may have a significant adverse impact on our financial condition and results of operations.

Revenues

We earn revenues by providing services to patients, hospitals and other healthcare providers. Our patient services revenues are billed, on a fee-for-service basis, directly to patients or third-party payors such as managed care organizations, Medicare, Medicaid, commercial insurance carriers and workers’ compensation funds, collectively, payors. Patient services revenues also include balances due from patients, which are primarily collected at the time the procedure is performed. We refer to our patient services revenues as our retail operations. With respect to our retail operations we bear the direct risk of collections from third-party payors and patients. Our charge for a procedure is comprised of charges for both the technical and professional components of the service. Patient services or retail revenues, are presented net of (1) related contractual adjustments, which represent the difference between our charge for a procedure and what we will ultimately receive from the payors, and (2) payments due to radiologists for interpreting the results of the diagnostic imaging procedures.

Historically and through fiscal 2009, our billing system did not generate contractual adjustments. Consequently, contractual adjustments have been manual estimates based upon an analysis of historical experience of contractual payments from payors and the outstanding accounts receivables from payors. In July 2009, we completed the implementation of a new report that extracts data from our billing system and generates the actual contractual adjustments based on contractual rates with our payors that we will use on a go forward basis in fiscal 2010. Contractual adjustments are written-off against their corresponding asset account at the time a payment is received from a payor with a reduction to the allowance for contractual adjustments to the extent such an allowance was previously recorded.

We report payments to radiologists on a net basis because (1) we are not the primary obligor for the provision of professional services, (2) the radiologists receive contractually agreed upon amounts from collections and (3) the radiologists bear the risk of non-collection. In the past we had arrangements with certain radiologists pursuant to which we pay the radiologists directly for their professional services at an agreed upon contractual rate. With respect to these arrangements, the professional component was included in our revenues, and our payments to the radiologists are included in costs of services. As of June 30, 2009, we no longer had these types of arrangements.

Our collection policy is to obtain all required insurance information at the time a procedure is scheduled, and to submit an invoice to the payor immediately after a procedure is completed. Most third-party payors require preauthorization before an MRI, PET or PET/CT procedure is performed on a patient.

We refer to our revenues from hospitals, physician groups and other healthcare providers as contract services revenues or our wholesale operations. Contract services or wholesale revenues are primarily generated from fee-for-service arrangements, fixed-fee contracts and management fees billed to the hospital, physician group or other healthcare provider. Contract services revenues are generally billed to our customers on a monthly basis. Contract services revenues are recognized over the applicable contract period. Revenues collected in advance are recorded as unearned revenue. Revenues are affected by the timing of holidays, patient and referring physician vacation schedules and inclement weather.

The provision for doubtful accounts is reflected as an operating expense rather than a reduction of revenues and represents our estimate of amounts that are legally owed to us but will be uncollectible from patients, payors, hospitals, physician groups and other healthcare providers. The provision for doubtful accounts includes amounts to be written off with respect to specific accounts involving customers that are financially unstable or materially fail to comply with the payment terms of their contracts and other accounts based on our historical collection experience, including payor mix and the aging of patient accounts receivables balances. Estimates of uncollectible amounts are revised each period, and changes are recorded in the period they become known. Receivables deemed to be uncollectible, either through a customer default on payment terms or after reasonable collection efforts have been exhausted, are fully written-off against their corresponding asset account, with a reduction to the allowance for doubtful accounts to the extent such an allowance was previously recorded. Our historical write-offs for uncollectible accounts are not concentrated in a specific payor class.

The following illustrates our payor mix based on revenues for fiscal 2009:

Percentage of Total Revenues


Hospitals, physician groups and other healthcare providers(1) (2)	48	%
Managed care and insurance	37	%
Medicare	10	%
Medicaid	2	%
Workers compensation and other including self pay patients	3	%


(1)		We have one healthcare provider that accounted for approximately 7% of our total revenues during the year ended June 30, 2009. During the fourth quarter of fiscal year 2009, we closed a fixed-site center related to this healthcare provider. As a result, revenues from this healthcare provider will decline in the future. No other single hospital, physician group or other healthcare provider accounted for more than 5% of our total revenues.

(2)		These payors principally represent our contract services or wholesale operations.

The aging of our gross and net trade accounts receivables as of June 30, 2009 is as follows (amounts in thousands):


													120 Days
	Current			30 Days			60 Days			90 Days			and Older			Total
	(Unaudited)

Hospitals, physician groups and other healthcare providers	$	8,627		$	3,116		$	1,092		$	280		$	326		$	13,441
Managed care and insurance		14,115			4,204			2,318			1,231			3,450			25,318
Medicare/Medicaid		4,223			1,087			522			283			733			6,848
Workers’ compensation		1,023			619			383			222			562			2,809
Other, including self-pay patients		117			71			57			58			(148	)		155

Trade accounts receivables		28,105			9,097			4,372			2,074			4,923			48,571

Less: Allowances for professional fees		(3,207	)		(931	)		(529	)		(291	)		(696	)		(5,654	)
Allowances for contractual adjustments		(8,892	)		(2,523	)		(1,330	)		(47	)		(127	)		(12,919	)
Allowances for doubtful accounts		(236	)		(94	)		(472	)		(1,033	)		(2,569	)		(4,404	)

Trade accounts receivables, net	$	15,770		$	5,549		$	2,041		$	703		$	1,531		$	25,594

		62	%		22	%		8	%		3	%		6	%		100	%

As of June 30, 2009, our days sales outstanding, or DSO’s, for trade accounts receivables on a net basis was 43 days as compared to 48 days at June 30, 2008. We believe that this decrease in DSO’s is primarily a result of lower denial rates and improved collections times due to increased use of billing applications and improved collection practices.

Operating Expenses

We operate in a capital intensive industry that requires significant amounts of capital to fund operations. As a result, a high percentage of our total operating expenses are fixed. Our fixed costs include depreciation and amortization, debt service, lease payments, salaries and benefit obligations, equipment maintenance expenses, insurance and vehicle operations costs. Because a large portion of our operating expenses are fixed, any increase in our procedural volume or reimbursement rates disproportionately increases our operating cash flow. Conversely, any decrease in our procedural volume or reimbursement rates disproportionately decreases our operating cash flow. Our variable costs, which comprise only a small portion of our total operating expenses, include the cost of service supplies such as film, contrast media and radiopharmaceuticals used in PET and PET/CT procedures.

Results of Operations

Upon Holdings’ and InSight’s emergence from chapter 11, we adopted fresh-start reporting in accordance with SOP 90-7. The adoption of fresh-start reporting results in our becoming a new entity for financial reporting purposes. Accordingly, our consolidated financial statements on or after August 1, 2007 are not comparable to our consolidated financial statements prior to that date. The adoption of fresh-start reporting primarily affects depreciation and amortization and interest expense in the consolidated statements of operations. The accompanying consolidated statements of operations for the year ended June 30, 2008 combine the results of operations for the one month ended July 31, 2007 of the Predecessor and the eleven months ended June 30, 2008 of the Successor. We then compare the combined results of operations with the corresponding period in the current year.

Presentation of the combined results of operations for all of fiscal 2008 does not comply with accounting principles generally accepted in the United States; however, we believe the combined results of operations for the year ended June 30, 2008 provide management and investors with a more meaningful perspective of our financial performance and operating trends than if we did not combine the results of operations of Predecessor and Successor in this manner. Similarly, we combine the financial results of Predecessor and Successor when discussing sources and uses of cash for the year ended June 30, 2008.

The following table sets forth the results of operations for the years ended June 30, 2009, 2008 and 2007. The combined results for the year ended June 30, 2008 have been prepared for comparative purposes only and do not purport to be indicative of what results of operations would have been, and are not indicative of future operating results (amounts in thousands):


	Years Ended June 30,
	2009			2008			2007
	(Successor)			(Combined)			(Predecessor)

REVENUES:
Contract services	$	106,130		$	118,995		$	128,693
Patient services		123,120			145,952			158,221

Total revenues		229,250			264,947			286,914

COSTS OF OPERATIONS:
Costs of services		155,657			183,230			192,599
Provision for doubtful accounts		4,021			6,179			5,643
Equipment leases		10,950			10,006			6,144
Depreciation and amortization		45,584			58,166			57,040

Total costs of operations		216,212			257,581			261,426

CORPORATE OPERATING EXPENSES		(21,564	)		(27,422	)		(25,496	)
EQUITY IN EARNINGS OF UNCONSOLIDATED PARTNERSHIPS		2,642			2,065			3,030
INTEREST EXPENSE, net		(30,164	)		(35,398	)		(52,780	)
GAIN (LOSS) ON SALES OF CENTERS		7,885			(644	)		—
GAIN ON PURCHASE OF NOTES PAYABLE		12,065			—			—
IMPAIRMENT OF GOODWILL		—			(107,405	)		(29,595	)
IMPAIRMENT OF OTHER LONG-LIVED ASSETS		(5,308	)		(12,366	)		—

Loss before reorganization items and income taxes		(21,406	)		(173,804	)		(79,353	)
REORGANIZATION ITEMS, net		—			198,998			(17,513	)

Income (loss) before income taxes		(21,406	)		25,194			(96,866	)
(BENEFIT) PROVISION FOR INCOME TAXES		(1,652	)		(1,947	)		2,175

Net income (loss)	$	(19,754	)	$	27,141		$	(99,041	)

The following table sets forth certain historical financial data expressed as a percentage of revenues for each of the years indicated:


	Years Ended June 30,
	2009			2008			2007
	(Successor)			(Combined)			(Predecessor)

REVENUES		100.0	%		100.0	%		100.0	%
COSTS OF OPERATIONS:
Costs of services		67.9			69.2			67.1
Provision for doubtful accounts		1.7			2.3			2.0
Equipment leases		4.8			3.7			2.1
Depreciation and amortization		19.9			22.0			19.9

Total costs of operations		94.3			97.2			91.1

CORPORATE OPERATING EXPENSES		(9.4	)		(10.3	)		(8.9	)
EQUITY IN EARNINGS OF UNCONSOLIDATED PARTNERSHIPS		1.2			0.8			1.1
INTEREST EXPENSE, net		(13.2	)		(13.5	)		(18.5	)
GAIN (LOSS) ON SALES OF CENTERS		3.4			(0.2	)		—
GAIN ON PURCHASE OF NOTES PAYABLE		5.3			—			—
IMPAIRMENT OF GOODWILL		—			(40.5	)		(10.3	)
IMPAIRMENT OF OTHER LONG-LIVED ASSETS		(2.3	)		(4.7	)		—

Loss before reorganization items and income taxes		(9.3	)		(65.6	)		(27.7	)
REORGANIZATION ITEMS, net		—			75.1			(6.1	)

Income (loss) before income taxes		(9.3	)		9.5			(33.8	)
(BENEFIT) PROVISION FOR INCOME TAXES		(0.7	)		(0.7	)		0.8

Net income (loss)		(8.6	)%		10.2	%		(34.6	)%

Years ended June 30, 2009 and 2008

The following table sets forth certain historical financial data by segment for the periods indicated (amounts in thousands):


	Years Ended June 30,
	2009			2008
	(Successor)			(Combined)

Revenues
Fixed operations	$	139,252	(1)	$	168,805	(2)
Mobile operations		89,998			96,142

Total	$	229,250		$	264,947

Costs of Operations
Fixed operations	$	121,754	(3)	$	151,391	(4)
Mobile operations		82,048			92,316
Other		12,410			13,874

Total	$	216,212		$	257,581


(1)		Includes $18,079 of revenues attributable to fixed-site centers that we disposed or acquired during fiscal 2009.

(2)		Includes $34,263 of revenues attributable to fixed-site centers that we disposed of during fiscal 2009 and $12,021 of revenues attributable to fixed-site centers that we disposed of during the period from July 1, 2007 to June 30, 2008.

(3)		Includes $17,272 of costs attributable to fixed-site centers that we disposed or acquired during fiscal 2009.

(4)		Includes $29,570 of costs attributable to fixed-site centers that we disposed of during fiscal 2009 and $16,181 of costs attributable to fixed-site centers that we disposed of during the period from July 1, 2007 to June 30, 2008.

Revenues: The decrease in revenues for fiscal 2009 as compared to the year ended June 30, 2008 was primarily due to the dispositions of our fixed-site centers (approximately $30.7 million) offset partially by revenues from our acquisitions (approximately $2.5 million). Net of our fixed-site acquisitions and dispositions, revenues decreased approximately $7.5 million, which included decreased revenues in both our fixed and mobile operations.

Revenues from our fixed-site centers, net of acquisitions and dispositions (existing centers), which are primarily attributed to our patient services (retail) business, decreased by approximately $1.3 million or 1.0% for fiscal 2009 as compared to the year ended June 30, 2008. The decrease was primarily due to (i) a 2.0% decline in procedural volumes (approximately $2.5 million); (ii) 1.9% lower reimbursement per procedure (approximately $2.4 million), which we attribute to the negative trends discussed above; and (iii) a radiologist services contract change during the quarter ended March 31, 2009, which requires us to record the professional services fees as an offset to revenues instead of as an expense (approximately $1.0 million). These decreases were partially offset by increased revenues generated from one of our largest customers due to expanded usage of our services and a favorable contract change (approximately $3.3 million) and increased revenues due to other factors (approximately $1.0 million).

Revenues from our mobile operations, which consist primarily of contract services (wholesale) business, decreased approximately $6.1 million or 6.4% for fiscal 2009 as compared to the year ended June 30, 2008, primarily due to reductions in reimbursement from our mobile customers for all modalities and a decline in the number of customers served. The reductions in reimbursement are the result of significant competition from other mobile providers, the increased age of our mobile facilities and a decrease in the number of mobile units we have in service.

We believe we may continue to experience declining revenues due to the negative trends discussed above, which may be intensified by the negative effects of the recession, including higher unemployment and fewer individuals with healthcare insurance and any reductions in third-party payor reimbursement.

Costs of services: As a percentage of revenues, costs of services decreased approximately 1.3% to 67.9% for fiscal 2009 as compared to 69.2% for the year ended June 30, 2008. The decrease is attributable primarily to the disposition of certain of our fixed-site centers, which had costs of services as a percentage of revenues of approximately 75.0%. Additionally we experienced lower costs at our mobile operations (approximately $6.1 million) partially offset by an increase in costs at our existing fixed-site centers (approximately $0.6 million).

As a percentage of revenues, costs of services at our fixed-site centers decreased 1.2% to 67.1% for fiscal 2009 from 68.3% for the year ended June 30, 2008. The decrease is a result of the disposition of fixed-site centers. Net of acquisitions and dispositions, costs of services as a percentage of revenues increased slightly to 66.3% for fiscal 2009 from 66.1% for the year ended June 30, 2008. The increase in costs of services at our existing fixed-site centers was due primarily to higher contractual and equipment maintenance costs (approximately $1.0 million) and higher billing fees charged to the existing fixed site centers (approximately $1.4 million) due primarily to increased cash collections. The increases were partially offset by (i) a decrease in professional services fees as discussed above under revenues (approximately $1.0 million); (ii) a decrease in other operating costs (approximately $0.8 million); and (iii) reduced compensation related expenses ($0.5 million).

As a percentage of revenues our mobile operations costs of services decreased 2.5% to 59.0% for fiscal 2009 from 61.6% for the year ended June 30, 2008. The decrease in costs of services for our mobile segment was a result of our cost reduction initiatives that primarily relate to (i) a decrease in salaries, benefits and bonuses (approximately $4.0 million); (ii) a decrease in our mobile fleet related costs (approximately $1.3 million); and (iii) a decrease in taxes and license fees (approximately $0.6 million), related primarily to property taxes.

Provision for doubtful accounts: The provision for doubtful accounts decreased by $2.2 million during fiscal 2009 as compared to the prior year. Net of the effects of the centers acquired, closed or sold, our provisions for doubtful accounts decreased $1.2 million to $3.6 million for fiscal 2009 as compared to $4.8 million in the prior year. This decrease is partially attributable to our mobile operations as a result of lower write-offs (approximately $0.9 million) and partially related to our existing fixed-site centers due to improvements in collections (approximately $0.3 million).

Equipment leases: Equipment leases increased approximately $0.9 million for the year ended June 30, 2009 as compared to the prior year. Equipment leases, net of acquisitions and dispositions, increased $1.5 million to $10.4 million for the year ended June 30, 2009 from $8.9 million for the year ended June 30, 2008. The increase is attributable primarily to our mobile operations acquiring equipment through leases.

Depreciation and amortization: Depreciation and amortization expense decreased approximately $12.6 million for fiscal 2009 to $45.6 million from $58.2 million for the year ended June 30, 2008. Net of acquisitions and dispositions, depreciation and amortization decreased approximately $6.8 million for fiscal 2009 as compared to the prior year. The decrease can be primarily attributed to the age of our equipment resulting in more fully depreciated equipment during fiscal 2009 than the prior year period, partially offset by purchases of new property and equipment.

Corporate Operating Expenses: Corporate operating expenses decreased approximately $5.8 million to $21.6 million for fiscal 2009 from $27.4 million for the year ended June 30, 2008. As a percentage of revenues corporate operating expenses decreased almost 1% to 9.4% for fiscal 2009 from 10.3% for the year ended June 30. 2008. Our cost reduction initiatives primarily contributed to an approximate $2.8 million decrease for salaries and benefit expenses in fiscal 2009 as compared to the prior year. In addition, during the year ended June 30, 2008, we incurred significant litigation costs (approximately $2.2 million), and these costs did not recur in fiscal 2009. Moreover, our professional fee expenses declined by approximately $1.0 million for fiscal 2009 as compared to the prior year. The foregoing decreases in costs were partially offset by severance and closing costs (approximately $1.0 million) and a non-income tax settlement ($0.5 million).

Equity in Earnings of Unconsolidated Partnerships: Equity earnings in our unconsolidated partnerships increased $0.6 million in fiscal 2009 as compared to the prior year period because of higher earnings in the unconsolidated partnerships.

Interest Expense, net: Interest expense, net decreased approximately $5.2 million from approximately $35.4 million for the year ended June 30, 2008, to approximately $30.2 million for fiscal 2009. The decrease was

due primarily to lower interest rates on the floating rate notes coupled with the purchase of $21.5 million of floating rate notes partially offset by increased amortization of the bond discount (approximately $0.8 million).

Gain on Sales of Centers: During fiscal 2009, we sold six fixed-site centers in California, one fixed-site center in Illinois and one fixed-site center in Tennessee and our equity interest in three joint ventures in New York and California that operated five fixed-site centers. We received approximately $20.0 million, net of cash sold, from the sales and recorded a gain of approximately $7.9 million.

Gain on Purchase of Notes Payable: During fiscal 2009, we purchased $21.5 million in principal amount of our floating rate notes for approximately $8.4 million. We realized a gain of approximately $12.1 million, after the write-off of unamortized discount of approximately $1.0 million.

Impairment of Assets: We completed our evaluation of the carrying value of our indefinite-lived intangible assets as of December, 31, 2008. Based on our annual analysis of the fair value of our indefinite-lived intangible assets, we concluded that our trademark and our certificates of need related to our mobile reporting unit were impaired as of December 31, 2008. This impairment occurred primarily due to an increase in the discount rate used to value our indefinite-lived intangible assets as a result of overall increases in discount rates (including within the diagnostic imaging industry) caused by the then-current economic climate during the six months ended December 31, 2008. As a result in the second quarter of fiscal 2009, we recorded a non-cash impairment charge of $4.6 million in our mobile reporting unit related to our trademark ($2.2 million) and our certificates of need ($2.4 million).

Loss before Reorganization Items, net and Income Taxes: Loss before reorganization items, net and income taxes decreased 87.7% from approximately $173.8 million for the year ended June 30, 2008, to approximately $21.4 million for fiscal 2009. An analysis of the change in loss before reorganization items, net and income taxes is as follows (amounts in thousands):


	Consolidated

Loss before reorganization items, net and income taxes —
Year ended June 30, 2008	$	(173,804	)
Decrease in existing centers and facilities revenues		(7,492	)
Decrease in existing centers and facilities costs of services		6,335
Increase in existing centers and facilities equipment leases		(1,497	)
Decrease in existing centers and facilities depreciation and amortization		6,851
Decrease in existing centers and facilities provision for doubtful accounts		1,202
Decrease in interest expense, net		5,234
Impact of centers sold, closed or acquired		273
Impairment of tangible and intangible assets		114,463
Decrease in corporate operating expenses		5,858
Increase in equity in earnings of unconsolidated partnerships		577
Gain on sales of centers		8,529
Gain on purchase of notes payable		12,065

Loss before reorganization items, net and income taxes —
Year ended June 30, 2009	$	(21,406	)

Benefit for Income Taxes: For fiscal 2009, we had a benefit for income taxes of approximately $1.7 million as compared to a benefit for income taxes of approximately $1.9 million for the year ended June 30, 2008. The benefit for income taxes for fiscal 2009 is primarily related to a decrease in our deferred tax liability due primarily to the second quarter impairment of our indefinite-lived intangible assets as discussed above.

Years Ended June 30, 2008 and 2007

The following table sets forth certain historical financial data by segment for the periods indicated (amounts in thousands):


	Years Ended June 30,
	2008			2007
	(Combined)			(Predecessor)

Revenues
Fixed operations	$	168,805	(1)	$	180,115	(2)
Mobile operations		96,142			106,799

Total	$	264,947		$	286,914

Costs of Operations
Fixed operations	$	151,391	(3)	$	151,447	(4)
Mobile operations		92,316			91,345
Other		13,874			18,634

Total	$	257,581		$	261,426


(1)		Includes $12,021 of revenues attributable to fixed-site centers we disposed of during the period from July 1, 2007 to June 30, 2008

(2)		Includes $17,417 of revenues attributable to fixed-site centers that we disposed of during the period from July 1, 2007 to June 30, 2008 and $646 of revenues attributable to fixed-site centers that we disposed of during the period from July 1, 2006 — June 30, 2007.

(3)		Includes $16,181 of costs attributable to fixed-site centers that we disposed of during the period from July 1, 2007 to June 30, 2008.

(4)		Includes $19,315 of costs attributable to fixed-site centers that we disposed of during the period from July 1, 2007 to June 30, 2008 and $1,572 of costs attributable to fixed-site centers that we disposed of during the period from July 1, 2006 to June 30, 2007.

Revenues: Revenues decreased approximately 7.7% from approximately $286.9 million for the year ended June 30, 2007, to approximately $264.9 million for the year ended June 30, 2008. This decrease is primarily due to fixed-site centers we sold or closed during the fiscal year (approximately $6.0 million) and partially due to the Deficit Reduction Act, or the DRA (approximately $2.6 million). Net of dispositions and the DRA, our revenues decreased approximately $13.3 million composed of decreases in both our fixed and mobile operations.

Revenues from our fixed operations decreased approximately 6.3% from approximately $180.1 million for the year ended June 30, 2007, to approximately $168.8 million for the year ended June 30, 2008. This decrease was due primarily to lower revenues from our existing fixed-site centers (approximately $5.3 million, which amount includes approximately $2.6 million as a result of the DRA) and the loss of revenues from the centers we sold or closed during fiscal 2008 and 2007 (approximately $6.0 million). Revenues from our existing fixed-site centers decreased because of a decline in our average reimbursement from payors (approximately 3.3%), partially offset by an increase in procedure volume (approximately 1%).

Revenues from our mobile operations decreased approximately 10.0% from approximately $106.8 million for the year ended June 30, 2007, to approximately $96.1 million for the year ended June 30, 2008. This decrease was due primarily to a reduction in the number of mobile facilities in operation and reductions in reimbursement from

our mobile customers for all modalities. The reductions in reimbursement are the result of competition from other mobile providers and the increased age of our mobile facilities.

Costs of Services: Costs of services decreased 4.9% from approximately $192.6 million for the year ended June 30, 2007, to approximately $183.2 million for the year ended June 30, 2008. Net of dispositions our cost of services decreased by approximately $5.3 million. This decrease was due primarily to lower costs at our billing and other operations (approximately $3.4 million) and lower costs at our mobile operations (approximately $3.5 million), partially offset by higher costs at our fixed operations (approximately $1.6 million). The decrease at our billing and other operations was due to lower salaries and benefits and reduced depreciation and amortization expense, partially offset by higher consulting fees. Our gross profit margin declined significantly as our costs of operations did not decrease as significantly as our revenues due to the high fixed cost nature of our business.

As a percentage of revenues, costs of service increased approximately 2.1% to 69.2% for the year ended June 30, 2008 as compared to 67.1% for the year ended June 30, 2007. The increase is attributable to an increase in costs of services as a percentage of revenues at our fixed site centers of 2.7% and our mobile operations of 3.1%.

As a percentage of revenues costs of services at our fixed-site centers increased 2.9% to 68.3% for the year ended June 30, 2008 from 65.4% for the year ended June 30, 2008. At our existing fixed-site centeres cost of services as a percentage of revenues increased 2.1% from 64.5% from 62.4%. The increase in costs of services at our existing fixed-site centers was primarily caused by (i) higher minority interest expense from our consolidated partnerships (approximately $0.8 million); (ii) higher insurance, non-income taxes and fees, and legal and accounting expenses (approximately $0.7 million); (iii) other operational costs (approximately $0.8 million) and higher office related costs (approximately $0.5 million), partially offset by lower medical supply costs (approximately $1.3 million) and lower radiologist reading fee expenses as a result of lower procedure volume at certain centers (approximately $0.4 million).

As a percentage of revenues our mobile operations costs of services increased 2.9% to 61.6% for the year ended June 30, 2008 from 58.7% for the year ended June 30, 2007. The increase was due primarily to higher vehicle operations costs (approximately $0.8 million), partially offset by (1) lower salaries and benefits (approximately $2.9 million); (2) lower equipment maintenance costs (approximately $1.4 million); and (3) lower medical supply costs (approximately $0.5 million).

Provision for doubtful accounts: The provision for doubtful accounts increased by approximately $0.5 million during the year ended June 30, 2008 as compared to the prior year. Net of our dispositions, our provision for doubtful accounts increased approximately $0.6 million. The increase was due exclusively to our mobile operations (approximately $0.9 million) offset partially by decrease in the provision for doubtful accounts at our fixed-site centers (approximately $0.3 million).

Equipment leases: Equipment leases increased approximately $3.9 million for the year ended June 30, 2008 as compared the prior year. Net of dispositions, our equipment leases increased approximately $3.9 million. The increase is primarily attributable to our mobile operations acquiring equipment through leases.

Depreciation and amortization: Depreciation and amortization expense increased approximately $1.1 million for the year ended June 30, 2008 to $58.1 million from $57.0 million for the year ended June 30, 2007. Net of our dispositions, our depreciation and amortization expense increased approximately $1.2 million. The higher depreciation and amortization expense was a result of the fair value adjustment required by fresh-start reporting (approximately $3.3 million).

Corporate Operating Expenses: Corporate operating expenses increased approximately 7.5% from approximately $25.5 million for the year ended June 30, 2007, to approximately $27.4 million for the year ended June 30, 2008. The increase was due primarily to severance charges related to a reduction in staff (approximately $2.0 million) and higher board of director fees (approximately $0.3 million), partially offset by reduced accounting fees (approximately $0.4 million). We incurred approximately $2.2 million in legal fees relating to litigation in each of the years ended June 30, 2008 and 2007.

Equity in Earnings of Unconsolidated Partnerships: Equity in earnings of unconsolidated partnerships decreased by approximately $1.0 million for the year ended June 30, 2008 as compared to June 30, 2007, primarily due to lower earnings in our unconsolidated partnerships.

Interest Expense, net: Interest expense, net decreased approximately 33.0% from approximately $52.8 million for the year ended June 30, 2007, to approximately $35.4 million for the year ended June 30, 2008. The decrease was due primarily to (1) the cancellation and exchange of $194.5 million of senior subordinated notes for Holdings’ common stock pursuant to the reorganization (approximately $17.6 million); (2) lower amortization of deferred financing costs (approximately $3.0 million); and (3) lower interest rates on the floating rate notes (approximately $1.5 million), partially offset by increased amortization of the bond discount (approximately $4.4 million).

Loss on Sales of Centers: During the year ended June 30, 2008, we sold seven fixed-site centers in California and our majority ownership interest in a joint venture that operated a fixed-site center in Ohio. We received approximately $9.1 million, net of cash sold, from the sales and recorded a loss of approximately $0.6 million.

Impairment of Goodwill and Other Intangible Assets: For the year ended June 30, 2008, we recorded non-cash impairment charges of approximately $119.8 million. These charges are a reduction in the carrying value of goodwill (approximately $107.4 million) and other intangible assets (approximately $12.4 million). See “Critical Accounting Policies and Estimates” below and Note 10 to our consolidated financial statements, which are part of this Form 10-K.

Loss Before Reorganization Items, net and Income Taxes: Loss before reorganization items and income taxes increased approximately 119.0% from approximately $79.4 million for the year ended June 30, 2007, to approximately $173.8 million for the year ended June 30, 2008. An analysis of the change in loss before reorganization items, net and income taxes is as follows (amounts in thousands):


	Consolidated

Loss before reorganization items, net and income taxes —
Year ended June 30, 2007	$	(79,353	)
Decrease in existing centers and facilities revenues		(13,296	)
Decrease in existing centers and facilities costs of services		5,294
Increase in existing centers and facilities equipment leases		(3,934	)
Increase in existing centers and facilities depreciation and amortization		(1,116	)
Increase in existing centers and facilities provision for doubtful accounts		(621	)
Decrease in interest expense, net		17,382
Impact of centers sold, closed or acquired		(1,688	)
Impact of deficit reduction act		(2,760	)
Increase in Impairment of intangible assets		(90,176	)
Increase in corporate operating expenses		(1,926	)
Decrease in equity in earnings of unconsolidated partnerships		(965	)
Loss on sales of centers		(644	)

Loss before reorganization items, net and income taxes —
Year ended June 30, 2008	$	(173,804	)

Reorganization Items, net: During the one month ended July 31, 2007, Predecessor recorded net gains of approximately $199.0 million for items in accordance with SOP 90-7 related to Holdings’ and InSight’s reorganization, primarily due to a gain on debt discharge, revaluation of assets and liabilities, professional fees and consent fees. During the fourth quarter of fiscal 2007, we recorded net charges of approximately $17.5 million for items in accordance with SOP 90-7 for expenses related to Holdings’ and InSight’s reorganization.

Provision (Benefit) for Income Taxes: Provision (benefit) for income taxes decreased from a provision of approximately $2.2 million for the year ended June 30, 2007, to a benefit of approximately $1.9 million for the year

ended June 30, 2008. The benefit for income taxes for the year ended June 30, 2008 is primarily related to a decrease in deferred taxes due to impairment charges related to certain indefinite-lived intangible assets, partially offset by estimated state income taxes.

Financial Condition, Liquidity and Capital Resources

We have historically funded our operations and capital project requirements from net cash provided by operating activities and capital and operating leases. We expect to fund future working capital and capital project requirements from cash on hand, occasional sales of fixed-site centers and mobile facilities, net cash provided by operating activities, and our credit facility. To the extent available, we will also use capital and operating leases, but the current conditions in the capital markets and our high level of leverage, have limited our ability to obtain attractive lease financing. Our operating cash flows have been negatively impacted by the sales and closures of certain fixed-site centers and the negative trends we have experienced with our existing fixed-site and mobile facilities. If our operating cash flows continue to be negatively impacted by these and other factors and we are unable to offset them with cost savings and other initiatives, it will result in:


	•	a reduction in our borrowing base, and therefore a decline in the amounts available under our credit facility;

	•	difficulty funding our capital projects;

	•	more stringent financing from equipment manufacturers and other financing resources; and

	•	an inability to refinance our floating rate notes in November 2011.

Liquidity: The reorganization significantly deleveraged our balance sheet and improved our projected cash flow after debt service. However, we still have a substantial amount of debt, which requires significant interest and principal payments. As of June 30, 2009, we had total indebtedness of approximately $298.2 million in aggregate principal amount, including $293.5 million of floating rate notes. We believe that cash on hand, future net cash provided by operating and investing activities and our credit facility will be adequate to meet our operating cash and debt service requirements for at least the next twelve months.

We reported net losses of approximately $19.8 million, $169.2 million and $99.0 million for fiscal 2009, eleven months ended June 30, 2008 and the year ended June 30, 2007, respectively. We have implemented steps to improve our financial performance, including, a core market strategy and various initiatives in response to these losses. We have attempted to implement, and will continue to develop and implement, various revenue enhancement, revenue cycle management and cost reduction initiatives:


	•	Revenue enhancement initiatives will focus on our sales and marketing efforts to maintain or improve our procedural volume and contractual rates, and our InSight Imaging Solutions initiative.

	•	Revenue cycle management initiatives have and will continue to focus on collections at point of service for patients with commercial insurance, technology improvements to create greater efficiency in the gathering of patient and claim information when a procedure is scheduled or completed, and our initiative with Perot Systems Corporation.

	•	Cost reduction initiatives have and will continue to focus on streamlining our organizational structure and expenses including enhancing and leveraging our technology to create greater efficiencies, and leveraging relationships with strategic vendors.

While we have experienced some improvements through our revenue cycle management and cost reduction initiatives, our revenue enhancement initiatives have produced minimal improvements to date. Moreover, future revenue enhancement initiatives will face significant challenges because of the continued overcapacity in the diagnostic imaging industry, reimbursement reductions and the effects of the country’s recession, including higher unemployment. We can give no assurance that these steps will be adequate to improve our financial performance. Unless our financial performance significantly improves, we can give no assurance that we will be able to refinance the floating rate notes, which mature in November 2011, on commercially reasonable terms, if at all.

Our short-term liquidity needs relate primarily to:


	•	interest payments relating to the floating rate notes and credit facility;

	•	capital projects;

	•	working capital requirements;

	•	potential acquisitions; and

	•	potential purchases of portions of the floating rate notes.

Our long-term liquidity needs relate primarily to the maturity of the floating rate notes in November 2011.

As mentioned above, we may from time to time, in one or more open market or privately negotiated transactions, purchase a portion of our outstanding floating rate notes. Any such purchases shall be in accordance with the terms of agreements governing our material indebtedness. During fiscal 2009, we purchased $21.5 million in principal amount of floating rate notes for approximately $8.4 million. We realized a gain of approximately $12.1 million, after the write-off of unamortized discount of approximately $1.0 million.

Cash, cash equivalents and restricted cash as of June 30, 2009 were approximately $26.1 million (including approximately $6.5 million, that was subject to the lien for the benefit of the floating rate note holders, and may only be used for wholly owned capital projects or under certain circumstances the purchase of floating rate notes). Our primary source of liquidity is cash provided by operating activities. Our ability to generate cash flows from operating activities is based upon several factors including the following:


	•	the procedural volume of patients at our fixed-site centers;

	•	the reimbursement we receive for our services;

	•	the demand for our mobile services;

	•	our ability to control expenses;

	•	our ability to collect our trade accounts receivables from third-party payors, hospitals, physician groups, other healthcare providers and patients; and

	•	our ability to implement steps to improve our financial performance.

A summary of cash flows is as follows (amounts in thousands):


	Years Ended June 30,
	2009			2008			2007
	(Successor)			(Combined)			(Predecessor)

Net cash provided by operating activities	$	18,101		$	3,564		$	9,065
Net cash used in investing activities		(8,722	)		(7,218	)		(16,045	)
Net cash provided by (used in) financing activities		(10,741	)		3,824			(396	)

Increase (decrease) in cash and cash equivalents	$	(1,362	)	$	170		$	(7,376	)

Net cash provided by operating activities primarily resulted from Adjusted EBITDA (see reconciliation below) of approximately $39.7 million less approximately $25.3 million in interest paid and approximately $0.4 of income taxes paid, offset by a change in operating assets and liabilities of approximately $3.7 million due in part to our success in improving our collections. During fiscal 2009 we successfully collected over $7.8 million in accounts receivable that were over 90 days old as of June 30, 2008 including, approximately $1.5 million that was over 365 days old as of June 30, 2008. While we expect our improved collections efforts to sustain our current DSO levels, we do not expect to collect this level of aged accounts in the future due to collection improvements in fiscal 2009 that are now fully implemented.

Net cash used in investing activities resulted primarily from our net purchases or upgrades of diagnostic imaging equipment at our existing fixed-site centers and mobile facilities and the related construction costs (approximately $21.9 million), our purchase of two fixed-site centers in Massachusetts (approximately

$8.4 million), offset by a decrease in restricted cash (approximately $1.6 million) and proceeds from the sale of centers, net of cash sold, of approximately $20.0 million. The decrease in restricted cash was due primarily to the reinvestment of restricted cash in capital expenditures and the purchase of the floating rate notes offset by $20.0 million of net disposition proceeds.

Net cash used in financing activities resulted from the purchase of floating rate notes (approximately $8.4 million) and principal payments on notes payable and capital lease obligations (approximately $2.3 million).

We define Adjusted EBITDA as our earnings before interest expense, income taxes, depreciation and amortization, excluding impairment of tangible and intangible assets, gain on sales of centers, reorganization items, net and gain on purchase of notes payable. Adjusted EBITDA has been included because we believe that it is a useful tool for us and our investors to measure our ability to provide cash flows to meet debt service, capital projects and working capital requirements. Adjusted EBITDA should not be considered an alternative to, or more meaningful than, income from company operations or other traditional indicators of operating performance and cash flow from operating activities determined in accordance with accounting principles generally accepted in the United States. We present the table of Adjusted EBITDA because covenants in the agreements governing our material indebtedness contain ratios based on this measure. While Adjusted EBITDA is used as a measure of liquidity and the ability to meet debt service requirements, it is not necessarily comparable to other similarly titled captions of other companies due to differences in methods of calculations. Our reconciliation of net cash provided by operating activities to Adjusted EBITDA is as follows (amounts in thousands):


	Years Ended June 30,
	2009			2008			2007
	(Successor)			(Combined)			(Predecessor)

Net cash provided by operating activities	$	18,101		$	3,564		$	9,065
Cash used for reorganization items		—			8,027			11,367
(Benefit) provision for income taxes		(1,652	)		(1,947	)		2,175
Interest expense, net		30,164			35,398			52,780
Amortization of bond discount		(5,375	)		(4,522	)		—
Share-based compensation		(73	)		(15	)		—
Amortization of deferred financing costs		—			(145	)		(3,158	)
Equity in earnings of unconsolidated partnerships		2,642			2,065			3,030
Distributions from unconsolidated partnerships		(2,645	)		(2,621	)		(3,008	)
Net change in operating assets and liabilities		(3,685	)		(1,493	)		(12,189	)
Net change in deferred income taxes		2,223			1,864			—

Adjusted EBITDA	$	39,700		$	40,175		$	60,062

Our reconciliation of income (loss) before reorganization items and income taxes to Adjusted EBITDA by segment for the years ended June 30, 2009 and 2008 is as follows (amounts in thousands):


	Mobile			Fixed			Other			Consolidated

Year Ended June 30, 2009 (Successor)
Income (loss) before reorganization items and income taxes	$	2,998		$	25,121		$	(49,525	)	$	(21,406	)
Interest expense, net		954			1,594			27,616			30,164
Depreciation and amortization		21,355			20,825			3,404			45,584
Impairment of long-lived assets		4,600			708			—			5,308
Gain on sales of centers		—			(7,885	)		—			(7,885	)
Gain on purchase of floating rate notes		—			—			(12,065	)		(12,065	)

Adjusted EBITDA	$	29,907		$	40,363		$	(30,570	)	$	39,700

Year Ended June 30, 2008 (Combined)
Loss before reorganization items and income taxes	$	(69,577	)	$	(32,528	)	$	(71,699	)	$	(173,804	)
Interest expense, net		2,100			2,895			30,403			35,398
Depreciation and amortization		25,104			27,983			5,079			58,166
Impairment of goodwill		62,848			44,557			—			107,405
Impairment of long-lived assets		8,605			3,761			—			12,366
Loss on sales of centers		—			644			—			644

Adjusted EBITDA	$	29,080		$	47,312		$	(36,217	)	$	40,175

Years Ended June 30, 2009 and 2008

Adjusted EBITDA decreased approximately 1.2% for fiscal 2009 as compared to the year ended June 30, 2008. This decrease was primarily a result of our dispositions (approximately $5.5 million). Net of acquisitions and dispositions, Adjusted EBITDA increased approximately $5.0 million. The increase in Adjusted EBITDA is primarily from a decrease in our corporate operating expenses (approximately $5.8 million) and higher Adjusted EBITDA from our mobile operations (approximately $0.8 million), partially offset by lower Adjusted EBITDA from our existing fixed-site centers (approximately $1.4 million).

Adjusted EBITDA from our fixed operations decreased approximately 14.7% from approximately $47.3 million for the year ended June 30, 2008, to approximately $40.4 million for fiscal 2009. This decrease was due primarily to the elimination of Adjusted EBITDA at the centers we sold or closed during fiscal 2009 and the year ended June 30, 2008 (approximately $5.5 million). Net of acquisitions and dispositions Adjusted EBITDA at our existing fixed-site centers decreased approximately $1.4 million. The reduction in Adjusted EBITDA at our existing fixed-site centers is due primarily to the decrease in revenues discussed above without a corresponding decrease in costs coupled with increased equipment maintenance and billing costs.

Adjusted EBITDA from our mobile operations increased approximately 2.8% from approximately $29.1 million for the year ended June 30, 2008, to approximately $29.9 million for fiscal 2009. This increase was due to the reduction in costs discussed above, partially offset by the reduction in revenues discussed above.

Years Ended June 30, 2008 and 2007

Adjusted EBITDA decreased approximately 33.1% from approximately $60.1 million for the year ended June 30, 2007, to approximately $40.2 million for the year ended June 30, 2008. This decrease was due primarily to reductions in Adjusted EBITDA from our mobile operations (approximately $12.0 million) and our fixed operations (approximately $9.3 million) and an increase in our corporate operating expenses (approximately $1.9 million), partially offset by decreases in costs at our billing and other operations (approximately $3.3 million).

Adjusted EBITDA from our fixed operations decreased approximately 16.4% from approximately $56.6 million for the year ended June 30, 2007, to approximately $47.3 million for the year ended June 30, 2008. This decrease was due primarily to a reduction in Adjusted EBITDA at our existing fixed-site centers (approximately $8.8 million). The reduction is primarily due to the reduction in revenues, including the reimbursement reductions from the DRA, and a decrease in equity in earnings from unconsolidated partnerships.

Adjusted EBITDA from our mobile operations decreased approximately 29.2% from approximately $41.1 million for the year ended June 30, 2007, to approximately $29.1 million for the year ended June 30, 2008. This decrease was due primarily to the reduction in revenues and increase in costs discussed above.

Capital Projects: As of June 30, 2009, we had committed to capital projects of approximately $10.3 million through December 2009. We expect to use either internally generated funds, cash on hand, including restricted cash, and the proceeds from the sale of fixed-site centers to finance these and other capital projects. We also will attempt to use capital and operating leases on cost-effective terms, however, the current credit market conditions are not favorable. We may purchase, lease or upgrade other diagnostic imaging systems as opportunities arise to place new equipment into service when new contract services agreements are signed, existing agreements are renewed, acquisitions are completed, or new fixed-site centers and mobile facilities are developed in accordance with our core market strategy. If we are unable to generate sufficient cash from our operations or obtain additional funds through bank financing, the issuance of equity or debt securities, or operating leases, we may be unable to maintain a competitive equipment base. As a result, we may not be able to maintain our competitive position in our core markets or expand our business.

Floating Rate Notes and Credit Facility: As of June 30, 2009, we had outstanding, through InSight, $293.5 million of aggregate principal amount of floating rate notes. The floating rate notes mature in November 2011 and bear interest at three-month LIBOR plus 5.25% per annum, payable quarterly. As of June 30, 2009, the weighted average interest rate on the floating rate notes was 6.28%. If prior to the maturity of the floating rate notes, we elect to redeem the floating rate notes or are otherwise required to make a prepayment with respect to the floating rate notes for which a redemption price is not otherwise specified in the indenture, regardless of whether such prepayment is made voluntarily or mandatorily, as a result of acceleration upon the occurrence of an event of default or otherwise, we are required to pay 102% of the principal amount of the floating rate notes plus accrued and unpaid interest. An open-market purchase of floating rate notes would not require a prepayment price at the foregoing rates. In addition, the indenture provides that if there is a change of control, we will be required to make an offer to purchase all outstanding floating rate notes at a price equal to 101% of their principal amount plus accrued and unpaid interest. The indenture provides that a change of control includes, among other things, if a person or group becomes directly or indirectly the beneficial owner of 35% or more of Holdings’ common stock. The fair value of the floating rate notes as of June 30, 2009 was approximately $124.0 million.

Holdings’ and InSight’s wholly owned subsidiaries unconditionally guarantee all of InSight’s obligations under the indenture for the floating rate notes. The floating rate notes are secured by a first priority lien on substantially all of InSight’s and the guarantors’ existing and future tangible and intangible property including, without limitation, equipment, certain real property, certain contracts and intellectual property and a cash account related to the foregoing, but are not secured by a lien on their accounts receivables and related assets, cash accounts related to receivables and certain other assets. In addition, the floating rate notes are secured by a portion of InSight’s stock and the stock or other equity interests of InSight’s subsidiaries.

Through certain of InSight’s wholly owned subsidiaries we have an asset-based revolving credit facility of up to $30 million, which matures in June 2011, with the lenders named therein and Bank of America, N.A. as collateral and administrative agent. As of June 30, 2009, we had approximately $12.2 million of availability under the credit facility, based on our borrowing base. At June 30, 2009, there were no outstanding borrowings under the credit facility; however, there were letters of credit of approximately $1.9 million outstanding under the credit facility. As a result of our current fixed charge coverage ratio, we would only be able to borrow up to $4.7 million of the $12.2 million of availability under the borrowing base due to a restriction in the future if our liquidity, as defined in the credit facility agreement, falls below $7.5 million.

Holdings and InSight unconditionally guarantee all obligations of InSight’s subsidiaries that are borrowers under the credit facility. All obligations under the credit facility and the obligations of Holdings and InSight under

the guarantees are secured, subject to certain exceptions, by a first priority security interest in all of Holdings’, InSight’s and the borrowers’: (i) accounts; (ii) instruments, chattel paper (including, without limitation, electronic chattel paper), documents, letter-of-credit rights and supporting obligations relating to any account; (iii) general intangibles that relate to any account; (iv) monies in the possession or under the control of the lenders under the credit facility; (v) products and cash and non-cash proceeds of the foregoing; (vi) deposit accounts established for the collection of proceeds from the assets described above; and (vii) books and records pertaining to any of the foregoing.

Borrowings under the credit facility bear interest at a per annum rate equal to LIBOR plus 2.5%, or, at our option, the base rate (which is the Bank of America, N.A. prime rate); however, the applicable margin will be adjusted in accordance with a pricing grid based on our fixed charge coverage ratio, and will range from 2.0% to 2.5% per annum. In addition to paying interest on outstanding loans under the credit facility, we are required to pay a commitment fee to the lenders in respect of unutilized commitments thereunder at a rate equal to 0.50% per annum, subject to reduction based on a performance grid tied to our fixed charge coverage ratio, as well as customary letter-of-credit fees and fees of Bank of America, N.A. There are no financial covenants included in the credit facility, except a fixed charge coverage ratio test as discussed above. The credit facility agreement also contains customary borrowing conditions, including a material adverse effect provision. If we were to experience a material adverse effect, as defined by our credit facility agreement, we would be unable to borrow under the credit facility.

The agreements governing our credit facility and floating rate notes contain restrictions on among other things, our ability to incur additional liens and indebtedness, engage in mergers, consolidations and asset sales, make dividend payments, prepay other indebtedness, make investments and engage in transactions with affiliates.

Contractual Commitments: Our contractual obligations as of June 30, 2009 are as follows (amounts in thousands):


			Payments Due by Period
			Less than		1-3		3-5		More than
	Total		1 Year		Years		Years		5 Years

Long-term debt obligations	$	294,130	$	393	$	293,737	$	—	$	—
Capital lease obligations		4,535		1,771		2,322		442		—
Operating lease obligations		40,877		13,487		19,092		5,999		2,299
Purchase commitments		10,332		10,332		—		—		—

Total contractual obligations	$	349,874	$	25,983	$	315,151	$	6,441	$	2,299

The long-term debt obligations and capital lease obligations include both principal and interest commitments for the periods presented. The interest commitment on the floating rate notes is based on the effective interest rate at June 30, 2009 (6.28%) without giving effect to our interest rate collar contract.

Off-Balance Sheet Arrangements

There are no off-balance sheet transactions, arrangements or obligations (including contingent obligations) that have, or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital projects or capital resources.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of financial condition and results of operations, as well as disclosures included elsewhere in this Form 10-K are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingencies. We believe the critical accounting policies that most impact the consolidated financial statements are described below. A summary of our significant accounting policies can be found in the notes to our consolidated financial statements, which are a part of this Form 10-K.

Reorganization value and equity value: To facilitate the calculation of reorganization value and equity value, management, with the assistance of outside financial advisors, developed an estimate of the enterprise value of the successor entity, including $322.5 million in aggregate principal amount of total debt and capital leases as of the date of consummation of the confirmed plan of reorganization.

In establishing an estimate of enterprise value, management primarily focused on the market value of the two publicly traded securities that were most affected by the confirmed plan of reorganization:


	•	the market value of Holdings’ 8,644,444 shares of common stock from August 3, 2007, the date the shares first traded after consummation of the confirmed plan of reorganization, through September 30, 2007. The value range of Holdings’ common stock was estimated from a low of $35 million (based on $4 per share) to a high of $61 million (based on $7 per share). The range of enterprise value to correspond with the foregoing range would be from a low of $357 million to a high of $383 million. Management recognized that the common stock valuation approach may have been somewhat limited because the shares of common stock issued after the consummation of the confirmed plan of reorganization did not necessarily have the same liquidity as shares issued in connection with an underwritten public offering. Nevertheless, management primarily relied on this valuation method because (i) orderly observable trading activity in the common stock, though limited in volume, did take place, (ii) the trading activity did not indicate that the transactions were forced or distressed sales, and (iii) as articulated by the hierarchy of inputs set forth in SFAS 157, observable inputs (regardless as to whether an active market exists) generally are more useful in calculating fair value than unobservable inputs, which require a reporting entity to develop its own assumptions.

	•	the market value of the $194.5 million of senior subordinated notes for a period of time leading up to cancellation of such debt on the date of the consummation of the confirmed plan of reorganization. The value range of InSight’s senior subordinated notes was estimated from a low of $65 million to a high of $74 million during an approximately 30 day period of time leading up to the date of consummation of the plan. The range of enterprise value to correspond with the foregoing range would be from a low of $387 million to a high of $396 million.

Management considered the above values in light of various relevant market comparables, which are not specific to our publicly traded securities, such as (A) the market values of comparable companies and (B) recent transactions in our industry.

To a lesser extent, management considered the estimated present value of projected future cash flows in order to validate the determinations it made through the market comparable methods described above. Management estimated that the discounted cash flow value of the Company’s two reporting segments was slightly less than the low point of the enterprise range determined by the trading value of the common stock. The projected future cash flows were particularly sensitive to our assumptions regarding revenues because of (a) the high fixed cost nature of our business, and (b) the difficulty of estimating changes in reimbursement and procedure volume for future years. In developing these estimates, management assumed, among other things (i) a decline in revenues for the Company’s fiscal year ending June 30, 2008 as a result of reimbursement reductions, and (ii) for the Company’s fiscal years ending June 30, 2009 and 2010, (I) modest increases in revenues (approximately 3.0% each year) for its fixed operations segment as a result of the anticipated deceleration in the growth of additional imaging capacity within the Company’s industry, and (II) an insignificant increase in the Company’s revenues for its mobile operations segment (an approximate 1.0% increase each year). If known and unknown risks materialize, or if our revenue assumptions were incorrect, our future cash flows could differ significantly from our projections. The sensitivity of the revenue assumptions contributed to management’s decision to focus on market values (observable inputs) in determining the Company’s enterprise value. Management believed that the projected cash flows were appropriately discounted to reflect, among other things, the capital structure and cost of capital (both debt and equity) for the Company’s two operating segments as well as industry risks.

subordinated notes described above. Management believed that the enterprise value of $360 million best reflected the value of the successor entity because trading activity reflected market based judgments as to the current business and industry challenges the successor entity faces, including the negative trends and numerous risks described elsewhere in this Form 10-K. Furthermore, in estimating the enterprise value of $360 million management determined that a valuation at the low end of the value range based on the trading price of the common stock was appropriate because (i) a substantial majority of transactions in the common stock from August 3, 2007 through September 30, 2007, were for prices between $4.00 and $5.15 per share, and (ii) there was limited volume in the trading activity in the common stock. If the long-term debt and capital leases of $322.5 million in aggregate principal amount as of August 1, 2007, the effective date of the confirmed plan of reorganization and exchange offer, without giving effect to the net fair value discount associated with InSight’s $315 million in aggregate principal amount of senior secured floating rate notes due 2011, were subtracted from the successor entity’s estimated enterprise value of $360 million the resulting equity value was $37.5 million.

The foregoing estimates of enterprise value and corresponding equity value were based upon certain projections and assumptions. Neither the projections nor the assumptions are incorporated into this Form 10-K.

Goodwill and Other Intangible Assets: As of August 1, 2007, goodwill represented the reorganization value of the Successor in excess of the fair value of tangible and identified intangible assets and liabilities from our adoption of fresh-start reporting. Identified intangible assets consist primarily of our trademark, certificates of need, customer relationships and wholesale contracts. The intangible assets, excluding the wholesale contracts and customer relationships, are indefinite-lived assets and are not amortized. Wholesale contracts and customer relationships are definite-lived assets and are amortized over the expected term of the respective contracts and relationships, respectively. In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”, or SFAS 142, the goodwill and indefinite-lived intangible asset balances are not being amortized, but instead are subject to an annual assessment of impairment by applying a fair-value based test.

We evaluate the carrying value of goodwill and other indefinite-lived intangible assets in the second quarter of each fiscal year. Additionally, we review the carrying amount of goodwill and other indefinite-lived intangible assets whenever events and circumstances indicate that their respective carrying amounts may not be recoverable. Impairment indicators include, among other conditions, cash flow deficits, historic or anticipated declines in revenue or operating profit and adverse legal or regulatory developments. As of June 30, 2009, we had goodwill of $1.4 million associated with the acquisition of two fixed-site centers in the Boston-metropolitan area of Massachusetts, which was allocated to our fixed reporting unit. In evaluating goodwill, we complete the two-step impairment test as required by SFAS 142. In the first of a two-step impairment test, we determine the fair value of these reporting units using a discounted cash flow valuation model, market multiple model or appraised values, as appropriate. SFAS 142 requires us to compare the fair value for the reporting unit to its carrying value on an annual basis to determine if there is potential impairment. If the fair value of a reporting unit exceeds its carrying value, goodwill of the reporting unit is considered not impaired and no further testing is required. If the fair value does not exceed the carrying value, the second step of the impairment test is performed to measure the amount of impairment loss, if any. The second step compares the implied fair value of the goodwill with the carrying amount of that goodwill. Impairment losses, if any, are reflected in the consolidated statements of operations.

We assess the ongoing recoverability of our intangible assets subject to amortization in accordance with SFAS No. 144, “Accounting for the Impairment and Disposal of Long-Lived Assets,” by determining whether the long-lived asset can be recovered over the remaining amortization period through projected undiscounted future cash flows. If projected future cash flows indicate that the long-lived asset balances will not be recovered, an adjustment is made to reduce the asset to an amount consistent with projected future cash flows discounted at the market interest rate. Cash flow projections, although subject to a degree of uncertainty, are based on trends of historical performance and management’s estimate of future performance, giving consideration to existing and anticipated competitive and economic conditions.

New Pronouncements

In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, “Fair Value Measurements”, or SFAS 157. SFAS 157 defines fair value, establishes a framework for measuring fair value under

generally accepted accounting principles, and expands disclosures for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Upon Holdings’ and InSight’s emergence from bankruptcy, we adopted SFAS 157.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations”, or SFAS 141(R), which establishes principles and requirements for recognizing and measuring identifiable assets and goodwill acquired, liabilities assumed and any noncontrolling interest in an acquisition, at their fair value as of the acquisition date. SFAS 141(R) is effective for fiscal years beginning after December 15, 2008. We are currently reviewing SFAS 141(R) to determine its effects on business acquisitions we may make in the future.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements-an Amendment of Accounting Research Bulletin No. 51”, or SFAS 160, which amends Accounting Research Bulletin No. 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 is effective for fiscal years beginning after December 15, 2008. We are currently evaluating the impact of the adoption of SFAS 160 on our consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities”, or SFAS 161, which amends SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities”, or SFAS 133. SFAS 161 requires enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. We adopted SFAS 161 on January 1, 2009. As SFAS 161 only requires enhanced disclosures, it had no impact on our consolidated financial statements.

In April 2009, the FASB issued FSP No. SFAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies.” FSP SFAS 141(R)-1 amends the provisions in SFAS 141(R) for the initial recognition and measurement, subsequent measurement and accounting, and disclosures for assets and liabilities arising from contingencies in business combinations. The FSP is effective for contingent assets or contingent liabilities acquired in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We are currently reviewing SFAS 141(R) to determine its effects on business acquisitions we may make in the future.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events”, or SFAS 165, which enhances the current guidance on accounting and disclosure requirements for subsequent events. This statement requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. SFAS 165 is effective for interim periods and annual financial periods ending after June 15, 2009. We adopted SFAS 165 on June 30, 2009; however the adoption did not have a material impact on our results of operations, cash flows or financial position. We have evaluated subsequent events through September 18, 2009.

In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)”, or SFAS 167, which enhances the current guidance on disclosure requirements for companies with financial interest in a variable interest entity. This statement amends Interpretation 46(R) to replace the quantitative-based risks and rewards calculation for determining which enterprise, if any, has a controlling financial interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and (a) the obligation to absorb losses of the entity or (b) the right to receive benefits from the entity. This statement requires an additional reconsideration event when determining whether an entity is a variable interest entity when any changes in facts and circumstances occur such that the holders of the equity investment at risk, as a group, lose the power from voting rights or similar rights of those investments to direct the activities of the entity that most significantly impact the entity’s economic performance. It also requires ongoing assessments of whether an enterprise is the primary beneficiary of a variable interest entity. This statement amends Interpretation 46(R) to require additional disclosures about an enterprise’s involvement in variable interest entities. SFAS 167 is effective for fiscal years beginning after November 15, 2009, with early application prohibited. We are currently evaluating the impact of the adoption of SFAS 167 on our consolidated financial statements.


ITEM 7A.	*QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK*

We provide our services in the United States and receive payment for our services exclusively in United States dollars. Accordingly, our business is unlikely to be affected by factors such as changes in foreign market conditions or foreign currency exchange rates.

Our market risk exposure relates primarily to interest rates relating to the floating rate notes and our credit facility. As a result, we will periodically use interest rate swaps, caps and collars to hedge variable interest rates on long-term debt. We believe there was not a material quantitative change in our market risk exposure during the quarter ended June 30, 2009, as compared to prior periods. At June 30, 2009, approximately 98% of our indebtedness was variable rate indebtedness; however, as a result of the interest rate collar contract discussed below our exposure on variable rate indebtedness was reduced by $190 million, to approximately 35% of our total indebtedness as of June 30, 2009. We do not engage in activities using complex or highly leveraged instruments.

Interest Rate Risk

In order to modify and manage the interest characteristics of our outstanding indebtedness and limit the effects of interest rates on our operations, we may use a variety of financial instruments, including interest rate hedges, caps, floors and other interest rate exchange contracts. The use of these types of instruments to hedge our exposure to changes in interest rates carries additional risks such as counter-party credit risk and legal enforceability of hedging contracts. We do not enter into any transactions for speculative or trading purposes.

We had an interest rate cap contract with a notional amount of $100 million and a LIBOR cap of 5.0%, which expired on January 31, 2008. In February 2008, we entered into an interest rate hedging agreement with Bank of America, N.A. The agreement effectively provides us with an interest rate collar. The notional amount to which the agreement applies is $190 million, and it provides for a LIBOR cap of 3.25% and a LIBOR floor of 2.59% on that amount. Our obligations under the agreement are secured on a pari passu basis by the same collateral that secures our credit facility, and the agreement is cross-defaulted to our credit facility. The stated term of the agreement is two years, although it may be terminated earlier if Bank of America, N.A. is no longer one of our revolving lenders. The contract exposes us to credit risk in the event that the counterparty to the contract does not or cannot meet its obligations; however, Bank of America, N.A. is a major financial institution and we expect that it will perform its obligations under the contract. We designated this contract as a highly effective cash flow hedge of the floating rate notes under SFAS 133. Accordingly, the value of the contract is marked-to-market quarterly, with changes in the fair value of the contract included as a separate component of other comprehensive income (loss). As of June 30, 2009, the contract had a liability fair value of approximately $2.5 million due to LIBOR falling below the 2.59% floor, which has been recorded in Other Accrued Liabilities.

We have also entered into an agreement that caps $190 million of our variable rate exposure to a maximum LIBOR margin of 3% between February 1, 2010 and January 31, 2011.

Our future earnings and cash flows and some of our fair values relating to financial instruments are dependent upon prevailing market rates of interest, such as LIBOR. Based on interest rates and outstanding balances as of June 30, 2009, a 1% increase or decrease in interest rates on our $293.5 million of floating rate debt would affect annual future earnings and cash flows by approximately $2.9 million. This calculation does not consider the effects of the interest rate hedging agreement, since we are currently below the floor and would remain below the floor. The weighted average interest rate on the floating debt as of June 30, 2009 was 6.28%.

These amounts are determined by considering the impact of hypothetical interest rates on our borrowing cost. These analyses do not consider the effects of the reduced level of overall economic activity that could exist in that environment. Further, in the event of a change of this magnitude, we would consider taking actions to further mitigate our exposure to any such change. Due to the uncertainty of the specific actions that would be taken and their possible effects, however, this sensitivity analysis assumes no changes in our capital structure.

PART II


ITEM 8.	*FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA*

INSIGHT HEALTH SERVICES HOLDINGS CORP. AND SUBSIDIARIES

Index to Consolidated Financial Statements

For the Years Ended June 30, 2009, 2008 and 2007


	Page Number

REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM		52
CONSOLIDATED BALANCE SHEETS		54
CONSOLIDATED STATEMENTS OF OPERATIONS		55
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)		56
CONSOLIDATED STATEMENTS OF CASH FLOWS		57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS		58
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS		113

In accordance with SEC Rule 3-10 of Regulation S-X, the consolidated financial statements of InSight Health Services Holdings Corp., or the Company, are included herein and separate financial statements of InSight Health Services Corp., or InSight, the Company’s wholly owned subsidiary, and InSight’s subsidiary guarantors are not included. Condensed financial data for InSight and its subsidiary guarantors is included in Note 25 to the consolidated financial statements.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of InSight Health Services Holdings Corp.:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, stockholders’ equity and cash flows present fairly, in all material respects, the financial position of InSight Health Services Holdings Corp. and its subsidiaries (Successor Company) at June 30, 2009 and 2008 and the results of their operations and their cash flows for the year ended June 30, 2009 and the period from August 1, 2007 to June 30, 2008 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15 (a) (2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and the financial statement schedule are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits. We conducted our audits of these statements 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 2 to the consolidated financial statements, the United States Bankruptcy Court for the District of Delaware confirmed the Company’s Second Amended Joint Plan of Reorganization (the “plan”) on July 10, 2007. The plan was substantially consummated on August 1, 2007 and the Company emerged from bankruptcy which resulted in the discharge of liabilities subject to compromise and substantially altered the rights and interests of equity security holders as provided for in the plan. In connection with its emergence from bankruptcy, the Company adopted fresh-start accounting as of August 1, 2007.


/s/ PRICEWATERHOUSECOOPERS LLP

Orange County, California
September 21, 2009

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of InSight Health Services Holdings Corp.:

In our opinion, the accompanying statements of operations, stockholders’ equity and cash flows present fairly, in all material respects, the results of operations and the cash flows of InSight Health Services Holdings Corp. and its subsidiaries (Predecessor Company) for the period from July 1, 2007 to July 31, 2007, and for the year ended June 30, 2007 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15 (a) (2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and the financial statement schedule are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits. We conducted our audits of these statements 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 2 to the consolidated financial statements, the Company filed a petition on May 29, 2007 with the United States Bankruptcy Court for the District of Delaware for reorganization under the provisions of Chapter 11 of the Bankruptcy Code. The Company’s Second Amended Joint Plan of Reorganization was substantially consummated on August 1, 2007 and the Company emerged from bankruptcy. In connection with its emergence from bankruptcy, the Company adopted fresh-start accounting.


/s/ PRICEWATERHOUSECOOPERS LLP

Orange County, California
September 25, 2008

INSIGHT HEALTH SERVICES HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2009 AND 2008


	2009			2008
	(Amounts in thousands, except share data)

ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	19,640		$	21,002
Trade accounts receivables, net		25,594			34,494
Other current assets		9,988			8,199

Total current assets		55,222			63,695

ASSETS HELD FOR SALE		2,700			—
PROPERTY AND EQUIPMENT, net		79,837			113,684
CASH, restricted		6,488			8,072
INVESTMENTS IN PARTNERSHIPS		6,791			6,794
OTHER ASSETS		208			1,076
GOODWILL AND OTHER INTANGIBLE ASSETS, net		24,878			24,370

	$	176,124		$	217,691


LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES:
Current portion of notes payable	$	242		$	624
Current portion of capital lease obligations		1,468			1,743
Accounts payable and other accrued expenses		36,037			33,121

Total current liabilities		37,747			35,488

LONG-TERM LIABILITIES:
Notes payable, less current portion		279,726			294,724
Capital lease obligations, less current portion		2,589			4,631
Other long-term liabilities		3,192			4,545
Deferred income taxes		6,792			9,015

Total long-term liabilities		292,299			312,915

COMMITMENTS AND CONTINGENCIES (Note 13)
STOCKHOLDERS’ DEFICIT:
Common stock, $.001 par value, 10,000,000 shares authorized, 8,644,444 shares issued and outstanding		9			9
Additional paid-in capital		37,536			37,463
Accumulated other comprehensive (loss) income		(2,528	)		1,001
Accumulated deficit		(188,939	)		(169,185	)

Total stockholders’ deficit		(153,922	)		(130,712	)

	$	176,124		$	217,691

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

INSIGHT HEALTH SERVICES HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 2009, THE ELEVEN MONTHS ENDED JUNE 30, 2008,
THE ONE MONTH ENDED JULY 31, 2007 AND THE YEAR ENDED JUNE 30, 2007
(Amounts in thousands, except per share data)


	Successor						Predecessor
	Year			Eleven Months			One Month			Year
	Ended			Ended			Ended			Ended
	June 30,			June 30,			July 31,			June 30,
	2009			2008			2007			2007
REVENUES:
Contract services	$	106,130		$	108,944		$	10,051		$	128,693
Patient services		123,120			133,641			12,311			158,221

Total revenues		229,250			242,585			22,362			286,914

COSTS OF OPERATIONS:
Costs of services		155,657			168,297			14,933			192,599
Provision for doubtful accounts		4,021			5,790			389			5,643
Equipment leases		10,950			9,246			760			6,144
Depreciation and amortization		45,584			53,698			4,468			57,040

Total costs of operations		216,212			237,031			20,550			261,426

CORPORATE OPERATING EXPENSES		(21,564	)		(25,744	)		(1,678	)		(25,496	)
EQUITY IN EARNINGS OF UNCONSOLIDATED PARTNERSHIPS		2,642			1,891			174			3,030
INTEREST EXPENSE, net		(30,164	)		(32,480	)		(2,918	)		(52,780	)
GAIN (LOSS) ON SALES OF CENTERS		7,885			(644	)		—			—
GAIN ON PURCHASE OF NOTES PAYABLE		12,065			—			—			—
IMPAIRMENT OF GOODWILL		—			(107,405	)		—			(29,595	)
IMPAIRMENT OF OTHER LONG-LIVED ASSETS		(5,308	)		(12,366	)		—			—

Loss before reorganization items and income taxes		(21,406	)		(171,194	)		(2,610	)		(79,353	)
REORGANIZATION ITEMS, net		—			—			198,998			(17,513	)

(Loss) income before income taxes		(21,406	)		(171,194	)		196,388			(96,866	)
(BENEFIT) PROVISION FOR INCOME TAXES		(1,652	)		(2,009	)		62			2,175

Net (loss) income	$	(19,754	)	$	(169,185	)	$	196,326		$	(99,041	)

Basic and diluted (loss) income per common share	$	(2.29	)	$	(19.57	)	$	227.23		$	(114.63	)
Weighted average number of basic and diluted common shares outstanding		8,644			8,644			864			864

INSIGHT HEALTH SERVICES HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE YEAR ENDED JUNE 30, 2009, THE ELEVEN MONTHS ENDED JUNE 30, 2008,
THE ONE MONTH ENDED JULY 31, 2007 AND THE YEAR ENDED JUNE 30, 2007


										Accumulated
							Additional			Other			Retained
	Common Stock						Paid-in			Comprehensive			Earnings
	Shares			Amount			Capital			Gain (Loss)			(Deficit)			Total
	(Amounts in thousands, except share data)

BALANCE AT JUNE 30, 2006		864,444		$	1		$	87,085		$	601		$	(229,580	)	$	(141,893	)
Net loss		—			—			—			—			(99,041	)		(99,041	)
Other comprehensive income:
Unrealized loss attributable to change in fair value of derivative		—			—			—			(498	)		—			(498	)

Comprehensive loss																	(99,539	)

BALANCE AT JUNE 30, 2007		864,444			1			87,085			103			(328,621	)		(241,432	)
Net income from July 1 to July 31, 2007		—			—			—			—			196,326			196,326
Fresh-start adjustments:
Elimination of Predecessor common stock, additional paid-in capital, accumulated other comprehensive income and accumulated deficit		(864,444	)		(1	)		(87,085	)		(103	)		132,295			45,106
Reorganization value ascribed to Successor		—			—			37,456			—			—			37,456

BALANCE AT JULY 31, 2007 (PREDECESSOR)		—			—			37,456			—			—			37,456



Issuance of 864,444 shares of common stock to existing stockholders		864,444			1			—			—			—			1
Issuance of 7,780,000 shares of common stock to holders of senior subordinated notes		7,780,000			8			(8	)		—			—			—
Share-based compensation								15									15
Net loss from August 1, 2007 to June 30, 2008		—			—			—			—			(169,185	)		(169,185	)
Other comprehensive income:
Unrealized gain attributable to change in fair value of derivative		—			—			—			1,001			—			1,001

Comprehensive loss																	(168,184	)

BALANCE AT JUNE 30, 2008 (SUCCESSOR)		8,644,444			9			37,463			1,001			(169,185	)		(130,712	)
Net loss		—			—			—			—			(19,754	)		(19,754	)
Share-based compensation								73									73
Other comprehensive income:
Unrealized loss attributable to change in fair value of derivative		—			—			—			(3,529	)		—			(3,529	)

Comprehensive loss																	(23,283	)

BALANCE AT JUNE 30, 2009 (SUCCESSOR)		8,644,444		$	9		$	37,536		$	(2,528	)	$	(188,939	)	$	(153,922	)

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

INSIGHT HEALTH SERVICES HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 2009, THE ELEVEN MONTHS ENDED JUNE 30, 2008,
THE ONE MONTH ENDED JULY 31, 2007 AND THE YEAR ENDED JUNE 30, 2007

(Amounts in thousands)


	Successor						Predecessor
	Year			Eleven Months			One Month			Year
	Ended			Ended			Ended			Ended
	June 30,			June 30,			July 31,			June 30,
	2009			2008			2007			2007
OPERATING ACTIVITIES:
Net (loss) income	$	(19,754	)	$	(169,185	)	$	196,326		$	(99,041	)
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Cash used for reorganization items		—			4,764			3,263			11,367
Noncash reorganization items		—			—			(207,025	)		6,146
Depreciation and amortization		45,584			53,698			4,468			57,040
Amortization of bond discount		5,375			4,522			—			—
Amortization of deferred financing costs		—			—			145			3,158
Share-based compensation		73			15			—			—
Equity in earnings of unconsolidated partnerships		(2,642	)		(1,891	)		(174	)		(3,030	)
Distributions from unconsolidated partnerships		2,645			2,563			58			3,008
(Gain) loss on sales of centers		(7,885	)		644			—			—
Gain on purchase of notes payable		(12,065	)		—			—			—
Impairment of goodwill		—			107,405			—			29,595
Impairment of other long-lived assets		5,308			12,366			—			—
Deferred income taxes		(2,223	)		(1,864	)		—			—
Changes in operating assets and liabilities:
Trade accounts receivables, net		7,854			7,679			510			1,007
Other current assets		(2,639	)		(798	)		387			81
Accounts payable, other accrued expenses and accrued interest subject to compromise		(1,530	)		(4,751	)		(1,534	)		11,101

Net cash provided by (used in) operating activities before reorganization items		18,101			15,167			(3,576	)		20,432
Cash used for reorganization items		—			(4,764	)		(3,263	)		(11,367	)

Net cash provided by (used in) operating activities		18,101			10,403			(6,839	)		9,065

INVESTING ACTIVITIES:
Acquisition of fixed-site centers, net of cash acquired		(8,400	)		—			—			—
Proceeds from sales of centers		19,987			9,050			—			—
Decrease (increase) in restricted cash		1,584			(8,072	)		—			—
Additions to property and equipment		(21,893	)		(8,262	)		—			(16,163	)
Other		—			(115	)		181			118

Net cash provided by (used in) investing activities		(8,722	)		(7,399	)		181			(16,045	)

FINANCING ACTIVITIES:
Principal payments of notes payable and capital lease obligations		(2,303	)		(3,474	)		(470	)		(6,529	)
Purchase of floating rate notes		(8,438	)
Proceeds from issuance of notes payable		—			—			12,768			1,145
Principal borrowings (payments) on credit facility		—			—			(5,000	)		5,000
Other		—			—			—			(12	)

Net cash (used in) provided by financing activities		(10,741	)		(3,474	)		7,298			(396	)

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS:		(1,362	)		(470	)		640			(7,376	)
Cash, beginning of period		21,002			21,472			20,832			28,208

Cash, end of period	$	19,640		$	21,002		$	21,472		$	20,832

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid	$	25,271		$	24,004		$	8,184		$	42,116
Income taxes paid		436			581			—			318
Equipment additions under capital leases		—			3,338			—			3,358
Non-cash acquisition		884			—			—			—

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

INSIGHT HEALTH SERVICES HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2009


1.	NATURE OF BUSINESS

All references to “we,” “us,” “our,” “our company” or “the Company” mean InSight Health Services Holdings Corp., a Delaware corporation, and all entities and subsidiaries owned or controlled by InSight Health Services Holdings Corp. All references to “Holdings” mean InSight Health Services Holdings Corp. by itself. All references to “InSight” mean InSight Health Services Corp., a Delaware corporation and a wholly owned subsidiary of Holdings, by itself. Through InSight and its subsidiaries, we provide diagnostic imaging, treatment and related management services in more than 30 states including the following targeted regional markets: California, Arizona, New England, the Carolinas, Florida, and the Mid-Atlantic states. We have two reportable segments: fixed operations and mobile operations. Our services are provided through a network of 96 mobile MRI facilities, two mobile PET facilities, and 14 mobile PET/CT facilities (collectively, mobile facilities) and 31 fixed-site MRI centers and 30 multi-modality fixed-site centers (collectively, fixed-site centers). At our multi-modality fixed-site centers, we typically offer other services in addition to MRI, including PET/CT, CT, x-ray, mammography, ultrasound, nuclear medicine and bone densitometry services.


2.	REORGANIZATION

General Information

Additional information regarding the impact of fresh-start reporting on our condensed consolidated balance sheet on the effective date is included in “Condensed Consolidated Fresh-Start Balance Sheet” below.

Reorganization Items, net

SOP 90-7 requires that the consolidated financial statements for periods subsequent to a chapter 11 filing separate transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, all transactions (including, but not limited to, all professional fees) directly associated with the reorganization of the business are reported separately in the financial statements.

Predecessor recognized the following reorganization items in its consolidated statement of operations (amounts in thousands):


	Predecessor
	One Month			Year
	Ended			Ended
	July 31,			June 30,
	2007			2007

Gain on discharge of debt	$	168,248		$	—
Revaluation of assets and liabilities		38,674			—
Professional fees		(4,962	)		(7,559	)
Write-off of deferred financing costs		—			(6,146	)
Consent fees		(2,954	)		(1,250	)
Management incentive		—			(1,698	)
Other		(8	)		(860	)

	$	198,998		$	(17,513	)

Condensed Consolidated Fresh-Start Balance Sheet

Paragraph 36 of SOP 90-7 requires an entity to adopt fresh-start reporting if the reorganization value of the assets of the emerging entity immediately before the consummation of the confirmed plan of reorganization is less than the total of all post-petition liabilities and allowed claims, and if holders of existing voting shares immediately before confirmation receive less than 50% of the voting shares of the emerging entity. The Company met both criteria and adopted fresh-start reporting upon Holdings’ and InSight’s emergence from chapter 11. Fresh-start reporting required us to revalue our assets and liabilities to fair value. In estimating fair value we based our estimates and assumptions on the guidance prescribed by SFAS No. 157, “Fair Value Measurements”, or SFAS 157, which we adopted in conjunction with our adoption of fresh-start reporting. SFAS 157, among other things, defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and expands disclosure about fair value measurements (Note 24).

Our estimates of fair value of our tangible and identifiable intangible assets were determined by management with the assistance of outside financial advisors. Adjustments to the recorded fair values of these assets and liabilities may impact the amount of recorded goodwill.

To facilitate the calculation of reorganization value and equity value, management, with the assistance of outside financial advisors, developed an estimate of the enterprise value of the successor entity, including $322.5 million in aggregate principal amount of total debt and capital leases as of the date of consummation of the confirmed plan of reorganization.


	•	the market value of Holdings’ 8,644,444 shares of common stock from August 3, 2007, the date the shares first traded after consummation of the confirmed plan of reorganization, through September 30, 2007. The value range of Holdings’ common stock was estimated from a low of $35 million (based on $4 per share) to a high of $61 million (based on $7 per share). The range of enterprise value to correspond with the foregoing range would be from a low of $357 million to a high of $383 million. Management recognized that the common stock valuation approach may have been somewhat limited because the shares of common stock issued after the consummation of the confirmed plan of reorganization did not necessarily have the same liquidity as shares issued in connection with an underwritten public offering. Nevertheless, management primarily relied on this valuation method because (i) orderly observable trading activity in the common stock, though limited in volume, did take place, (ii) the trading activity did not indicate that the transactions


		were forced or distressed sales, and (iii) as articulated by the hierarchy of inputs set forth in SFAS 157, observable inputs (regardless as to whether an active market exists) generally are more useful in calculating fair value than unobservable inputs, which require a reporting entity to develop its own assumptions.


	•	the market value of the $194.5 million of senior subordinated notes for a period of time leading up to cancellation of such debt on the date of the consummation of the confirmed plan of reorganization. The value range of InSight’s senior subordinated notes was estimated from a low of $65 million to a high of $74 million during an approximate 30 day period of time leading up to the date of consummation of the plan. The range of enterprise value to correspond with the foregoing range would be from a low of $387 million to a high of $396 million.

Utilizing the methodologies described above, management determined that the enterprise value of the successor entity was estimated to be in the range of $344 million to $396 million. Based on this range, management deemed $360 million to be an appropriate estimate of the enterprise value of the successor entity. The enterprise value estimate of $360 million fell within the range established above, and management believed the estimate was appropriate since the value was primarily derived from the trading value of the common stock and senior subordinated notes as described above. Management believed that the enterprise value of $360 million best reflected the value of the successor entity because trading activity reflected market based judgments as to the current business and industry challenges the successor entity faces, including negative trends. Furthermore, in estimating the enterprise value of $360 million management determined that a valuation at the low end of the value range based on the trading price of the common stock was appropriate because (i) a substantial majority of transactions in the common stock from August 3, 2007 through September 30, 2007, were for prices between $4.00 and $5.15 per share, and (ii) there was limited volume in the trading activity in the common stock. If the long-term debt and capital leases of $322.5 million in aggregate principal amount as of August 1, 2007, the effective date of the plan of reorganization and exchange offer, without giving effect to the net fair value discount associated with InSight’s $315 million in aggregate principal amount of senior secured floating rate notes due 2011, were subtracted from the successor entity’s estimated enterprise value of $360 million the resulting equity value was $37.5 million.

The foregoing estimates of enterprise value and corresponding equity value, were based upon certain projects and assumptions. Neither the projections nor the assumptions are incorporated into these consolidated financial statements.

The adjustments set forth in the following Condensed Consolidated Fresh-Start Balance Sheet in the columns “Debt Discharge” and “Revaluation of Assets and Liabilities” which reflect the effect of the consummation of the

confirmed plan of reorganization and the adoption of fresh-start reporting on our condensed consolidated balance sheet at August 1, 2007 are as follows (amounts in thousands):


										Successor
				Fresh-Start Adjustments						Reorganized
							Revaluation			Balance
	Predecessor						of Assets			Sheet
	July 31,			Debt			and			August 1,
	2007			Discharge(a)			Liabilities(b)			2007

ASSETS
Current assets:
Cash and cash equivalents	$	21,472		$	—		$	—		$	21,472
Trade accounts receivables, net		42,173			—			—			42,173
Other current assets		7,948			—			(195	)		7,753

Total current assets		71,593			—			(195	)		71,398

Property and equipment, net		140,345			—			18,295			158,640
Investments in partnerships		3,529			—			7,698			11,227
Other assets		7,731			—			(7,587	)		144
Other intangible assets, net		30,111			—			5,889			36,000
Goodwill		64,868			—			45,208			110,076

	$	318,177		$	—		$	69,308		$	387,485


LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Current portion of notes payable and capital lease obligations	$	3,359		$	—		$	—		$	3,359
Accounts payable and other accrued expenses		37,084			—			—			37,084

Total current liabilities		40,443			—			—			40,443

Long-term liabilities:
Notes payable and capital lease obligations, less current portion		315,795			—			(21,818	)		293,977
Liabilities subject to compromise		205,704			(205,704	)		—			—
Other long-term liabilities		8,365			—			7,243			15,608

Total long-term liabilities		529,864			(205,704	)		(14,575	)		309,585

Stockholders’ equity (deficit)
Predecessor
Common stock		1			—			(1	)		—
Additional paid-in capital		87,085			—			(87,085	)		—
Accumulated other comprehensive income		103			—			(103	)		—
Accumulated deficit		(339,319	)		168,248			171,071			—
Successor
Common stock		—			8			1			9
Additional paid-in capital		—			37,448			—			37,448

Total stockholders’ equity (deficit)		(252,130	)		205,704			83,883			37,457

	$	318,177		$	—		$	69,308		$	387,485


(a)		Debt Discharge. This reflects the cancellation of $205,704 of liabilities subject to compromise pursuant to the terms of the confirmed plan of reorganization. The holders of senior subordinated notes received 7,780 shares of Holdings’ common stock in satisfaction of such claims.

(b)		Revaluation of Assets and Liabilities. Fresh-start adjustments made to reflect asset and liability values at estimated fair value are summarized as follows:


	•	Other current assets. An adjustment of $195 was recorded to decrease the value of deferred tax benefit.


	•	Property and equipment, net. An adjustment of $18,295 was recorded to increase the net book value of property and equipment, net.

	•	Investments in partnerships. An adjustment of $7,698 was recorded to recognize the estimated fair value of our investments in partnerships.

	•	Other assets. Adjustments of $7,587 were recorded to reduce the value of deferred financing costs and the value of the interest rate cap contract.

	•	Other intangible assets, net. An adjustment of $5,889 was recorded to recognize identifiable intangible assets. These intangible assets reflect the estimated fair value of our trademark, wholesale contracts and certificates of need. These assets will be subject to an annual impairment review (Note 10).

	•	Goodwill. An adjustment of $45,208 was recorded to reflect reorganization value of the successor equity in excess of the fair value of tangible and identified intangible assets and liabilities. This amount was determined as the stockholders’ deficit immediately prior to Holdings’ and InSight’s emergence from bankruptcy ($252,130), offset by the gain on discharge of debt ($168,248) and revaluation of assets and liabilities ($38,674). This amount was subsequently impaired as of June 30, 2008 (Note 10).

	•	Notes payable. An adjustment of $21,818 was recorded to reflect a net fair value discount associated with InSight’s senior secured floating rate notes due 2011, to be amortized in interest expense over the remaining life of such notes. The fair market value of the notes was determined based on the quoted market value as of August 1, 2007, which represented the present value of amounts to be paid at appropriate current interest rates.

	•	Other long-term liabilities. An adjustment of $7,243 was recorded to increase the value of deferred tax liabilities related to the increase in value of our other indefinite-lived intangible assets.

	•	Total stockholders’ deficit. The adoption of fresh-start reporting resulted in a new entity with no beginning retained earnings or accumulated deficit. The condensed consolidated balance sheet reflected initial stockholders’ equity value of approximately $37,457 estimated as described above.


3.	LIQUIDITY AND CAPITAL RESOURCES

The reorganization significantly deleveraged our balance sheet and improved our projected cash flow after debt service. However, we still have a substantial amount of debt, which requires significant interest and principal payments. As of June 30, 2009, we had total indebtedness of approximately $298.2 million in aggregate principal amount, including InSight’s $293.5 million of senior secured floating rate notes due 2011, or floating rate notes. We believe that future net cash provided by operating and investing activities and our credit facility will be adequate to meet our operating cash and debt service requirements for at least the next twelve months.

We reported net losses of approximately $19.7 million, $169.2 million and $99.0 million for the year ended June 30, 2009, eleven months ended June 30, 2008 and the year ended June 30, 2007, respectively. We have implemented steps to improve our financial performance, including, a core market strategy and various initiatives in response to these losses. We have attempted to implement, and will continue to develop and implement, various revenue enhancement, revenue cycle management and cost reduction initiatives. Revenue enhancement initiatives will focus on our sales and marketing efforts to maintain or improve our procedural volume and contractual rates, and our InSight Imaging Solutions initiative. Revenue cycle management initiatives have and will continue to focus on collections at point of service for patients with commercial insurance, technology improvements to create greater efficiency in the gathering of patient and claim information when a procedure is scheduled or completed, and our initiative with Perot Systems Corporation. Cost reduction initiatives have and will continue to focus on streamlining our organizational structure and expenses including enhancing and leveraging our technology to create greater efficiencies, and leveraging relationships with strategic vendors. While we have experienced some improvements through our revenue cycle management and cost reduction initiatives, our revenue enhancement initiatives have produced minimal improvements to date. Moreover, future revenue enhancement initiatives will face significant challenges because of the continued overcapacity in the diagnostic imaging industry, reimbursement reductions and the effects of the country’s recession, including higher unemployment. We can give no assurance that these steps

will be adequate to improve our financial performance. Unless our financial performance significantly improves, we can give no assurance that we will be able to refinance the floating rate notes, which mature in November 2011, on commercially reasonable terms, if at all.


4.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


a.	CONSOLIDATED FINANCIAL STATEMENTS

Our consolidated financial statements include our accounts and those of all controlled subsidiaries. All significant intercompany transactions and balances have been eliminated. Equity investments in which the Company exercises significant influence, but does not control, and is not the primary beneficiary are accounted for using the equity method (Note 17). Investments in which the Company does not exercise significant influence over the investee are accounted for under the cost method.


b.	USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, 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. Actual results could differ from those estimates.


c.	REVENUE RECOGNITION

Revenues from contract services and from patient services are recognized when services are provided. Patient services revenues are presented net of (1) related contractual adjustments, which represent the difference between our charge for a procedure and what we will ultimately receive from private health insurance programs, Medicare, Medicaid and other federal healthcare programs, and (2) payments due to radiologists. We report payments made to radiologists on a net basis because (i) we are not the primary obligor for the provision of professional services, (ii) the radiologists receive contractually agreed upon amounts from collections and (iii) the radiologists bear the risk of non-collection; however, we have entered into arrangements with certain radiologists pursuant to which we pay the radiologists directly for their professional services at an agreed upon contractual rate. With respect to these arrangements, the professional component is included in our revenues, and our payments to the radiologists are included in costs of services. Contract services revenues are recognized over the applicable contract period. Revenues collected in advance are recorded as unearned revenue.


d.	CASH, CASH EQUIVALENTS AND RESTRICTED CASH

Cash equivalents are generally composed of liquid investments with original maturities of three months or less, such as certificates of deposit and commercial paper. As of June 30, 2009, there was restricted cash of approximately $6.5 million, that was subject to the lien for the benefit of the floating rate note holders, and may only be used for wholly owned capital projects or under certain circumstances the purchase of floating rate notes. These funds are classified as restricted cash on our consolidated balance sheet.


e.	TRADE ACCOUNTS RECEIVABLES

We review our trade accounts receivables and our estimates of the allowance for doubtful accounts and contractual adjustments each period. Contractual adjustments are manual estimates based upon an analysis of (i) historical experience of contractual payments from payors and (ii) the outstanding accounts receivables from payors. Contractual adjustments are written off against their corresponding asset account at the time a payment is received from a payor, with a reduction to the allowance for contractual adjustments to the extent such an allowance was previously recorded. Estimates of uncollectible amounts are revised each period, and changes are recorded in the period they become known. The provision for doubtful accounts includes amounts to be written-off with respect to (1) specific accounts involving customers, which are financially unstable or materially fail to comply with the payment terms of their contract and (2) other accounts based on our historical collection experience, including payor mix and the aging of patient accounts receivables balances. Receivables deemed to be uncollectible, either

through a customer default on payment terms or after reasonable collection efforts have been exhausted, are fully written off against their corresponding asset account; with a reduction to the allowance for doubtful accounts to the extent such an allowance was previously recorded.


f.	LONG-LIVED ASSETS

Property and Equipment. Property and equipment are depreciated and amortized on the straight-line method using the following estimated useful lives:


Vehicles		3 to 8 years
Buildings		7 to 20 years
Leasehold improvements		Lesser of the useful life or term of lease
Computer and office equipment		3 to 5 years
Diagnostic and related equipment		5 to 8 years
Equipment and vehicles under capital leases		Lesser of the useful life or term of lease

We capitalize expenditures for improvements and major equipment upgrades. Maintenance, repairs and minor replacements are charged to operations as incurred. When assets are sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations.

Capitalized Internal Use Software Costs: We capitalize the costs of computer software developed or obtained for internal use in accordance with the American Institute of Certified Public Accountants (AICPA) Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, or SOP 98-1. Capitalized computer software costs consist of purchased software licenses and implementation costs. The capitalized software costs are being amortized on a straight-line basis over a period of three to seven years.

Long-lived Asset Impairment. We review long-lived assets, including identified intangible assets, for impairment when events or changes in business conditions indicate that their full carrying value may not be recovered. We consider assets to be impaired and write them down to fair value if expected associated undiscounted cash flows are less than the carrying amounts. Fair value is determined based on the present value of the expected associated cash flows.


g.	DEFERRED FINANCING COSTS

Costs incurred in connection with financing activities are deferred and amortized using the effective interest method over the terms of the related debt agreements ranging from seven to ten years. Amortization of these costs is charged to interest expense in the accompanying consolidated statements of operations. During the one month ended July 31, 2007, approximately $7.6 million of deferred financing costs were adjusted as part of our revaluation of assets and liabilities in fresh-start reporting which are included in reorganization items, net in the consolidated statements of operations (Note 2). During the year ended June 30, 2007 we wrote-off approximately $6.1 million of deferred financing costs associated with our senior subordinated notes, which are included in reorganization items, net in the consolidated statements of operations (Note 2).


h.	SHARE-BASED COMPENSATION

On July 1, 2006, we adopted SFAS No. 123R, “Share-Based Payment”, or SFAS 123R. SFAS 123R focuses primarily on the accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS 123R requires companies to recognize in the statement of operations the cost of employee services received in exchange for awards of equity instruments based on the grant date fair value of those awards. Because we used the minimum value method of measuring share-based compensation expense under SFAS No. 123, “Accounting for Stock-Based Compensation”, or SFAS 123, and because we previously met the definition of a nonpublic entity under SFAS 123R, we adopted the provisions of SFAS 123R prospectively to new and modified awards on or after July 1, 2006 (Note 14).


i.	GOODWILL AND OTHER INTANGIBLE ASSETS

As of August 1, 2007, goodwill represented the reorganization value of the Successor in excess of the fair value of tangible and identified intangible assets and liabilities from our adoption of fresh-start reporting. We recorded approximately $110.1 million of goodwill upon Holdings’ and InSight’s emergence from bankruptcy (Note 2). Identified intangible assets consist primarily of our trademark, certificates of need, wholesale contracts and customer relationships. The intangible assets, excluding the wholesale contracts and customer relationships, are indefinite-lived assets and are not amortized. Wholesale contracts and customer relationships are definite-lived intangible assets and are amortized over the expected term of the respective contracts. In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”, or SFAS 142, the goodwill and indefinite-lived intangible asset balances are not being amortized, but instead are subject to an annual assessment of impairment by applying a fair-value based test. Wholesale contracts and customer relationships are amortized on a straight-line basis over the estimated lives of the assets.

We evaluate the carrying value of goodwill and other indefinite-lived intangible assets in the second quarter of each fiscal year. Additionally, we review the carrying amount of goodwill and other indefinite-lived intangible assets whenever events and circumstances indicate that the carrying amount of goodwill and other indefinite-lived assets may not be recoverable. Impairment indicators include, among other conditions, cash flow deficits, historic or anticipated declines in revenue or gross profit and adverse legal or regulatory developments. Goodwill is allocated to our two reporting units (mobile and fixed), which are the same as our reportable operating segments, based on the relative fair value of the assets and liabilities of the operating segments. In evaluating goodwill, we complete the two-step goodwill impairment test as required by SFAS 142. In the first of the two-step impairment test, we determine the fair value of these reporting units using a discounted cash flow valuation model, market multiple model or appraised value model, as appropriate. SFAS 142 requires us to compare the fair value of the reporting unit to its carrying value on an annual basis to determine if there is potential impairment. If the fair value of a reporting unit exceeds its carrying value, goodwill of the reporting unit is considered not impaired and no further testing is required. If the fair value does not exceed the carrying value, the second step of the impairment test is performed to measure the amount of impairment loss, if any. The second step compares the implied fair value of the goodwill with the carrying amount of that goodwill. Impairment losses, if any, are reflected in the consolidated statements of operations. As of December 31, 2008, based on factors described in Note 10 to the consolidated financial statements, we performed our annual impairment analysis in accordance with SFAS 142 and recognized a non-cash impairment charge in our mobile reporting unit.

We assess the ongoing recoverability of our other intangible assets subject to amortization in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, or SFAS 144, by determining whether the long-lived asset can be recovered over the remaining amortization period through projected undiscounted future cash flows. If projected future cash flows indicate that the unamortized long-lived asset will not be recovered, an adjustment is made to reduce the asset to an amount consistent with projected future cash flows discounted at the market interest rate. Cash flow projections, although subject to a degree of uncertainty, are based on trends of historical performance and management’s estimate of future performance, giving consideration to existing and anticipated competitive and economic conditions. As of June 30, 2009, there were no impairment indicators in our long-lived assets.


j.	INCOME TAXES

We account for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized.


k.	COMPREHENSIVE INCOME (LOSS)

Components of comprehensive income (loss) are changes in equity other than those resulting from investments by owners and distributions to owners. Net income (loss) is the primary component of comprehensive income (loss), and our only other component of comprehensive income (loss) is the change in unrealized gain or loss on derivatives qualifying for hedge accounting, net of tax. The aggregate amount of such changes to equity that have not yet been recognized in net income (loss) is reported in the equity portion of the accompanying consolidated balance sheets as accumulated other comprehensive income.


l.	FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of financial instruments is estimated using available market information and other valuation methodologies. The fair value of our financial instruments is estimated to approximate the related book value, unless otherwise indicated.


m.	NEW PRONOUNCEMENTS

In September 2006, the FASB issued SFAS 157, which, among other things, defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles, and expands disclosures for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Upon Holdings’ and InSight’s emergence from bankruptcy, we adopted SFAS 157 (Notes 2 and 23).

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities”, or SFAS 161, which amends SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities”, or SFAS 133. SFAS 161 requires enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. We adopted SFAS 161 on January 1, 2009. As SFAS 161 only requires enhanced disclosures, it will have no impact on our consolidated financial statements.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events”, or SFAS 165, which enhances the current guidance on accounting and disclosure requirements for subsequent events. This statement requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. SFAS 165 is effective for interim periods and annual financial periods ending after June 15, 2009. We adopted SFAS 165 on June 30, 2009; however the adoption of SFAS 165 did not have a material impact on our results of operations, cash flows or financial position. We have evaluated subsequent events through September 18, 2009.


5.	TRADE ACCOUNTS RECEIVABLES

Trade accounts receivables, net are comprised of the following (amounts in thousands):


	June 30,
	2009			2008

Trade accounts receivables	$	48,571		$	66,277
Less: Allowances for professional fees		(5,654	)		(7,864	)
Allowances for contractual adjustments		(12,919	)		(15,401	)
Allowances for doubtful accounts		(4,404	)		(8,518	)

Trade accounts receivables, net	$	25,594		$	34,494

The allowances for doubtful accounts and contractual adjustments include management’s estimate of the amounts expected to be written off on specific accounts and for write-offs on other unidentified accounts included in accounts receivables. In estimating the write-offs and adjustments on specific accounts, management relies on a combination of in-house analysis and a review of contractual payment rates from private health insurance programs or under the federal Medicare program. In estimating the allowance for unidentified write-offs and adjustments, management relies on historical experience. The amounts we will ultimately realize could differ materially in the near term from the amounts assumed in arriving at the allowances for doubtful accounts and contractual adjustments in the accompanying consolidated financial statements at June 30, 2009.

We reserve a contractually agreed upon percentage at several of our fixed-site centers, averaging 20 percent of the accounts receivables balance from patients and third-party payors for payments to radiologists representing professional fees for interpreting the results of the diagnostic imaging procedures. Payments to radiologists are only due when amounts are received. At that time, the balance is transferred from the allowance account to a professional fees payable account.


6.	OTHER CURRENT ASSETS

Other current assets are comprised of the following (amounts in thousands):


	June 30,
	2009		2008

Prepaid expenses	$	6,789	$	5,719
Amounts due from our unconsolidated partnerships		2,844		2,480
Other		355		—

	$	9,988	$	8,199


7.	ASSETS HELD FOR SALE

In June 2009, we made the decision to sell certain assets related to two fixed-site centers in Pennsylvania for an amount expected to be less than their then-current carrying amount. As a result, we recorded a non-cash impairment loss of approximately $0.7 million to write down the assets at these two fixed-site centers to their estimated realizable value of $2.7 million and reclassified the associated assets to “Assets held for sale” on our consolidated balance sheet as of June 30, 2009. The impairment loss is included in the line item “Impairment of Assets” in the consolidated statement of operations for the year ended June 30, 2009. We ceased depreciating the assets at these two fixed-site centers at the time they were classified as held for sale. In July 2009, we completed the sale of these assets for $2.7 million.

The following table presents the carrying amount as of June 30, 2009 of the major classes of assets held for sale (amounts in thousands):


Other current assets	$	122
Property and equipment, net		2,578

Total assets held for sale	$	2,700


8.	PROPERTY AND EQUIPMENT

Property and equipment, net are stated at cost and are comprised of the following (amounts in thousands):


	June 30,
	2009			2008

Vehicles	$	1,927		$	1,910
Land, building and leasehold improvements		12,577			16,623
Computer and office equipment		15,370			14,911
Diagnostic and related equipment		113,149			119,809
Equipment and vehicles under capital leases		5,775			6,357
Construction in progress		10,593			1,293

		159,391			160,903
Less: Accumulated depreciation and amortization		(79,554	)		(47,219	)

Property and equipment, net	$	79,837		$	113,684

Depreciation expense was approximately $44.0 million, $50.6 million, $4.4 million and $55.7 million for the year ended June 30, 2009, eleven months ended June 30, 2008 (Successor), the one month ended July 31, 2007, and for the year ended June 30, 2007 (Predecessor), respectively.

For the year ended June 30, 2009 we recorded an impairment loss of $0.7 million to write down certain assets associated with two-fixed site centers in Pennsylvania to their estimated realizable value and reclassified these assets to “Assets held for sale” on our consolidated balance sheet as of June 30, 2009. See Note 7 — Assets Held for Sale.


9.	ACQUISITIONS

On April 23, 2009, we acquired two fixed-site centers in the Boston-metropolitan area of Massachusetts. We paid $8.1 million in cash and incurred transaction costs of $0.3 million. In accordance with SFAS 141, we allocated the purchase price of these fixed-site centers based on the fair value of the assets acquired with the residual recorded to goodwill. We considered a number of factors in performing this valuation, including the valuation of identifiable intangible assets. Goodwill and intangible assets acquired included approximately $1.4 million of goodwill, $3.4 million for certificates of need and $2.8 million for customer relationships (amortized over 30 years). The goodwill and other intangibles recognized in this transaction are deductible for tax purposes.


10.	GOODWILL AND OTHER INTANGIBLE ASSETS

The changes in the carrying amount of goodwill and indefinite-lived intangible assets by segment are as follows for the years ended June 30, 2009 and 2008 (amounts in thousands):


	Goodwill									Trademark			Certificates of Need (CON)
	Mobile			Fixed			Consolidated			Mobile			Mobile			Fixed			Consolidated

Predecessor
Balance at June 30, 2007	$	44,172		$	20,696		$	64,868		$	8,680		$	—		$	—		$	—
Fresh-start reporting adjustment(1)		18,676			26,532			45,208			220			5,600			5,000			10,600

Balance at July 31, 2007		62,848			47,228			110,076			8,900			5,600			5,000			10,600

Successor
Sales of centers(2)		—			(2,671	)		(2,671	)		—			—			—			—
Impairment(3)		(62,848	)		(44,557	)		(107,405	)		(1,500	)		—			—			—

Balance at June 30, 2008		—			—			—			7,400			5,600			5,000			10,600
Impairment(4)		—			—			—			(2,200	)		(2,400	)		—			(2,400	)
Disposition		—			—			—			—			—			(935	)		(935	)
Acquisition(5)		—			1,403			1,403			—			—			3,400			3,400
Other(6)		—			—			—			—			176			(176	)		—

Balance at June 30, 2009	$	—		$	1,403		$	1,403		$	5,200		$	3,376		$	7,289		$	10,665


(1)		See Note 2.

(2)		During the eleven months ended June 30, 2008 we sold seven fixed-site centers and our majority ownership interest in a joint venture that operated a fixed-site center. Goodwill associated with these centers was written-off and is included in loss on sales of centers in the consolidated statement of operations.

(3)		During the fourth quarter of fiscal 2008, we recorded goodwill impairment charges discussed below.

(4)		During the second quarter of fiscal 2009, we recorded impairment charge relating to our indefinite-lived assets discussed below.

(5)		During the fourth quarter of fiscal 2009, we acquired two fixed-site imaging centers in the Boston-metropolitan area.

(6)		During the fourth quarter of fiscal 2009, we discovered an error in the calculation of the value of our certificates of need, or CONs, for our mobile and fixed segments. We completed a quantitative and qualitative assessment of the error and determined that it was not material to either the second fiscal quarter or the fiscal year ended June 30, 2009. The adjustment of this error resulted in an increase in the value of our mobile CONs and an offsetting decrease in our fixed CONs.

Impairment Testing

During the second quarter of fiscal 2009, we completed our annual impairment testing of indefinite-lived intangible assets, using the valuation techniques described in Note 4 — Summary of Significant Accounting Policies, and recorded a non-cash impairment charge of $4.6 million in our mobile reporting unit related to our trademark ($2.2 million) and our CONs ($2.4 million). This impairment charge primarily resulted from an increase in the discount rate used to value our indefinite-lived intangible assets as a result of the significant decline in the financial markets in the fourth calendar quarter of 2008 which led to an overall increase in discount rates for the diagnostic imaging industry. In addition to the impairment charge related to our certificates of need in our mobile

reporting unit, our sale of a fixed-site center in Tennessee in November 2008 included a certificate of need with an estimated value of approximately $0.9 million, which was eliminated upon closing of the sale.

During the fourth quarter of fiscal 2008, as a result of our continued declining performance and the declining market values of both our common stock and floating rate notes, we determined that an interim impairment analysis of the fair value of our two reporting units (mobile and fixed) should be performed in accordance with SFAS 142 using a discounted cash flow model and a market multiples model. We completed our analysis of the fair value of our reporting units utilizing the assistance of an independent valuation firm. Our analysis of the fair value of our reporting units incorporated the use of a three-year plus terminal value discounted cash flow valuation model, among other valuation methods. The starting point in our discounted cash flow valuation model was our actual financial results for fiscal 2008. The assumptions used in our discounted cash flow valuation model included the following: (i) market attrition rates applied to revenue ranged from 4.6% to 4.0% in our mobile reporting unit and ranged from 11.4% to 0.0% in our fixed reporting unit; and (ii) operating profit margins ranged from 14.3% to 24.6% in our mobile reporting unit and from 13.1% to 14.1% in our fixed reporting unit. These market attrition rates and operating profit margins are reflective of the current general economic pressures now impacting us and the overall diagnostic imaging services industry.

Based on our analysis of the fair value of our reporting units, we concluded that impairments had occurred and we recorded a non-cash goodwill impairment charge of approximately $107.4 million related to our reporting units (approximately $44.6 million for our fixed reporting unit and approximately $62.8 million for our mobile reporting unit). We also recorded a non-cash impairment charge in our mobile reporting unit related to one of our indefinite-lived intangible assets (trademark) of approximately $1.5 million. Additionally, in accordance with SFAS 144, we considered whether there were any impairments of other long-lived assets included in the fixed and mobile asset groups. We compared projected undiscounted cash flows for each of the asset groups to the carrying value of the assets, including amortized wholesale contracts and depreciable property and equipment. In each case, the carrying value of the asset groups exceeded the undiscounted cash flows. Therefore, the carrying value of the long-lived assets included in the asset groups were compared to their estimated fair values, resulting in a non-cash impairment charge of approximately $7.1 million related to wholesale contracts in our mobile reporting unit.

Finally, we also recorded other than temporary impairments of approximately $3.8 million in our fixed reporting unit related to the fair value in excess of our equity in the net assets of our investment in partnerships that had been recorded in fresh-start reporting.

The following table provides the gross carrying amount and related accumulated amortization of definite-lived intangible assets (amounts in thousands):


	June 30, 2009				June 30, 2008
	Gross				Gross
	Carrying		Accumulated		Carrying		Accumulated
	Value		Amortization		Value		Amortization

Amortized intangible assets:
Wholesale contracts	$	7,800	$	2,990	$	7,800	$	1,430
Customer relationships(1)		2,800		—		—		—

Total	$	10,600	$	2,990	$	7,800	$	1,430


(1)		During the fourth quarter of fiscal 2009, we acquired two fixed-site imaging centers in the Boston-metropolitan area of Massachusetts. See Note 9 — Acquisitions.

Other intangible assets are amortized on a straight-line method using the following estimated useful lives:


Wholesale contracts							5 years
Customer relationships							30 years

Amortization of intangible assets was approximately $1.6 million, $3.0 million, $0.1 million and $1.3 million for the year ended June 30, 2009, eleven months ended June 30, 2008 (Successor), the one month ended July 31, 2007 and for the year ended June 30, 2007 (Predecessor), respectively.

Estimated amortization expense for the years ending June 30, are as follows (amounts in thousands):


2010	$	1,653
2011		1,653
2012		1,653
2013		223
2014		93
Thereafter		2,335


11.	ACCOUNTS PAYABLE AND OTHER ACCRUED EXPENSES

Accounts payable and other accrued expenses are comprised of the following (amounts in thousands):


	June 30,
	2009		2008

Accounts payable	$	4,664	$	1,598
Accrued equipment related costs		1,717		3,813
Accrued payroll and related costs		10,737		12,839
Accrued interest expense		3,639		4,276
Accrued professional and legal fees		2,015		2,151
Asset retirement obligations & other center closure costs		1,483		2,416
Accrued interest rate collar obligation		2,528		—
Deferred revenue		737		736
Other accrued expenses		8,517		5,292

	$	36,037	$	33,121


12.	NOTES PAYABLE

Notes payable are comprised of the following (amounts in thousands):


	June 30,
	2009			2008

Senior secured floating rate notes payable (floating rate notes), bearing interest at three month LIBOR plus 5.25% (6.28% at June 30, 2009), interest payable quarterly, principal due in November 2011. At June 30, 2009, the fair value of the notes was approximately $124 million	$	293,500		$	315,000
Other notes payable		630			1,026

Total notes payable		294,130			316,026
Less: Unamortized discount on floating rate notes		(14,162	)		(20,678	)
Less: Current portion		(242	)		(624	)

Long-term notes payable	$	279,726		$	294,724

Through InSight, we had outstanding $293.5 million of aggregate principal amount of senior secured floating rate notes due 2011, or floating rate notes, as of June 30, 2009. The floating rate notes mature in November 2011 and bear interest at three month LIBOR plus 5.25% per annum, payable quarterly. As of June 30, 2009, the weighted average interest rate on the floating rate notes was 6.28%. If prior to the maturity of the floating rate notes, we elect to redeem the floating rate notes or are otherwise required to make a prepayment with respect to the floating rate notes for which a redemption price is not otherwise specified in the indenture, regardless of whether such prepayment is made voluntarily or mandatorily, as a result of acceleration upon the occurrence of an event of default or otherwise, we are required to pay 102% of the principal amount plus accrued and unpaid interest. An open-market purchase of floating rate notes would not require a prepayment price at the foregoing rates. In addition, the indenture provides that if there is a change of control, we will be required to make an offer to purchase all

outstanding floating rate notes at a price equal to 101% of their principal amount plus accrued and unpaid interest. The indenture provides that a change of control includes, among other things, if a person or group becomes directly or indirectly the beneficial owner of 35% or more of Holdings’ common stock. The fair value of the floating rate notes as of June 30, 2009 was approximately $124 million based on the quoted market price on that date.

For the year ended June 30, 2009, we purchased $21.5 million in principal amount of our floating rate notes for approximately $8.4 million. We realized a gain of approximately $12.1 million, after the write-off of unamortized discount of approximately $1.0 million.

Holdings’ and InSight’s wholly owned subsidiaries unconditionally guarantee all of InSight’s obligations under the indenture for the floating rate notes. The floating rate notes are secured by a first priority lien on substantially all of InSight’s and the guarantors’ existing and future tangible and intangible personal property including, without limitation, equipment, certain real property, certain contracts and intellectual property and a cash account related to the foregoing but are not secured by a lien on their accounts receivables and related assets, cash accounts related to receivables and certain other assets. In addition, the floating rate notes are secured by a portion of InSight’s stock and the stock or other equity interests of InSight’s subsidiaries.

Through certain of InSight’s wholly owned subsidiaries, we have an asset-based revolving credit facility of up to $30 million, which matures in June 2011, with the lenders named therein and Bank of America, N.A., as collateral and administrative agent. As of June 30, 2009, we had approximately $12.2 million of availability under the credit facility, based on our borrowing base. As a result of our current fixed charge coverage ratio, $4.7 million of the $12.2 million of availability under the borrowing base would be restricted in the event that our liquidity, as defined in the credit facility agreement, falls below the $7.5 million. Borrowings under the credit facility bear interest at a per annum rate equal to LIBOR plus 2.5%, or, at our option, the base rate (which is the Bank of America, N.A. prime rate); however, the applicable margin will be adjusted in accordance with a pricing grid based on our fixed charge coverage ratio, and will range from 2.0% to 2.5% per annum. In addition to paying interest on outstanding loans under the credit facility, we are required to pay a commitment fee to the lenders in respect of unutilized commitments thereunder at a rate equal to 0.50% per annum, subject to reduction based on a performance grid tied to our fixed charge coverage ratio, as well as customary letter-of-credit fees and fees of Bank of America, N.A. There are no other financial covenants included in the credit facility, except a fixed charge coverage ratio as discussed above. At June 30, 2009, there were no borrowings outstanding under the credit facility; however, there were letters of credit of approximately $1.9 million outstanding under the credit facility. The credit facility agreement also contains customary borrowing conditions, including a material adverse effect provision. If we were to experience a material adverse effect, as defined by our credit facility agreement, we would be unable to borrow under the credit facility.

The agreements governing our credit facility and floating rate notes contain restrictions on, among other things, our ability to incur additional liens and indebtedness, engage in mergers, consolidations and asset sales, make dividend payments, prepay other indebtedness, make investments and engage in transactions with affiliates.

Scheduled maturities of notes payable at June 30, 2009, are as follows for the fiscal years ending (amounts in thousands):


2010	$	393
2011		196
2012		293,541

	$	294,130


13.	LEASE OBLIGATIONS, COMMITMENTS AND CONTINGENCIES

We lease diagnostic equipment, certain other equipment and our office and imaging facilities under various capital and operating leases. Future minimum scheduled rental payments required under these noncancelable leases at June 30, 2009 are as follows for the fiscal years ending (amounts in thousands):


	Capital			Operating

2010	$	1,771		$	13,487
2011		1,194			11,013
2012		1,128			8,079
2013		442			4,039
2014		—			1,960
Thereafter		—			2,299

Total minimum lease payments		4,535		$	40,877

Less: Amounts representing interest		(478	)

Present value of capital lease obligations		4,057
Less: Current portion		(1,468	)

Long-term capital lease obligations	$	2,589

Accumulated depreciation on assets under capital leases was $2.2 million and $1.2 million at June 30, 2009 and 2008, respectively.

Rental expense for diagnostic equipment and other equipment for the year ended June 30, 2009, eleven months ended June 30, 2008 (Successor), the one month ended July 31, 2007, and for the year ended June 30, 2007 (Predecessor), was $11.0 million, $9.2 million, $0.8 million and $6.1 million, respectively.

We occupy facilities under lease agreements expiring through October 2017. Some of these lease agreements may include provisions for an increase in lease payments based on the Consumer Price Index or scheduled increases based on a guaranteed minimum percentage or dollar amount. Rental expense for these facilities for the year ended June 30, 2009, eleven months ended June 30, 2008 (Successor), the one month ended July 31, 2007, and for the year ended June 30, 2007 (Predecessor), was $8.1 million, $7.9 million, $0.7 million and $8.8 million, respectively.


14.	EQUITY AND SHARE-BASED COMPENSATION

Equity

Common stock: Prior to the effective date of the confirmed plan of reorganization, Holdings declared a one for 6.326392 reverse stock split. Common stock as of June 30, 2007 and the weighted average number of common shares outstanding for years ended June 30, 2007 have been adjusted to reflect the reverse stock split.

Pursuant to the confirmed plan of reorganization and the related exchange offer, (i) all of Holdings’ common stock, all options for Holdings’ common stock and all of the senior subordinated notes, were cancelled, and (ii) holders of the senior subordinated notes received 7,780,000 shares of newly issued Holdings’ common stock, and holders of Holdings’ common stock prior to the effective date received 864,444 shares of newly issued Holdings’ common stock, in each case after giving effect to the reverse stock split.

Stock options: On April 14, 2008, the board of directors of Holdings adopted the 2008 Director Stock Option Plan and the 2008 Employee Stock Option Plan. The director plan permits the issuance of up to 192,096 shares of Holdings’ common stock to Holdings’ directors, and the employee plan permits the issuance of up to 768,000 shares of Holdings’ common stock to employees and key non-employees of Holdings. Each of the plans was approved at Holdings’ Annual Meeting of Stockholders on October 29, 2008.

On April 14, 2008, each of the Company’s non-employee directors was granted options under the director plan to purchase (i) 16,008 shares of Holdings’ common stock at an exercise price of $1.01 per share and (ii) 16,008 shares of Holdings’ common stock at an exercise price of $1.16 per share. Each set of options becomes exercisable in increments of 1/3rd (5,336 per set) on December 31, 2008, December 31, 2009 and December 31, 2010. As of June 30, 2009, options to purchase 192,096 shares of Holdings’ common stock were outstanding under this plan.

On August 19, 2008, we granted options under the employee plan to purchase 447,000 shares of our common stock to certain of our officers at an exercise price of $0.36 per share. On November 11, 2008, we granted options under the employee plan to purchase 140,000 shares of our common stock to certain other officers at an exercise price of $0.15 per share. The options granted under the employee plan expire ten years from the date of grant, and will vest and become exercisable if, and only if, a refinancing event (as defined in the option agreements) is achieved prior to the expiration of the options. As of June 30, 2009, options to purchase 587,000 shares of Holdings’ common stock were outstanding under the employee plan.

A summary of the status of options for shares of Holdings’ common stock at June 30, 2009, 2008 and 2007 and changes during the periods is presented below:


								Weighted
						Weighted		Average
				Weighted		Average		Remaining
	Number of			Average		Grant Date		Contractual
	Options			Exercise Price		Fair Value		Term (Years)

Successor
Outstanding, August 1, 2007		—		$	—	$	—
Granted		192,096			1.09		1.01

Outstanding, June 30, 2008		192,096			1.09		1.01		9.83
Granted		587,000			0.31		0.31

Outstanding, June 30, 2009		779,096		$	0.50	$	0.48		8.95

Exercisable at June 30, 2008		—		$	—
Exercisable at June 30, 2009		64,032		$	1.09
Predecessor
Outstanding, June 30, 2006		134,314			112.23		42.13
Forfeited		(9,484	)		117.54		41.94

Outstanding, June 30, 2007		124,830			111.85		42.13
Forfeited		(124,830	)		111.85		42.13

Outstanding, July 31, 2007		—		$	—	$	—

Exercisable at June 30, 2006		38,160		$	85.41
Exercisable at June 30, 2007		46,010		$	92.56

Of the options outstanding at June 30, 2009, the characteristics are as follows:


Exercise Price		Weighted Average		Options		Total Options		Remaining Contractual
Range		Exercise Price		Exercisable		Outstanding		Life

$	0.15	$	0.15		—		140,000		9.33 years
	0.36		0.36		—		447,000		9.08 years
	1.01		1.01		32,016		96,048		8.83 years
	1.16		1.16		32,016		96,048		8.83 years

					64,032		779,096

Share-based compensation

We account for share-based compensation under SFAS 123R. For the year ended June 30, 2009, we recognized approximately $0.1 million of compensation expense related to stock options in the consolidated statements of operations. For the eleven months ended June 30, 2008, we recognized approximately $0.1 million of compensation expense related to stock options in the consolidated statements of operations. There were no options or other forms of share-based payment granted during the one month ended July 31, 2007 and no amounts of share-based compensation expense was recognized in the consolidated statements of operations for such period. For the year ended June 30, 2007, our net loss would have reflected pro-forma share-based compensation expense of approximately $0.3 million.

SFAS 123R requires the use of a valuation model to calculate the fair value of share-based awards. We have elected to use the Black-Scholes option pricing model, which incorporates various assumptions including volatility, estimated life and interest rates. The estimated life of an award is based on historical experience and on the terms and conditions of the stock awards granted to employees. Of the non-employee directors’ the average risk-free rate is based on the ten-year U.S. Treasury security rate in effect as of the grant date. Since the vesting of options granted under the employee plan are based on a refinancing event, management assessed whether a financing event, under the provisions of SFAS 123R, is considered probable. Given the current conditions in the capital markets, a refinancing event is currently not considered probable, and therefore, no share-based compensation expense has been recognized in the consolidated statement of operations related to the employee plan. The fair value of each non-employee director option grant issued was estimated on the date of grant or issuance using the Black-Scholes pricing model with the following assumptions used for grants and issuances during the eleven months ended June 30, 2008.


	Eleven Months
	Ended
	June 30,
Assumptions	2008

Weighted average extimated fair value per option granted	$	1.01
Risk-free interest rate		2.16	%
Volatility		113.00	%
Expected dividend yield		0.00	%
Estimated life		10.00 years


15.	INCOME TAXES

The provision for income taxes includes income taxes currently payable and those deferred because of temporary differences between the consolidated financial statements and tax bases of assets and liabilities. The provision for income taxes for the year ended June 30, 2009 and eleven months ended June 30, 2008 (Successor), the one month ended July 31, 2007 and for the years ended 2007 (Predecessor) is as follows (amounts in thousands):


	Successor						Predecessor
	Year			Eleven Months			One Month			Year
	Ended			Ended			Ended			Ended
	June 30,			June 30,			July 31,			June 30,
	2009			2008			2007			2007

Current provision:
Federal	$	—		$	—		$	—		$	—
State		110			(72	)		62			2,175

		110			(72	)		62			2,175

Deferred taxes arising from temporary differences:
Federal		(1,429	)		(2,059	)		(11	)		(88	)
State		(333	)		122			11			88

Total deferred taxes arising from temporary differences		(1,762	)		(1,937	)		—			—

Total (benefit) provision for income taxes	$	(1,652	)	$	(2,009	)	$	62		$	2,175

A reconciliation between the statutory federal income tax rate and our effective income tax rate is as follows:


	Successor						Predecessor
	Year			Eleven Months			One Month			Year
	Ended			Ended			Ended			Ended
	June 30,			June 30,			July 31,			June 30,
	2009			2008			2007			2007
Federal statutory tax rate		34.0	%		34.0	%		34.0	%		34.0	%
State income taxes		(1.1	)		—			—			(2.2	)
Permanent items, including goodwill and non-deductible merger costs		(0.8	)		(0.1	)		—			(0.2	)
Impairment of goodwill and other intangible assets		—			1.1			—			(4.1	)
Changes in valuation allowance		(24.4	)		(33.9	)		(34.0	)		(29.7	)
Other, net		—			—			—			(0.1	)

Net effective tax rate		7.7	%		1.1	%		—	%		(2.3	)%

The components of our net deferred tax liability (including current and non-current portions) as of June 30, 2009 and 2008, respectively, which arise due to timing differences between financial and tax reporting and net operating loss, or NOL, carryforwards are as follows (amounts in thousands):


	June 30,
	2009			2008

Accrued expenses	$	1,756		$	1,831
Property and equipment		(780	)		(8,604	)
Other intangible assets		9,541			10,163
Reserves		1,542			4,244
Investments in partnerships		6,143			5,288
State income taxes		346			(218	)
NOL carryforwards		52,180			50,404
Other		102			51

Net deferred asset		70,830			63,159
Valuation allowance		(77,622	)		(72,174	)

	$	(6,792	)	$	(9,015	)

As of June 30, 2009, we had federal NOL carryforwards of approximately $139.5 million and various state NOL carryforwards. These NOL carryforwards expire between 2009 and 2029. As discussed in Note 2, on August 1, 2007 a confirmed plan of reorganization and cancellation of indebtedness became effective. Future utilization of NOL carryforwards will be limited by Internal Revenue Code section 382 and related provisions as a result of the change in control that occurred. The rules under Internal Revenue Code Section 382 in connection with reorganization and cancellation of indebtedness allow for companies to make an election as to how to compute the annual limitation.

A valuation allowance is provided against net deferred tax assets when it is more likely than not that the net deferred tax asset will not be realized. Based upon (1) our losses in recent years, (2) impairment charges recorded in fiscal years 2008 and 2007 and (3) the available evidence, management determined that is more likely than not that the net deferred tax assets as of the date of applying fresh-start reporting, August 1, 2007, will not be realized. Consequently, we have a full valuation allowance against such net deferred tax assets as of August 1, 2007. In determining the net asset subject to a valuation allowance, we excluded the deferred tax liability related to our indefinite-lived other intangible assets that is not expected to reverse in the foreseeable future resulting in a net deferred tax liability of approximately $6.8 million after application of the valuation allowance as of June 30, 2009. The valuation allowance may be reduced in the future if we forecast and realize future taxable income or other tax planning strategies are implemented. Currently, any future reversals of the valuation allowance, which was recorded as of August 1, 2007 in applying fresh-start reporting, will be recorded as a reduction of goodwill. However, after

adoption of SFAS No. 141(R), “Business Combinations” (Note 4), future reversals of the valuation allowance recorded as of August 1, 2007 will be recorded as an income tax benefit.

On July 1, 2007, we adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109”, or FIN 48. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements. FIN 48 prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in the tax return. There was no cumulative effect adjustment recorded as a result of implementing FIN 48 on July 1, 2007. The liability for income taxes associated with uncertain tax positions was approximately $1.4 million as of June 30, 2008 and 2009 and is included in other long-term liabilities. This amount, if not required, would favorably affect our effective tax rate. We recognize interest and penalties, if any, related to uncertain tax positions in the provision for income taxes. We do not believe that any material change in the liability for unrecognized tax benefits is likely within the next twelve months. As of June 30, 2009, all material federal and state income tax matters have been concluded through June 30, 2004 and June 30, 2003, respectively.


16.	RETIREMENT SAVINGS PLAN

InSight has a 401(k) Savings Plan which is available to all eligible employees, pursuant to which InSight has matched a percentage of employee contributions. InSight contributed approximately $1.0 million, $1.4 million, $0.1 million and $1.5 million for the year ended June 30, 2009, eleven months ended June 30, 2008 (Successor), the one month ended July 31, 2007 and for the year ended June 30, 2007 (Predecessor). In the fourth quarter of fiscal 2009, InSight decided to change the match from a mandatory match to a discretionary match.


17.	INVESTMENTS IN AND TRANSACTIONS WITH PARTNERSHIPS

We have ownership interests in six partnerships or limited liability companies, which we refer to as partnerships, at June 30, 2009, four of which operate fixed-site centers and two of which operate mobile facilities. We own between 24% and 50% of these partnerships, and provide certain management services pursuant to contracts or as a managing general partner. These partnerships are accounted for under the equity method.

Set forth below is certain financial data of these partnerships (amounts in thousands):


	June 30,
	2009			2008

Combined Financial Position:
Current assets:
Cash	$	4,267		$	3,979
Trade accounts receivables, net		3,659			3,509
Due from the Company		132
Other		111			189
Property and equipment, net		2,305			2,792
Other assets		400			400

Total assets		10,874			10,869
Current liabilities		(1,587	)		(1,749	)
Due to the Company		(2,976	)		(2,480	)
Long-term liabilities		(337	)		(257	)

Net assets	$	5,974		$	6,383

Set forth below are the combined operating results of the partnerships and our equity in earnings of the partnerships (amounts in thousands):


	Successor				Predecessor
	Year		Eleven Months		One Month		Year
	Ended		Ended		Ended		Ended
	June 30,		June 30,		July 31,		June 30,
	2009		2008		2007		2007

Operating Results:
Revenues	$	24,466	$	24,940	$	2,159	$	28,505
Expenses		19,117		20,133		1,730		21,026

Net income	$	5,349	$	4,807	$	429	$	7,479

Equity in earnings of unconsolidated partnerships	$	2,642	$	1,891	$	174	$	3,030


18.	RELATED PARTY TRANSACTIONS

We had a management agreement with J.W. Childs Advisors II, L.P., the general partner of J.W. Childs Equity Partners II, L.P., and Halifax Genpar, L.P., the general partner of Halifax Capital Partners, L.P. J.W. Childs Advisors II, L.P. and Halifax Genpar, L.P. provided business, management and financial advisory services to InSight and the Company in consideration of (i) an annual fee of $240,000 to be paid to J.W. Childs Advisors II, L.P. and (ii) an annual fee of $60,000 to be paid to Halifax Genpar, L.P. This management agreement was terminated as of August 1, 2007 in connection with the consummation of the confirmed plan of reorganization.


19.	SEGMENT INFORMATION

We have two reportable segments: mobile operations and fixed operations, which are business units defined primarily by the type of service provided. Mobile operations consist primarily of mobile facilities that generate contract services revenues while fixed operations consist primarily of fixed-site centers that primarily generate patient services revenues. We do not allocate corporate and billing related costs, depreciation related to our billing system and amortization related to other intangible assets to the two segments. We also do not allocate income taxes to the two segments. We manage cash flows and assets on a consolidated basis, and not by segment.

The following tables summarize our operating results by segment (amounts in thousands):


Successor	Mobile			Fixed			Other			Consolidated

Year ended June 30, 2009
Contract services revenues	$	89,998		$	16,132		$	—		$	106,130
Patient services revenues		—			123,120			—			123,120

Total revenues		89,998			139,252			—			229,250
Depreciation and amortization		21,355			20,825			3,404			45,584
Total costs of operations		82,048			121,754			12,410			216,212
Corporate operating expenses		—			—			(21,564	)		(21,564	)
Equity in earnings of unconsolidated partnerships		602			2,040			—			2,642
Gain on sales of centers		—			7,885			—			7,885
Gain on purchase of floating rate notes		—			—			12,065			12,065
Interest expense, net		(954	)		(1,594	)		(27,616	)		(30,164	)
Impairment of other long-lived assets		(4,600	)		(708	)		—			(5,308	)
Income (loss) before income taxes		2,998			25,121			(49,525	)		(21,406	)
Net change in property and equipment		3,654			2,780			3,745			10,179


Successor	Mobile			Fixed			Other			Consolidated

Eleven months ended June 30, 2008:
Contract services revenues	$	87,973		$	20,971		$	—		$	108,944
Patient services revenues		—			133,641			—			133,641

Total revenues		87,973			154,612			—			242,585
Depreciation and amortization		23,146			25,938			4,614			53,698
Total costs of operations		85,398			139,471			12,162			237,031
Corporate operating expenses		—			—			(25,744	)		(25,744	)
Equity in earnings of unconsolidated partnerships		150			1,741			—			1,891
Loss on sales of centers		—			(644	)		—			(644	)
Interest expense, net		(1,857	)		(2,606	)		(28,017	)		(32,480	)
Impairment of goodwill		(62,848	)		(44,557	)		—			(107,405	)
Impairment of other long-lived assets		(8,605	)		(3,761	)		—			(12,366	)
Loss before reorganization items and income taxes		(70,585	)		(34,686	)		(65,923	)		(171,194	)
Net change in property and equipment		2,352			3,917			1,993			8,262


Predecessor	Mobile			Fixed			Other			Consolidated

One month ended July 31, 2007:
Contract services revenues	$	8,169		$	1,882		$	—		$	10,051
Patient services revenues		—			12,311			—			12,311

Total revenues		8,169			14,193			—			22,362
Depreciation and amortization		1,958			2,045			465			4,468
Total costs of operations		6,918			11,920			1,712			20,550
Corporate operating expenses		—			—			(1,678	)		(1,678	)
Equity in earnings of unconsolidated partnerships		—			174			—			174
Interest expense, net		(243	)		(289	)		(2,386	)		(2,918	)
Income (loss) before reorganization items, net and income taxes		1,008			2,158			(5,776	)		(2,610	)
Net change in property and equipment		—			—			—			—


Predecessor	Mobile			Fixed			Other			Consolidated

Year ended June 30, 2007:
Contract services revenues	$	106,799		$	21,894		$	—		$	128,693
Patient services revenues		—			158,221			—			158,221

Total revenues		106,799			180,115			—			286,914
Depreciation and amortization		25,674			24,898			6,468			57,040
Total costs of operations		91,345			151,447			18,634			261,426
Corporate operating expenses		—			—			(25,496	)		(25,496	)
Equity in earnings of unconsolidated partnerships		—			3,030			—			3,030
Interest expense, net		(4,014	)		(4,227	)		(44,539	)		(52,780	)
Impairment of goodwill		—			(29,595	)		—			(29,595	)
Income (loss) before reorganization items, net and income taxes		11,440			(2,124	)		(88,669	)		(79,353	)
Net change in property and equipment		2,918			10,767			2,478			16,163


20.	HEDGING ACTIVITIES

We account for hedging activities in accordance with SFAS 133, and we formally document our hedge relationships, including identification of the hedging instruments and the hedged items, as well as our risk management objectives and strategies for undertaking the hedge. We also formally assess, both at inception and at least quarterly thereafter, whether the derivative instruments that are used in hedging transactions are highly effective in offsetting the changes in either the fair value or cash flows of the hedged item.

We had an interest rate cap contract with notional amount of $100 million and a LIBOR cap of 5.0%, which expired on January 31, 2008. In February 2008, we entered into an interest rate hedging contract with Bank of America, N.A. The contract effectively provides us with an interest rate collar. The notional amount to which the contract applies is $190 million, and it provides for a LIBOR cap of 3.25% and a LIBOR floor of 2.59% on that amount. Our obligations under the contract are secured on a pari passu basis by the same collateral that secures our credit facility, and the contract is cross-defaulted to our credit facility. The contract matures in February 2010, although it may be terminated earlier if Bank of America, N.A. is no longer one of our lenders under the credit facility. We designated this contract as a highly effective cash flow hedge of the floating rate notes under SFAS 133. Accordingly, the value of the contract is marked-to-market quarterly, with changes in the fair value of the contract included as a separate component of other comprehensive income (loss). As of June 30, 2009, the contract had a liability fair value of approximately $2.5 million due to LIBOR falling below the 2.59% floor, which has been recorded in other accrued liabilities.

In September 2009, we entered into an agreement that caps $190 million of our variable rate exposure to a maximum LIBOR margin of 3% between February 1, 2010 and January 31, 2011.


21.	COMPREHENSIVE LOSS

Comprehensive loss consisted of the following components for the year ended June 30, 2009, eleven months ended June 30, 2008 (Successor), the one month ended July 31, 2007 and the year ended June 30, 2007 (Predecessor), respectively (amounts in thousands):


	Successor						Predecessor
	Year			Eleven Months			One Month		Year
	Ended			Ended			Ended		Ended
	June 30,			June 30,			July 31,		June 30,
	2009			2008			2007		2007

Net (loss) income	$	(19,754	)	$	(169,185	)	$	196,326	$	(99,041	)
Unrealized gain (loss) attributable to change in fair value of interest rate contracts		(3,529	)		1,001			—		(498	)

Comprehensive (loss) income	$	(23,283	)	$	(168,184	)	$	196,326	$	(99,539	)


22.	(LOSS) INCOME PER COMMON SHARE

We report basic and diluted earnings per share, or EPS, for our common stock. Basic EPS is computed by dividing reported earnings by the weighted average number of common shares outstanding during the respective period. Diluted EPS is computed by adding to the weighted average number of common shares the dilutive effect of stock options. There were no adjustments to net (loss) income (the numerator) for purposes of computing EPS. Due to the net losses reported for the year ended June 30, 2009, eleven months ended June 30, 2008 (Successor), the year ended June 30, 2007 (Predecessor), and that no stock options were dilutive for the one month ended July 31, 2007 (Predecessor), the calculation of diluted EPS is the same as basic EPS.


23.	FAIR VALUE MEASUREMENTS

We adopted SFAS 157 upon Holdings and InSight emerging from bankruptcy. SFAS 157, among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. SFAS 157 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, SFAS 157 establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in

active markets; (Level 2) inputs other than the quoted prices in active markets that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Assets and liabilities measured at fair value are based on one or more of three valuation techniques noted in SFAS 157. The three valuation techniques are identified in the tables below. Where more than one technique is noted, individual assets or liabilities were valued using one or more of the noted techniques. The valuation techniques are as follows:

(a) Market approach — prices and other relevant information generated by market conditions involving identical or comparable assets or liabilities;

(b) Cost approach — amounts that would be required to replace the service capacity of assets (replacement cost); and

(c) Income approach — techniques to convert future amounts to single present amounts based on market expectations (including present value techniques, option-pricing and excess earnings models).

Assets and liabilities measured at fair value on a recurring basis consist of an interest rate collar contract, which is included in accounts payable and other accrued expenses (amounts in thousands):

Fair Value Measurements Using

Quoted Price

Significant

in Active

Other

Markets for

Observable

Unobservable

Identical Assets

Inputs

Valuation

Amount

(Level 1)

(Level 2)

(Level 3)(1)

Technique

Balance at June 30, 2009:

Interest rate collar — liability position

2,528

—

2,528

—

)

Balance at June 30, 2008:

Interest rate collar — asset position

1,001

—

1,001

—

)

Assets and liabilities measured at fair value in connection with our annual evaluation of definite-lived intangible assets during the second quarter of fiscal 2009 (amounts in thousands):

Fair Value Measurements Using

Quoted Price

Significant

in Active

Other

Successor

Markets for

Observable

Unobservable

December 31,

Identical Assets

Inputs

Valuation

2008

(Level 1)

(Level 2)

(Level 3)(1)

Technique

Definite-lived intangible assets(2)

12,465

—

12,465

)

Goodwill

—

)

Assets and liabilities measured at fair value in connection with our adoption of fresh-start reporting (amounts in thousands):


			Fair Value Measurements Using
			Quoted Price		Significant		Significant
			in Active		Other		Other
	Successor		Markets for		Observable		Unobservable
	August 1,		Identical Assets		Inputs		Inputs		Total			Valuation
	2007		(Level 1)		(Level 2)		(Level 3)(1)		Gain (loss)			Technique

Property and equipment	$	158,640	$	—	$	—	$	158,640	$	18,295			(b	)
Investments in partnerships		11,227		—		—		11,227		7,698			(b	)(c)
Interest rate cap contract		144		144		—		—		(11	)		(a	)
Indefinite-lived intangible assets(2)		19,500		—		—		19,500		(4,931	)		(c	)
Definite-lived intangible assets(2)		16,500		—		—		16,500		10,820			(c	)
Floating rate notes		289,800		289,800		—		—		21,981			(a	)
Capital lease obligations and other notes payable		7,536		—		7,536		—		—			(b	)


(1)		These valuations were based on the present value of future cash flows for specific assets derived from our projections of future revenues, cash flows and market conditions. These cash flows were then discounted to their present value using a rate of return that considers the relative risk of not realizing the estimated annual cash flows and time value of money (Note 4).

(2)		Note 10.


24.	RESULTS OF QUARTERLY OPERATIONS (unaudited)


	Successor
	First			Second			Third			Fourth
	Quarter			Quarter			Quarter			Quarter			Total
	(Amounts in thousands, except per share data)

2009:
Revenues	$	63,085		$	59,121		$	53,492		$	53,552		$	229,250
Costs of operations		58,612			56,955			50,222			50,423			216,212
Net loss		(7,229	)		(6,773	)		(3,406	)		(2,346	)		(19,754	)
Basic and diluted loss per common share		(0.84	)		(0.78	)		(0.39	)		(0.27	)		(2.29	)


	Predecessor		Successor
	One Month		Two Months
	Ended		Ended
	July 31,		September 30,			Second			Third			Fourth
	2007		2007			Quarter			Quarter			Quarter			Total
	(Amounts in thousands, except per share data)

2008:
Revenues	$	22,362	$	45,390		$	67,038		$	65,385		$	64,772		$	242,585
Costs of operations		20,550		42,714			64,971			66,742			62,604			237,031
Net income (loss)		196,326		(7,985	)		(14,053	)		(19,376	)		(127,771	)		(169,185	)
Basic and diluted income (loss) per common share		227.23		(0.92	)		(1.63	)		(2.24	)		(14.78	)		(19.57	)


25.	SUPPLEMENTAL CONDENSED CONSOLIDATED FINANCIAL INFORMATION

Holdings and all of InSight’s wholly owned subsidiaries, or guarantor subsidiaries, guarantee InSight’s payment obligations under the floating rate notes (Note 12). These guarantees are full, unconditional and joint and several. The following condensed consolidating financial information has been prepared and presented pursuant to SEC Regulation S-X Rule 3-10 “Financial statements of guarantors and issuers of guaranteed securities registered or being registered.” We account for investment in InSight and its subsidiaries under the equity method of accounting. Dividends from InSight to Holdings are restricted under the agreements governing our material indebtedness. This information is not intended to present the financial position, results of operations and cash flows of the individual companies or groups of companies in accordance with accounting principles generally accepted in the United States.

SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
JUNE 30, 2009


							Guarantor			Non-Guarantor
	Holdings			InSight			Subsidiaries			Subsidiaries		Eliminations			Consolidated
	(Amounts in thousands)
	(Successor)

ASSETS
Current assets:
Cash and cash equivalents	$	—		$	—		$	17,443		$	2,197	$	—		$	19,640
Trade accounts receivables, net		—			—			23,429			2,165		—			25,594
Other current assets		—			—			9,766			222		—			9,988
Intercompany accounts receivable		37,545			291,403			3,101			—		(332,049	)		—

Total current assets		37,545			291,403			53,739			4,584		(332,049	)		55,222
Assets held for sale		—			—			2,700			—		—			2,700
Property and equipment, net		—			—			74,820			5,017		—			79,837
Cash, restricted		—			—			6,488			—		—			6,488
Investments in partnerships		—			—			6,791			—		—			6,791
Investments in consolidated subsidiaries		(191,467	)		(203,532	)		6,091			—		388,908			—
Other assets		—			—			208			—		—			208
Goodwill and other intangible assets, net		—			—			21,233			3,645		—			24,878

	$	(153,922	)	$	87,871		$	172,070		$	13,246	$	56,859		$	176,124


LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Current portion of notes payable and capital lease obligations	$	—		$	—		$	732		$	978	$	—		$	1,710
Accounts payable and other accrued expenses		—			—			35,380			657		—			36,037
Intercompany accounts payable		—			—			328,948			3,101		(332,049	)		—

Total current liabilities		—			—			365,060			4,736		(332,049	)		37,747
Notes payable and capital lease obligations, less current portion		—			279,338			558			2,419		—			282,315
Other long-term liabilities		—			—			9,984			—		—			9,984
Stockholders’ (deficit) equity		(153,922	)		(191,467	)		(203,532	)		6,091		388,908			(153,922	)

	$	(153,922	)	$	87,871		$	172,070		$	13,246	$	56,859		$	176,124

SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
JUNE 30, 2008


							Guarantor			Non-Guarantor
	Holdings			InSight			Subsidiaries			Subsidiaries		Eliminations			Consolidated
	(Amounts in thousands)
	(Successor)

ASSETS
Current assets:
Cash and cash equivalents	$	—		$	—		$	17,934		$	3,068	$	—		$	21,002
Trade accounts receivables, net		—			—			29,517			4,977		—			34,494
Other current assets		—			—			7,865			334		—			8,199
Intercompany accounts receivable		38,473			293,321			7,400			—		(339,194	)		—

Total current assets		38,473			293,321			62,716			8,379		(339,194	)		63,695
Property and equipment, net		—			—			98,700			14,984		—			113,684
Cash, restricted		—			—			8,072			—		—			8,072
Investments in partnerships		—			—			6,794			—		—			6,794
Investments in consolidated subsidiaries		(169,185	)		(168,184	)		11,408			—		325,961			—
Other assets		—			—			1,076			—		—			1,076
Goodwill and other intangible assets, net		—			—			18,562			5,808		—			24,370

	$	(130,712	)	$	125,137		$	207,328		$	29,171	$	(13,233	)	$	217,691


LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Current portion of notes payable and capital lease obligations
Accounts payable and other accrued expenses	$	—		$	—		$	180		$	2,187	$	—		$	2,367
Intercompany accounts payable		—			—			31,678			1,443		—			33,121
Total current liabilities		—			—			331,794			7,400		(339,194	)		—

Notes payable and capital lease obligations, less current portion		—			—			363,652			11,030		(339,194	)		35,488
Liabilities subject to compromise		—			294,322			753			4,280		—			299,355
Other long-term liabilities		—			—			11,107			2,453		—			13,560
Stockholders’ (deficit) equity		(130,712	)		(169,185	)		(168,184	)		11,408		325,961			(130,712	)

	$	(130,712	)	$	125,137		$	207,328		$	29,171	$	(13,233	)	$	217,691

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 2009


							Guarantor			Non-Guarantor
	Holdings			InSight			Subsidiaries			Subsidiaries			Elimination		Consolidated
	(Amounts in thousands)
	(Successor)

Revenues:
Contract services	$	—		$	—		$	99,656		$	6,474		$	—	$	106,130
Patient services		—			—			104,731			18,389			—		123,120

Total revenues		—			—			204,387			24,863			—		229,250
Costs of operations		—			—			192,719			23,493			—		216,212
Corporate operating expenses		(73	)		—			(21,491	)		—			—		(21,564	)
Equity in earnings of unconsolidated partnerships		—			—			2,642			—			—		2,642
Interest expense, net		—			—			(29,712	)		(452	)		—		(30,164	)
Gain on sales of centers		—			—			7,885			—			—		7,885
Gain on purchase of notes payable		—			12,065			—			—			—		12,065
Inpairment of long-lived assets		—			—			(5,308	)		—			—		(5,308	)

Income (loss) before income taxes		(73	)		12,065			(34,316	)		918			—		(21,406	)
Benefit for income taxes		—			—			(1,652	)		—			—		(1,652	)

Income (loss) before equity in loss of consolidated subsidiaries		(73	)		12,065			(32,664	)		918			—		(19,754	)
Equity in income (loss) of consolidated subsidiaries		(19,681	)		(31,746	)		918			—			50,509		—

Net income (loss)	$	(19,754	)	$	(19,681	)	$	(31,746	)	$	918		$	50,509	$	(19,754	)

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE ELEVEN MONTHS ENDED JUNE 30, 2008


							Guarantor			Non-Guarantor
	Holdings			InSight			Subsidiaries			Subsidiaries			Elimination		Consolidated
	(Amounts in thousands)
	(Successor)

Revenues:
Contract services	$	—		$	—		$	96,364		$	12,580		$	—	$	108,944
Patient services		—			—			115,384			18,257			—		133,641

Total revenues		—			—			211,748			30,837			—		242,585
Costs of operations		—			—			204,050			32,981			—		237,031
Corporate operating expenses		—			—			(25,744	)		—			—		(25,744	)
Equity in earnings of unconsolidated partnerships		—			—			1,891			—			—		1,891
Interest expense, net		—			—			(31,888	)		(592	)		—		(32,480	)
Loss on sales of centers		—			—			(644	)		—			—		(644	)
Impairment of goodwill		—			—			(107,405	)		—			—		(107,405	)
Impairment of other long-lived assets		—			—			(12,366	)		—			—		(12,366	)

Loss before income taxes		—			—			(168,458	)		(2,736	)		—		(171,194	)
Benefit for income taxes		—			—			(2,009	)		—			—		(2,009	)

Loss before equity in loss of consolidated subsidiaries		—			—			(166,449	)		(2,736	)		—		(169,185	)
Equity in loss of consolidated subsidiaries		(169,185	)		(169,185	)		(2,736	)		—			341,106		—

Net loss	$	(169,185	)	$	(169,185	)	$	(169,185	)	$	(2,736	)	$	341,106	$	(169,185	)

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE ONE MONTH ENDED JULY 31, 2007


					Guarantor			Non-Guarantor
	Holdings		InSight		Subsidiaries			Subsidiaries			Elimination			Consolidated
	(Amounts in thousands)
	(Predecessor)

Revenues:
Contract services	$	—	$	—	$	9,371		$	680		$	—		$	10,051
Patient services		—		—		10,226			2,085			—			12,311

Total revenues		—		—		19,597			2,765			—			22,362
Costs of operations		—		—		17,866			2,684			—			20,550
Corporate operating expenses		—		—		(1,678	)		—			—			(1,678	)
Equity in earnings of unconsolidated partnerships		—		—		174			—			—			174
Interest expense, net		—		—		(2,854	)		(64	)		—			(2,918	)

(Loss) income before reorganization items and income taxes		—		—		(2,627	)		17			—			(2,610	)
Reorganization items, net		—		168,248		30,750			—			—			198,998

Income before income taxes		—		168,248		28,123			17			—			196,388
Provision for income taxes		—		—		62			—			—			62

Income before equity in income of consolidated subsidiaries		—		168,248		28,061			17			—			196,326
Equity in income of consolidated subsidiaries		196,326		28,078		17			—			(224,421	)		—

Net income	$	196,326	$	196,326	$	28,078		$	17		$	(224,421	)	$	196,326

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 2007


							Guarantor			Non-Guarantor
	Holdings			InSight			Subsidiaries			Subsidiaries			Elimination		Consolidated
	(Amounts in thousands)
	(Predecessor)

Revenues:
Contract services	$	—		$	—		$	120,765		$	7,928		$	—	$	128,693
Patient services		—			—			132,391			25,830			—		158,221

Total revenues		—			—			253,156			33,758			—		286,914
Costs of operations		—			—			228,583			32,843			—		261,426
Corporate operating expenses		—			—			(25,496	)		—			—		(25,496	)
Equity in earnings of unconsolidated partnerships		—			—			3,030			—			—		3,030
Interest expense, net		—			—			(51,960	)		(820	)				(52,780	)
Impairment of goodwill		—			—			(29,595	)		—			—		(29,595	)

(Loss) income before reorganization items and income taxes		—			—			(79,448	)		95			—		(79,353	)
Reorganization items, net		—			—			(17,513	)		—			—		(17,513	)

(Loss) income before income taxes		—			—			(96,961	)		95			—		(96,866	)
Provision for income taxes		—			—			2,175			—			—		2,175

(Loss) income before equity in income of consolidated subsidiaries		—			—			(99,136	)		95			—		(99,041	)
Equity in (loss) income of consolidated subsidiaries		(99,041	)		(99,041	)		95			—			197,987		—

Net (loss) income	$	(99,041	)	$	(99,041	)	$	(99,041	)	$	95		$	197,987	$	(99,041	)

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 2009


							Guarantor			Non-Guarantor
	Holdings			InSight			Subsidiaries			Subsidiaries			Eliminations			Consolidated
	(Amounts in thousands)
	(Successor)

OPERATING ACTIVITIES:
Net (loss) income	$	(19,754	)	$	(19,681	)	$	(31,746	)	$	918		$	50,509		$	(19,754	)
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Depreciation and amortization		—			—			41,520			4,064			—			45,584
Amortization of bond discount		—			—			5,375			—			—			5,375
Share-based compensation		73			—			—			—			—			73
Equity in earnings of unconsolidated partnerships		—			—			(2,642	)		—			—			(2,642	)
Distributions from unconsolidated partnerships		—			—			2,645			—			—			2,645
Gain on sales of centers		—			—			(5,033	)		(2,852	)		—			(7,885	)
Gain on purchase of notes payable		—			(12,065	)		—			—			—			(12,065	)
Impairment of other long-lived assets		—			—			5,308			—			—			5,308
Deferred income taxes		—			—			(2,223	)		—			—			(2,223	)
Equity in loss of consolidated subsidiaries		19,681			31,746			(918	)		—			(50,509	)		—
Changes in operating assets and liabilities:
Trade accounts receivables, net		—			—			6,088			1,766			—			7,854
Intercompany receivables, net		—			—			10,536			(10,536	)		—			—
Other current assets		—			—			(2,368	)		(271	)		—			(2,639	)
Accounts payable and other accrued expenses		—			—			856			(2,386	)		—			(1,530	)

Net cash provided by (used in) operating activities		—			—			27,398			(9,297	)		—			18,101
INVESTING ACTIVITIES:
Acquisition of fixed-site centers		—			—			(8,400	)		—			—			(8,400	)
Proceeds from sales of centers		—			—			10,909			9,078			—			19,987
Increase in restricted cash		—			—			1,584			—			—			1,584
Additions to property and equipment		—			—			(20,942	)		(950	)		—			(21,892	)
Other		—			—			(2,163	)		2,163			—			—

Net cash provided by (used in) investing activities		—			—			(19,012	)		10,291			—			(8,721	)

FINANCING ACTIVITIES:
Principal payments of notes payable and capital lease obligations		—			—			(438	)		(1,865	)		—			(2,303	)
Purchase of floating rate notes		—			—			(8,438	)		—			—			(8,438	)

Net cash used in financing activities		—			—			(8,876	)		(1,865	)		—			(10,741	)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		—			—			(490	)		(871	)		—			(1,361	)
Cash, beginning of period		—			—			17,934			3,068			—			21,002

Cash, end of period	$	—		$	—		$	17,444		$	2,197		$	—		$	19,641

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE ELEVEN MONTHS ENDED JUNE 30, 2008


							Guarantor			Non-Guarantor
	Holdings			InSight			Subsidiaries			Subsidiaries			Eliminations			Consolidated
	(Amounts in thousands)
	(Successor)

OPERATING ACTIVITIES:
Net loss	$	(169,185	)	$	(169,185	)	$	(169,185	)	$	(2,736	)	$	341,106		$	(169,185	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Cash used for reorganization items		—			—			4,764			—			—			4,764
Depreciation and amortization		—			—			47,623			6,075			—			53,698
Amortization of bond discount		—			—			4,522			—			—			4,522
Share-based compensation		—			—			15			—			—			15
Equity in earnings of unconsolidated partnerships		—			—			(1,891	)		—			—			(1,891	)
Distributions from unconsolidated partnerships		—			—			2,563			—			—			2,563
Loss on sales of centers		—			—			644			—			—			644
Impairment of goodwill		—			—			107,405			—			—			107,405
Impairment of other long-lived assets		—			—			12,366			—			—			12,366
Deferred income taxes		—			—			(1,864	)		—			—			(1,864	)
Equity in loss of consolidated subsidiaries		169,185			169,185			2,736			—			(341,106	)		—
Changes in operating assets and liabilities:
Trade accounts receivables, net		—			—			6,785			894			—			7,679
Intercompany receivables, net		—			—			1,893			(1,893	)		—			—
Other current assets		—			—			(742	)		(56	)		—			(798	)
Accounts payable and other accrued expenses		—			—			(4,895	)		144			—			(4,751	)

Net cash provided by operating activities before reorganization items		—			—			12,739			2,428			—			15,167
Cash used for reorganization items		—			—			(4,764	)		—			—			(4,764	)

Net cash provided by operating activities		—			—			7,975			2,428			—			10,403

INVESTING ACTIVITIES:
Proceeds from sales of centers		—			—			9,050						—			9,050
Increase in restricted cash		—			—			(8,072	)					—			(8,072	)
Additions to property and equipment		—			—			(7,798	)		(464	)		—			(8,262	)
Other		—			—			132			(247	)		—			(115	)

Net cash used in investing activities		—			—			(6,688	)		(711	)		—			(7,399	)

FINANCING ACTIVITIES:
Principal payments of notes payable and capital lease obligations		—			—			(1,689	)		(1,785	)		—			(3,474	)

Net cash used in financing activities		—			—			(1,689	)		(1,785	)		—			(3,474	)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		—			—			(402	)		(68	)		—			(470	)
Cash, beginning of period		—			—			18,336			3,136			—			21,472

Cash, end of period	$	—		$	—		$	17,934		$	3,068		$	—		$	21,002

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE ONE MONTH ENDED JULY 31, 2007


							Guarantor			Non-Guarantor
	Holdings			InSight			Subsidiaries			Subsidiaries			Eliminations			Consolidated
	(Amounts in thousands)
	(Predecessor)

OPERATING ACTIVITIES:
Net income	$	196,326		$	196,326		$	28,078		$	17		$	(224,421	)	$	196,326
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Cash used for reorganization items		—			—			3,263			—			—			3,263
Noncash reorganization items		—			(168,248	)		(38,777	)		—			—			(207,025	)
Depreciation and amortization		—			—			3,956			512			—			4,468
Amortization of deferred financing costs		—			—			145			—			—			145
Equity in earnings of unconsolidated partnerships		—			—			(174	)		—			—			(174	)
Distributions from unconsolidated partnerships		—			—			58			—			—			58
Equity in loss income of consolidated subsidiaries		(196,326	)		(28,078	)		(17	)		—			224,421			—
Changes in operating assets and liabilities:
Trade accounts receivables, net		—			—			223			287			—			510
Intercompany receivables, net		—			(7,768	)		8,208			(440	)		—			—
Other current assets		—			—			425			(38	)		—			387
Accounts payable and other accrued expenses		—			—			(1,614	)		80			—			(1,534	)

Net cash (used in) provided by operating activities before reorganization items		—			(7,768	)		3,774			418			—			(3,576	)
Cash used for reorganization items		—			—			(3,263	)		—			—			(3,263	)

Net cash (used in) provided by operating activities		—			(7,768	)		511			418			—			(6,839	)

INVESTING ACTIVITIES:
Other		—			—			171			10			—			181

Net cash provided by investing activities		—			—			171			10			—			181

FINANCING ACTIVITIES:
Principal payments of notes payable and capital lease obligations		—			—			(306	)		(164	)		—			(470	)
Principal payments on credit facility		—			(5,000	)		—			—			—			(5,000	)
Proceeds from issuance of notes payable		—			12,768			—			—			—			12,768

Net cash provided by (used in) financing activities		—			7,768			(306	)		(164	)		—			7,298

INCREASE IN CASH AND CASH EQUIVALENTS		—			—			376			264			—			640
Cash, beginning of period		—			—			17,960			2,872			—			20,832

Cash, end of period	$	—		$	—		$	18,336		$	3,136		$	—		$	21,472

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 2007


							Guarantor			Non-Guarantor
	Holdings			InSight			Subsidiaries			Subsidiaries			Eliminations			Consolidated
	(Amounts in thousands)
	(Predecessor)

OPERATING ACTIVITIES:
Net (loss) income	$	(99,041	)	$	(99,041	)	$	(99,041	)	$	95		$	197,987		$	(99,041	)
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Cash used for reorganization items		—			—			11,367			—			—			11,367
Write-off of deferred financing costs, included in reorganization items		—			—			6,146			—			—			6,146
Depreciation and amortization		—			—			51,308			5,732			—			57,040
Amortization of deferred financing costs		—			—			3,158			—			—			3,158
Equity in earnings of unconsolidated partnerships		—			—			(3,030	)		—			—			(3,030	)
Distributions from unconsolidated partnerships		—			—			3,008			—			—			3,008
Impairment of goodwill		—			—			29,595			—			—			29,595
Equity in (loss) income of consolidated subsidiaries		99,041			99,041			(95	)		—			(197,987	)		—
Changes in operating assets and liabilities:
Trade accounts receivables, net		—			—			1,015			(8	)		—			1,007
Intercompany receivables, net		—			(5,325	)		5,084			241			—			—
Other current assets		—			—			(112	)		193			—			81
Accounts payable, other accrued expenses and accrued interest subject to compromise		—			—			11,352			(251	)		—			11,101

Net cash (used in) provided by operating activities before reorganization items		—			(5,325	)		19,755			6,002			—			20,432
Cash used for reorganization items		—			—			(11,367	)		—			—			(11,367	)

Net cash (used in) provided by operating activities		—			(5,325	)		8,388			6,002			—			9,065

INVESTING ACTIVITIES:
Additions to property and equipment		—			—			(11,074	)		(5,089	)		—			(16,163	)
Other		—			118			63			(63	)		—			118

Net cash provided by (used in) investing activities		—			118			(11,011	)		(5,152	)		—			(16,045	)

FINANCING ACTIVITIES:
Principal payments of notes payable and capital lease obligations		—			207			(5,348	)		(1,388	)		—			(6,529	)
Proceeds from issuance of notes payable		—			—			—			1,145			—			1,145
Borrowings on revolving credit facility		—			5,000			—			—			—			5,000
Other		—			—			(13	)		1			—			(12	)

Net cash provided by (used in) financing activities		—			5,207			(5,361	)		(242	)		—			(396	)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		—			—			(7,984	)		608			—			(7,376	)
Cash, beginning of year		—			—			25,944			2,264			—			28,208

Cash, end of year	$	—		$	—		$	17,960		$	2,872		$	—		$	20,832


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

None.


ITEM 9A(T).	*CONTROLS AND PROCEDURES*

As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended the Exchange Act, our management carried out an evaluation of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” as of June 30, 2009. This evaluation was carried out under the supervision and with the participation of our management, including the Company’s Chief Executive Officer and Chief Financial Officer. As defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, disclosure controls and procedures are controls and other procedures of the Company that are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2009. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions and disposition of assets; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements in accordance with generally accepted accounting principles; providing reasonable assurance that receipts and expenditures of company assets are made in accordance of with authorization of management and directors of the Company; and providing reasonable assurance that unauthorized acquisition, use or disposition of Company assets that could have a material effect on its financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of the Company’s financial statements would be prevented or detected. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that, owing to changes in conditions, controls may become inadequate, or that the degree of compliance with policies or procedures may deteriorate.

Management conducted an evaluation of the effectiveness of the Company’s 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 the Company’s internal control over financial reporting was effective as of June 30, 2009. There were no changes in the Company’s internal control over financial reporting during the quarter ended June 30, 2009 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

This Form 10-K does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this Form 10-K.


ITEM 9B.	*OTHER INFORMATION*

None.

PART III


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

The following table sets forth the names, ages and positions of our directors and executive officers (as defined by Rule 3b-7 of the Exchange Act) as of September 18, 2009:


Name	Age		Title

Wayne B. Lowell		54	Chairman of the Board and Director
Louis E. Hallman, III		50	President and Chief Executive Officer and Director
Patricia R. Blank		59	Executive Vice President — Revenue Cycle Management
Donald F. Hankus		55	Executive Vice President and Chief Information Officer of InSight
Keith S. Kelson		42	Executive Vice President and Chief Financial Officer
Steven M. King		55	Executive Vice President — Sales and Marketing
Eugene Linden		62	Director
Scott A. M^cKee		34	Vice President — Corporate Development InSight Health Corp.
Richard Nevins		62	Director
James A. Ovenden		46	Director
Bernard J. O’Rourke		49	Executive Vice President and Chief Operating Officer
Bryce O. Robinson		35	Vice President, General Counsel and Secretary
Keith E. Rechner		51	Director
Steven G. Segal		49	Director

Wayne B. Lowell has been a member of our Board of Directors since August 1, 2007 and our Chairman since August 7, 2007. From late 2007 to 2008, he was Chief Executive Officer of Wellmed Medical Management, Inc. From 1998 to late 2007 and subsequent to 2008, he served as President of Jonchra Associates, LLC, which provides strategic and operating advice to senior management of private-equity funded and publicly held entities. Mr. Lowell worked at PacifiCare Health Systems from 1986 to 1998, most recently holding the positions of Executive Vice President, Chief Financial Officer and Chief Administrative Officer.

Louis E. Hallman, III has been our President and Chief Executive Officer and a member of our Board of Directors since April 7, 2008. Mr. Hallman served as our Interim Chief Operating Officer from October 26, 2007 through April 7, 2008. From August 10, 2005 until April 7, 2008, he was InSight’s Executive Vice President and Chief Strategy Officer. Prior to these appointments, Mr. Hallman was the President of Right Manufacturing LLC, a specialty manufacturer, from January 2003 through January 2005. From January 2002 until January 2003, Mr. Hallman was a private investor and reviewed various business opportunities. From August 1999 through January 2002, he was President and CEO of Homesquared Inc., a supplier of web-based software applications to production homebuilders. In July 1989, Mr. Hallman co-founded TheraTx, Inc., which became a diversified healthcare services company listed on NASDAQ. While at TheraTx, he served as Vice President Corporate Development until its sale in April 1997. He currently serves on the Board of Directors of VeriCare Management, Inc., a provider of behavioral solutions to the long-term care industry.

Patricia R. Blank has been our Executive Vice President — Revenue Cycle Management since May 15, 2008. From March 28, 2006 through May 15, 2008 she was InSight’s Executive Vice President-Clinical Services and Support. She was InSight’s Executive Vice President-Enterprise Operations from October 22, 2004 to March 28, 2006. She was InSight’s Executive Vice President and Chief Information Officer from September 1, 1999 to October 22, 2004. Prior to joining InSight, Ms. Blank was the principal of Blank & Company, a consulting firm specializing in healthcare consulting. From 1995 to 1998, Ms. Blank served as Executive Vice President and Chief Operating Officer of HealthHelp, Inc., a Houston, Texas-based radiology services organization managing radiology

provider networks in multiple states. From 1988 to 1995, she was corporate director of radiology of FHP, a California insurance company.

Donald F. Hankus has been InSight’s Executive Vice President and Chief Information Officer since September 26, 2005. Prior to this appointment, Mr. Hankus was the Director of Sales Operations of Quest Software, Inc., a provider of application, database and infrastructure software, from January 2004 through September 2005. From January 2000 through January 2004, he was Chief Information Officer of Directfit. From December 1996 to January 2000, he served as Director of Software Development for Cendant Corporation, a real estate brokerage and hotel franchisor.

Keith S. Kelson has been our Executive Vice President and Chief Financial Officer since November 1, 2008. Mr. Kelson served as Chief Financial Officer of Securus Technologies, Inc., a national telecommunications company, from September 2004 to July 2008 and served as Chief Financial Officer of Evercom Holdings, Inc., from March 2000 until it was acquired by Securus in September 2004. Prior to joining Evercom in 1998, he was a certified public accountant in the accounting and auditing services division of Deloitte & Touche LLP and held various financial positions with subsidiaries of Kaneb Services, Inc. He has over 20 years of combined accounting experience, serving seven of those years in public accounting with Deloitte & Touche LLP and 13 years in financial management. Mr. Kelson has a B.B.A. in Accounting from Texas Christian University, from which he graduated cum laude. He has had executive level education at IMD International in Lausanne, Switzerland.

Steven M. King has been our Executive Vice President — Sales and Marketing since October 27, 2008. Prior to this appointment, Mr. King served as a Director, Consultant, and Interim Vice President of Sales for HeartSmart Technologies, a provider of a non-invasive diagnostic tool for the early detection of cardiovascular disease, from July 2007 to June 2008. From July 2006 through June 2007, he was Vice President of Sales and Marketing at Health Savings Technology, a provider of healthcare administrative tools for consumer directed healthcare. From March 2003 through October 2004, he was Vice President of Sales for the 3E Company, a provider of outsourced data solutions and service. From 1997 to 2003, he was Executive Vice President of Sales for Woodside Biomedical, Inc., manufacturer of medical device technology to treat nausea and vomiting associated with surgery, oncology, and pregnancy.

Eugene Linden has been a member of our Board of Directors since August 1, 2007. He has been the Chief Investment Strategist of Bennett Management Corporation, a family of investment funds, since 2005. From 1987 to 1995, Mr. Linden was a senior writer at TIME Magazine. Mr. Linden currently serves as a director of Cibus Genetics LLC and Syratech Corporation.

Scott A. M^cKee has been the Vice President — Corporate Development of InSight Health Corp. since August 1, 2008. Mr. M^cKee served as Chief Development Officer of American Health Imaging, Inc., a national diagnostic imaging company, from 2005 to 2008 and served in several capacities at Center for Diagnostic Imaging, Inc., a national diagnostic imaging company, from 2000 through 2005. He has over 9 years of combined experience in diagnostic imaging in finance and development. Mr. M^cKee has a B.B.A. in Marketing and an M.B.A with emphasis in finance from the University of North Dakota.

Richard Nevins has been a member of our Board of Directors since August 1, 2007. From October 26, 2007 to April 7, 2008, Mr. Nevins served as our Interim Chief Executive Officer. From July 2007 through September 2007, he served as the interim Chief Executive Officer for US Energy Services, Inc. (“USEY”). He also was an independent advisor after his retirement in 2007 from Jefferies & Company, Inc. (“Jefferies”) until he rejoined Jefferies in May 2008 as a managing director. From 1998 until his retirement in 2007, Mr. Nevins was a managing director and co-head of the recapitalization and restructuring group at Jefferies. Mr. Nevins currently serves as a director of DayStar Technologies, Inc., Aurora Trailer Holdings and SPELL C LLC. After Mr. Nevins left USEY, on January 9, 2008, USEY and two of its subsidiaries filed voluntary petitions under chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York.

James A. Ovenden has been a member of our Board of Directors since August 1, 2007. Since May 1, 2009, he has been the Chief Financial Officer for AstenJohnson Holdings, a manufacturer of paper machine clothing, specialty fabrics, filaments and drainage equipment. From 2004 until December 31, 2007, he was the Chief Financial Officer and a founding principal of OTO Development, LLC (“OTO”), a hospitality development

company established in 2004. From January 2008 to December 2008, he was an advisor to OTO. Mr. Ovenden has also served as a principal consultant with CFO Solutions of SC, LLC since 2002. Mr. Ovenden was the Chief Financial Officer of Extended Stay America, Inc. from January 2004 to May 2004 and held various positions at CMI Industries, Inc. from 1987 to 2002, including Chief Financial Officer. Mr. Ovenden currently serves as a director, and as chairman of the audit committee of the board of directors, of Polymer Group, Inc.

Bernard J. O’Rourke has been our Executive Vice President and Chief Operating Officer since May 15, 2008. From March 28, 2006 until May 15, 2008, Mr. O’Rourke served as the Senior Vice President and General Manager, Eastern Division of InSight Health Corp., a subsidiary of InSight. From January 17, 2005 to March 26, 2006, Mr. O’Rourke served as the Area Vice President-Enterprise Operations, Northeast of InSight Health Corp. From September 2004 until joining InSight Health Corp., Mr. O’Rourke was a consultant involved with laboratory operations and drug abuse collections. From September 2002 to September 2004, he was a director of operations for Radiologix, a provider of medical imaging services.

Keith E. Rechner has been a member of our Board of Directors since August 1, 2007. Mr. Rechner is also currently a financial advisor with AXA Advisors, a position he has held since 1997. He also is a member of the operating committee of United Wealth Strategies LLC, a financial and consulting services company. He was Chief Executive Officer and President of Benefit Advisors, Inc., an employee benefits consulting firm, from January 1997 through December 2007. Mr. Rechner served as the Regional Vice President of Tax Sheltered Markets for AXA Advisors from 2002 to 2005 and Vice President of Traditional Markets for AXA Advisors from 2000 to 2002. From 1993 to 1996, Mr. Rechner held various positions with VHA Great Rivers, Inc./Great Rivers Network, including President and Chief Executive Officer, Great Rivers Network, Chief Operating Officer, Integrated Benefit Services (IBS) and Vice President, Managed Care.

Bryce O. Robinson has been our Vice President, General Counsel and Secretary since May 1, 2009. From November 1, 2008 to April 30, 2009 he was our General Counsel and Secretary. From December 2003 to October 31, 2008, he served as Assistant General Counsel of InSight Health Corp. From 1999 to December 2003, he was an associate with the law firm of Latham & Watkins LLP.

Steven G. Segal has been a member of our Board of Directors since October 17, 2001. He is a Partner of J.W. Childs Associates, L.P. and has been at J.W. Childs Associates, L.P. since 1995. Prior to that time, he was an executive at Thomas H. Lee Company from 1987, most recently holding the position of Managing Director. Since 2006, Mr. Segal has been an Executive-in-Residence/Lecturer at Boston University’s Graduate School of Management. He is also a director of The NutraSweet Company, Fitness Quest Inc., WS Packaging Group, Inc. and Round Grille, Inc. (d/b/a FIRE + iCE).

Audit Committee

The Audit Committee is comprised of James A. Ovenden (Chairman), Wayne B. Lowell and Richard Nevins. The Board of Directors has concluded that Messrs. Ovenden, Lowell and Nevins are each “independent” as that term is defined in the rules of the NASDAQ Stock Market. The Board of Directors has determined that Messrs. Ovenden and Lowell are each “audit committee financial experts” as that term has been defined by the SEC. While Mr. Nevins served as our Interim Chief Executive Officer, Mr. Rechner served on the Audit Committee in place of Mr. Nevins.

The Audit Committee has adopted a written charter, which is available on our website at the following internet address http://www.insighthealth.com/articles/boarddocs/Audit%20Committee%20Charter.pdf. The charter should not be considered as part of this Form 10-K. The Audit Committee charter provides that the Audit Committee will:


	•	Prepare the audit committee report required by SEC rules to be included in the Company’s annual proxy statement.

	•	Assist the Board of Directors in fulfilling its responsibility to oversee management regarding:


	•	the conduct and integrity of the Company’s financial reporting to any governmental or regulatory body, stockholders, other users of the Company’s financial reports, and the public;


	•	the Company’s legal and regulatory compliance;

	•	the qualifications, engagement, compensation, independence, and performance of the Company’s independent registered public accounting firm, its conduct of the annual audit of the Company’s consolidated financial statements, and its engagement to provide any other services; and

	•	the performance of the Company’s internal audit function and systems of internal control over financial reporting and disclosure controls and procedures.


	•	Maintain through regularly-scheduled meetings, a line of communication between the Board of Directors and the Company’s management, internal auditor and the independent registered public accounting firm.

The Audit Committee of the Board of Directors approved PricewaterhouseCoopers LLP (“PWC”) as our independent registered public accountants to audit our consolidated financial statements for fiscal 2009 and to review of our interim condensed consolidated financial statements for the quarter ending September 30, 2009. PWC has been our independent registered public accounting firm since 2002.

Compensation Committee

The Compensation Committee consists of Keith E. Rechner (Chairman), James A. Ovenden and Steven G. Segal. The Compensation Committee assists the Board of Directors by ensuring that our executives are compensated in accordance with our total compensation objectives and executive compensation policy. The Board of Directors has established a charter for the Compensation Committee, which is available on our website at the following internet address http://www.insighthealth.com/articles/boarddocs/Compensation%20Committee%20Charter.pdf. The charter should not be considered as part of this Form 10-K. The charter provides that the Compensation Committee will:


	•	review and recommend to the Board of Directors the compensation of the Chief Executive Officer;

	•	administer the Company’s stock option or other equity-based compensation plans and programs; and

	•	oversee the Company’s management compensation and benefits policies, including both qualified and non-qualified plans.

Nomination of Directors

We have not established a Nominating Committee and currently have no plans to do so. Our current practice is for the entire Board of Directors to evaluate the merits of director nominees based on the experience of the nominee in our industry, the nominee’s prior experience as a director of a company similar to ours and on other attributes we deem desirable in a director of the Company. Our bylaws also permit our common stockholders to nominate candidates as directors of the Company.

Code of Ethical Conduct

See Item 13. Certain Relationships and Related Transactions and Director Independence — Policies and Procedures Regarding Related Persons and Code of Ethical Conduct.


ITEM 11.	*EXECUTIVE COMPENSATION*

Summary Compensation Table

The following table sets forth information concerning the annual, long-term and all other compensation for services rendered in all capacities to us and our subsidiaries for the years ended June 30, 2009 and 2008 of (1) each person who served as our principal executive officer during fiscal 2009 and (2) the other two most highly compensated executive officers serving as executive officers at June 30, 2009. We refer to these officers collectively as the “named executive officers”.


	Fiscal
	Year				Non-Equity
	Ended				Incentive Plan		All Other		Total
Name and Principal Position	June 30,		Salary		Compensation(1)		Compensation(2)		Compensation

Louis E. Hallman, III		2009	$	424,231	$	52,153	$	34,524	$	510,908
President and Chief Executive		2008		333,799		50,000		35,406		419,205
Officer
Patricia R. Blank		2009		293,193		25,843		43,157		362,193
Executive Vice President —		2008		286,054		28,822		38,175		353,051
Revenue Cycle Management
Bernard O’Rourke		2009		266,747		29,809		51,486		348,042
Executive Vice President —		2008		200,699		74,900		38,549		314,148
Chief Operating Officer


(1)		The components of Non-Equity Incentive Plan Compensation are annual cash incentive awards, which are based on our financial performance and a named executive’s performance of his or her personal management objectives. These are earned and accrued during the fiscal year and paid subsequent to the end of each fiscal year.

(2)		Amounts of All Other Compensation are comprised of the following perquisites: (i) automobile allowances, (ii) automobile operating expenses, (iii) the Company’s contributions to our 401(k) Savings Plan, (iv) specified premiums on executive life insurance arrangements, (v) specified premiums on executive health and disability insurance arrangements, and (vi) certain professional membership dues.

Annual Base Salary. Base salaries for executive officers are established based on the scope of their responsibilities, individual contribution, prior experience, sustained performance, competitive salary levels within our peer group, and our annual operating plan. No increases in annual base salaries have been recommended to or approved by the Board of Directors for fiscal 2010.

Annual Cash Incentive Awards. For fiscal 2008, pursuant to the 2008 Executive Management Incentive Compensation Plan, 75% of the targeted cash incentive award was based on the Company’s financial performance, and 25% of the targeted cash incentive award was based upon the discretion of the Compensation Committee. Annual targets for the determination of the cash incentive awards are based on financial performance targets, which have been approved by the Compensation Committee and are generally considered by the Compensation Committee to be reasonably attainable. For fiscal 2008, 75% of the targeted cash incentive awards were only payable if we exceeded 90% of our financial performance target. Since the Company did not achieve 90.0% of the financial performance target only the 25% portion is payable at the discretion of the Compensation Committee. The Compensation Committee (and the Board of Directors in the case of Mr. Hallman’s award) approved discretionary incentive cash awards relative to the 25% portion for our named executive officers as described in the Summary Compensation Table above.

For the three years ending June 30, 2011, our ability to utilize our limited capital resources for maximizing stockholder value is considered by the Board of Directors to be a critical component of our overall strategy. The Compensation Committee determined that it was important to change the Company’s cultural and philosophical bias from historically using EBITDA or EBITDAL as financial performance targets to a heightened focus on return on capital. Accordingly for fiscal 2009, the Board of Directors approved a Three Year Executive Incentive Compensation Plan (“2009 Plan”), in which the executive officers will participate, with a performance target based

on a “profit after capital charge” or “Company PACC”. By implementing the 2009 Plan, the Compensation Committee believed it will motivate the executive officers to maximize earnings from the Company’s core assets and focus them on the total capital expended in connection with maintaining and growing such assets. The annual cash incentive award will be:


	•	80% based on the executive officers’ participation in Company PACC, and

	•	20% based on the executive officers’ performance relative to quarterly personal management objectives (“PMOs”).

The portion of the executive officers’ awards, based on Company PACC will be calculated by first determining Company PACC and then calculating the executive officers’ percentage participation provided certain threshold levels are met. Company PACC will be calculated by taking the Company’s EBITDA and subtracting the product of: (a) the Company’s weighted average tangible asset base, multiplied by (b) 18%, the target minimum return on capital employed. The Company’s weighted average tangible asset base will be determined at the beginning of each fiscal year and adjusted for asset additions, removals, and straight line depreciation.

Individual targeted cash awards will be determined as a percentage of Company PACC based on the following participation percentages: Mr. Hallman — 1.0%, Ms. Blank — 0.50% and Mr. O’Rourke — 0.55%.

The portion of the executive officers’ incentive award attributable to meeting financial performance targets is based on actual Company PACC performance. In order for the executive officers to be eligible for an award, they must achieve at least 90% of budgeted Company PACC. Above a 90% achievement level and up to 100% achievement, the executive officers will receive an award based on a linear payout trend. Should the executive officers exceed 100% of budgeted Company PACC, they will be eligible to share in a portion of the incremental Company PACC above budget. Since the Company did not achieve 90.0% of the financial performance target for fiscal 2009, only the 20% portion with respect to PMOSs was payable at the discretion of the Compensation Committee. The 2009 Plan was originally intended to increase the Company PACC by 5% for fiscal 2010 and fiscal 2011. The Board of Directors determined not to raise the Company PACC by 5% for fiscal 2010 because of the country’s current economic environment, but has not made a decision with respect to fiscal 2011.

As mentioned above, 20% of each executive officer’s incentive award will be based on achievement of certain PMOs established over the course of the year, and approved by the President and Chief Executive Officer with respect to executive officers other than himself. In the case of the President and Chief Executive Officer, the Board of Directors shall approve his PMOs. Eligibility for the PMOs will be based on each executive officer’s achievement of quarterly goals and objectives as determined by the executive officer and his or her supervisor. The Compensation Committee (and the Board of Directors in the case of Mr. Hallman’s award) approved incentive cash awards relative to the 20% portion for our named executive officers in the amounts as described in the Summary Compensation Table above.

Annual targets for the determination of Company PACC have been based on budgeted profitability levels, which have been approved by the Board of Directors and are generally considered by the Board of Directors to be reasonably attainable while requiring substantial effort. The 2009 Plan can be modified at the discretion of the Compensation Committee.

Long-Term Equity Awards. The Board of Directors granted all stock options based on the fair market value as of the date of grant, which is determined using the mean between the bid and ask of the quoted price per share on the Over-The-Counter Bulletin Board on the date of grant. Additional grants may be made following a significant change in job responsibility or in recognition of a significant achievement. The stock option grants to executive officers under the Employee Stock Option Plan become vested and exercisable if, and only if, a refinancing event (as defined in the stock option agreements) is achieved. Our Compensation Committee believes that the vesting conditions of our stock options will prove an incentive for executive officers to remain with us for a reasonable time frame to complete the refinancing event. Awards under the Employee Stock Option Plan are subject to the change of control provisions described therein.

Additional Benefits and Perquisites. We also provide the following additional benefits and perquisites as a supplement to other compensation:


	•	Medical Insurance. At our sole cost, we provide to each named executive officer and certain other officers and their eligible dependents such health, dental and vision insurance as we may from time to time make available.

	•	Life and Long-Term Disability Insurance. At our sole cost, we provide each named executive officer and certain other officers such long-term disability and/or life insurance as we in our sole discretion may from time to time make available.

	•	401(k) Savings Plan. Until May 2009, we made matching contributions to our 401(k) Savings Plan in an amount equal to fifty cents for each dollar of participant contributions, up to a maximum of 6% of the participant’s compensation for each pay period and subject to certain other limits. In May 2009, we made the match discretionary at the Company’s election. Participation is not limited to officers, and all full-time employees are eligible to participate in the 401(k) Savings Plan.

	•	Automobile Allowance and Operating Expenses. Mr. Hallman receives an automobile allowance of $1,000 per month, and the other named executive officers and certain other officers receive an automobile allowance of $750 per month. We pay the named executive officers’ and certain other officers’ expenses incidental to the operation of an automobile.

Employment Agreements

We have entered into an employment agreement with each of our named executive officers and certain other executives. Each employment agreement with our named executive officers provides for a term of 12 months on a continuing basis, subject to certain termination rights. These employment agreements provide for an annual salary as well as a cash incentive award; 80% of the cash incentive award is based on our achievement of budgetary goals, and 20% of the cash incentive award is based upon the achievement of other goals (i.e., PMOs) mutually agreed upon by each executive and our President and Chief Executive Officer and approved by our Board of Directors (except in the case of Mr. Hallman, whose goals are agreed upon by our Board of Directors). Each executive officer with an employment agreement is provided with a life insurance policy of three times the amount of his or her annual base salary and is entitled to participate in our life insurance, medical, health and accident and disability plan or program, pension plan or other similar benefit plan and any stock option plans. Each executive officer with an employment agreement is subject to a noncompetition covenant and nonsolicitation provisions during the term of his or her employment and continuing for a period of 12 months after the termination of his or her employment.

Under the terms of each executive’s employment agreement, each executive’s employment will immediately terminate upon his or her death and the executors or administrators of his or her estate or his or her heirs or legatees (as the case may be) will be entitled to all accrued and unpaid compensation up to the date of his or her death. Each executive’s employment agreement will terminate and each of them will be entitled to all accrued and unpaid compensation, as well as twelve months of compensation at the annual salary rate then in effect upon the occurrence of the following:

(1) Upon the executive’s permanent and total disability (i.e., the executive is unable substantially to perform his or her services required by the employment agreement for three consecutive months or shorter periods aggregating three months during any twelve month period); provided, however, that our obligation to make payments of twelve months of compensation at the annual salary rate then in effect may be reduced by the amount which the executive is entitled to receive under the terms of our long-term disability insurance policy.

(2) Upon our 30 days’ written notice to the executive of the termination of the executive’s employment without cause. The employment agreements generally define cause as the occurrence of one of the following:


	•	the executive has been convicted or pled guilty or no contest to any crime or offense (other than any crime or offense relating to the operation of an automobile) which is likely to have a material adverse impact on the business operations or financial or other condition of our business, or any felony offense;

	•	the executive has committed fraud or embezzlement;

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	•	the executive has breached any of his or her obligations under the employment agreement and failed to cure the breach within 30 business days following receipt of written notice of such breach;

	•	we, after reasonable investigation, find that the executive has violated our material written policies and procedures, including but not necessarily limited to, policies and procedures pertaining to harassment and discrimination;

	•	the executive has failed to obey a specific written direction from our Board of Directors (unless such specific written instruction represents an illegal act), provided that (i) such failure continues for a period of 30 business days after receipt of such specific written direction, and (ii) such specific written direction includes a statement that the failure to comply therewith will be a basis for termination hereunder; or

	•	any willful act or omission on the executive’s part which is materially injurious to our financial condition or business reputation.

(3) If the executive terminates his or her employment with us for good reason. The employment agreements generally define good reason as:


	•	the relocation by us, without the executive’s consent, of the executive’s principal place of employment to a site that is more than a specified number of miles from the executive’s principal residence;

	•	a reduction by us, without the executive’s consent, in the executive’s annual salary, duties and responsibilities, and title, as they may exist from time to time; or

	•	our failure to comply with any material provision of the employment agreement which is not cured within 30 days after notice of such noncompliance has been given by the executive, or if such failure is not capable of being cured in such time, for which a cure shall not have been diligently initiated by us within the 30 day period.

(4) If the executive’s employment is terminated by us without cause or he or she terminates his or her employment for good reason within twelve months of a change in control. The consummation of the exchange offer and the plan of reorganization did not constitute a change in control under the employment agreements with the named executive officers. A change in control shall generally be deemed to have occurred if:


	•	any person, or any two or more persons acting as a group, and all affiliates of such person or persons (a “Group”), who prior to such time beneficially owned less than 50% of our then outstanding capital stock shall acquire shares of our capital stock in one or more transactions or series of transactions, including by merger, and after such transaction or transactions such person or group and affiliates beneficially own 50% or more of our outstanding capital stock; or

	•	we sell all or substantially all of its assets to any Group which, immediately prior to the time of such transaction, beneficially owned less than 50% of our then outstanding capital stock.

In addition, if any employment agreement is terminated pursuant to the foregoing (1) to (4), we will maintain at its expense until the earlier of twelve months after the date of termination or commencement of the executive’s benefits pursuant to full-time employment with a new employer under such employer’s standard benefits program, all life insurance, medical, health and accident and disability plans or programs, in which the executive was entitled to participate immediately prior to the date of termination.

Any payments and benefits under the existing employment agreements will be made in compliance with Section 409A of the Internal Revenue Code, which could result in an executive not receiving certain payments or benefits during a delay period following such person’s separation from us.

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Outstanding Equity Awards at Year End

The following table contains certain information regarding equity awards held by the named executive officers as of June 30, 2009:

Number of

Securities

Underlying

Unexercised

Option

Options (#)

Exercise

Expiration

Market

Named Executive Officer

Exercisable

Unexercisable(1)

Price

Date

Value

Louis E. Hallman, III

—

192,000

0.36

8/19/2018

—

Patricia R. Blank

—

65,000

0.36

8/19/2018

—

Bernard O’Rourke

—

85,000

0.36

8/19/2018

—


(1)		The options will vest and become exercisable, if and only if, a refinancing event (as defined in the stock option agreements) is achieved prior to the expiration of the options.

Equity Compensation Plan Information

All stock option plans under which our common stock is reserved for issuance have previously been approved by our stockholders. The following table provides summary information as of June 30, 2009 for all of our stock option plans:

Number of

securities

to be issued

Weighted-average

remaining

upon exercise

exercise of

available for

of outstanding

outstanding

future issuance

Plan Category

options

under plans

Equity compensation plans approved by security holders

779,096

0.50

181,000

Equity compensation plans not approved by security holders

Compensation of Directors

We reimburse our non-employee directors for all out-of-pocket expenses incurred in the performance of their duties as directors. Each non-employee director receives an annual fee of $30,000, a fee of $2,000 for each in-person Board of Directors meeting and a fee of $1,000 for each telephonic Board of Directors meeting. In addition, the Chairman of the Board, the Chairman of the Audit Committee and the Chairman of the Compensation Committee, each receive an additional annual fee of $20,000, $10,000 and $5,000, respectively. Also, each Audit and Compensation Committee member receives a fee of $1,000 for each in-person committee meeting and a fee of $500 for each telephonic committee meeting. Finally, we established the Director Plan, an equity plan for the non-employee directors in an amount of approximately 2% of our issued and outstanding common stock.

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The following table sets forth the compensation of our non-employee directors for the year ended June 30, 2009:


	Fees Earned
	or Paid		Option Awards		All Other
Name	In Cash		(1)(2)		Compensation		Total

Eugene Linden	$	45,000	$	12,192		—	$	57,192
Wayne B. Lowell		73,004		12,192		—		85,196
Richard Nevins		52,000		12,192		—		64,192
James A. Ovenden		65,996		12,192		—		78,188
Keith E. Rechner		56,004		12,192		—		68,196
Steven G. Segal(3)		46,500		12,192		—		58,692


(1)		Represents the dollar amount we recognized for financial statement reporting purposes in fiscal 2009 in accordance with Financial Accounting Standards Board Statement No. 123R. See Note 14 in our consolidated financial statements included in this Form 10-K.

(2)		On April 14, 2008, each of the non-employee directors was granted nonstatutory options to purchase 16,008 shares of common stock at $1.01 per share and 16,008 shares of common stock at $1.16 per share pursuant to the Director Plan subject to approval of the Director Plan by the Company’s stockholders. Each set of options becomes exercisable in increments of one third (1/3) (5,366 per set) on December 31, 2008, 2009 and 2010. The options become immediately exercisable prior to a change of control of the Company. The options are scheduled to expire on August 14, 2018.

(3)		Mr. Segal’s director/committee and meeting fees are paid to J.W. Childs Equity Partners II, L.P.

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ITEM 12.	*SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS*

The following table sets forth certain information regarding beneficial ownership of our common stock as of September 15, 2009, by: (i) each person or entity known to us owning beneficially 5% or more of our common stock; (ii) each member of our Board of Directors; (iii) each of the named executive officers; and (iv) all directors and executive officers (as defined by Rule 3b-7 under the Exchange Act) as a group. At September 15, 2009, our outstanding securities consisted of approximately 8,644,444 shares of common stock. Beneficial ownership of the securities listed in the table has been determined in accordance with the applicable rules and regulations promulgated under the Exchange Act. The business address of each director and executive officer is: c/o InSight Health Services Holdings Corp., 26250 Enterprise Court, Suite 100, Lake Forest, California 92630.


	Amount and Nature		Percent of
	of Beneficial		Common Stock
	Ownership of		Beneficially
Names and Addresses of Beneficial Owners	Common Stock(1)		Owned(1)

James D. Bennett(2)		2,040,000		23.6	%
2 Stamford Plaza, Suite 1501
Stamford, Connecticut 06901
Bennett Restructuring Fund, L.P.(3)		1,206,000		14.0	%
2 Stamford Plaza, Suite 1501
Stamford, Connecticut 06901
Bennett Offshore Restructuring Fund, Inc.(4)		730,000		8.4	%
2 Stamford Plaza, Suite 1501
Stamford, Connecticut 06901
Cohanzick Absolute Return Master Fund, Limited		1,159,564		13.4	%
c/o Cohanzick Offshore Advisors, L.P.
427 Bedsford Road
New York, New York 10022
JPMorgan Chase & Co.(5)		741,220		8.5	%
4 New York Plaza, 16^th Floor
New York, NY 10004
J.W. Childs Equity Partners II, L.P.(6)		687,641		8.0	%
111 Huntington Avenue, Suite 2900
Boston, Massachusetts 02199
Eugene Linden(7)		10,672		0.1	%
Wayne B. Lowell(8)		10,672		0.1	%
Richard Nevins(9)		10,672		0.1	%
James A. Ovenden(10)		10,672		0.1	%
Keith E. Rechner(11)		10,672		0.1	%
Steven G. Segal(12)		10,672		0.1	%
Louis E. Hallman, III(13)		—		—
Patricia R. Blank(14)		—		—
Bernard O’Rourke(15)		—		—
All directors and executive officers as a group (14 persons)(16)		—		—


(1)		For purposes of this table, a person is deemed to have “beneficial ownership” of any security that such person has the right to acquire within 60 days of September 15, 2009.

(2)		Includes 1,206,000 shares of common stock owned directly by Bennett Restructuring Fund, L.P., 104,000 shares of common stock owned directly by affiliate BRF High Value, L.P. and 730,000 shares of

104


		common stock owned directly by affiliate Bennett Offshore Restructuring Fund, Inc. The general partner of Bennett Restructuring Fund, L.P. and BRF High Value, L.P. is Restructuring Capital Associates, L.P., a Delaware limited partnership, and the general partner of Restructuring Capital Associates, L.P. is Bennett Capital Corporation, a Delaware corporation, of which James D. Bennett is President and sole stockholder. Mr. Bennett, Bennett Capital Corporation and Restructuring Capital Associates, L.P. may be deemed to beneficially own an aggregate of 1,310,000 shares of common stock held by Bennett Restructuring Fund, L.P. and BRF High Value, L.P. together. The investment manager of Bennett Offshore Restructuring Fund, Inc. is Bennett Offshore Investment Corporation, a Connecticut corporation, of which James D. Bennett is the President and, together with the BT Trust U/D 12/9/2004, the owner. Mr. Bennett, BT Trust U/D 12/9/2004 and Bennett Offshore Investment Corporation may be deemed to beneficially own the 730,000 shares of common stock held by Bennett Offshore Restructuring Fund, Inc. Each of Mr. Bennett, BT Trust, Restructuring Capital Associates, L.P., Bennett Capital Corporation and Bennett Offshore Investment Corporation specifically disclaim beneficial ownership of the shares of common stock deemed to be beneficially owned except to the extent of his or its pecuniary interest therein.

(3)		Includes 1,206,000 shares of common stock owned directly by Bennett Restructuring Fund, L.P. The general partner of Bennett Restructuring Fund, L.P. is Restructuring Capital Associates, L.P., a Delaware limited partnership, and the general partner of Restructuring Capital Associates, L.P. is Bennett Capital Corporation, a Delaware corporation, of which James D. Bennett is President and sole stockholder. Mr. Bennett, Bennett Capital Corporation and Restructuring Capital Associates, L.P. may be deemed to beneficially own an aggregate of 1,206,000 shares of common stock held by Bennett Restructuring Fund, L.P. Each of Mr. Bennett, Restructuring Capital Associates, L.P., and Bennett Capital Corporation specifically disclaim beneficial ownership of the shares of common stock deemed to be beneficially owned except to the extent of his or its pecuniary interest therein.

(4)		Includes 730,000 shares of common stock owned directly by Bennett Offshore Restructuring Fund, Inc. The investment manager of Bennett Offshore Restructuring Fund, Inc. is Bennett Offshore Investment Corporation, a Connecticut corporation, of which James D. Bennett is the President and, together with the BT Trust U/D 12/9/2004, the owner. Mr. Bennett, BT Trust U/D 12/9/2004 and Bennett Offshore Investment Corporation may be deemed to beneficially own the 730,000 shares of common stock held by Bennett Offshore Restructuring Fund, Inc. Each of Mr. Bennett, BT Trust U/D 12/9/2004 and Bennett Offshore Investment Corporation specifically disclaim beneficial ownership of the shares of common stock deemed to be beneficially owned except to the extent of his or its pecuniary interest therein.

(5)		Includes 741,220 shares of common stock owned directly by J.P. Morgan Securities Inc., whose parent corporation is JPMorgan Chase & Co.

(6)		Includes 634,130 shares of common stock owned directly by J.W. Childs Equity Partners II, L.P. and 53,511 shares of our common stock owned directly by JWC-InSight Co-invest LLC, an affiliate of J.W. Childs Equity Partners II, L.P. The general partner of J.W. Childs Equity Partners II, L.P. is J.W. Childs Advisors II, L.P., a Delaware limited partnership. The general partner of J.W. Childs Advisors II, L.P. is J.W. Childs Associates, L.P., a Delaware limited partnership. The general partner of J.W. Childs Associates, L.P. is J.W. Childs Associates, Inc., a Delaware corporation. J.W. Childs Advisors II, L.P., J.W. Childs Associates, L.P. and J.W. Childs Associates, Inc. may be deemed to beneficially own the 687,641 shares of our common stock held by J.W. Childs Equity Partners II, L.P. and JWC-InSight Co-invest LLC. John W. Childs, Glenn A. Hopkins, Adam L. Suttin, William E. Watts, and David Fiorentino, as well as Steven G. Segal (as indicated in footnote 12), share voting and investment control over, and therefore may be deemed to beneficially own, the shares of common stock held by these entities.

(7)		As the Chief Investment Strategist of Bennett Management Corporation, an affiliate of James D. Bennett, Mr. Linden may be deemed to beneficially own the shares of common stock beneficially held by Mr. Bennett and his affiliated entities. Mr. Linden disclaims beneficial ownership of such shares. Does not include (i) an option to purchase 10,672 shares of our common stock at an exercise price of $1.01 per share and (ii) an option to purchase 10,672 shares of our common stock at an exercise price of $1.16 per share, which are not yet exercisable. See “Director Compensation” for details regarding the grant of these options.

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(8)		Does not include (i) an option to purchase 10,672 shares of our common stock at an exercise price of $1.01 per share and (ii) an option to purchase 10,672 shares of our common stock at an exercise price of $1.16 per share, which are not currently exercisable. See “Director Compensation” for details regarding the grant of these options.

(9)		Does not include (i) an option to purchase 10,672 shares of our common stock at an exercise price of $1.01 per share and (ii) an option to purchase 10,672 shares of our common stock at an exercise price of $1.16 per share, which are not yet exercisable. See “Director Compensation” for details regarding the grant of these options.

(10)		Does not include (i) an option to purchase 10,672 shares of our common stock at an exercise price of $1.01 per share and (ii) an option to purchase 10,672 shares of our common stock at an exercise price of $1.16 per share, which are not yet exercisable. See “Director Compensation” for details regarding the grant of these options.

(11)		Does not include (i) an option to purchase 10,672 shares of our common stock at an exercise price of $1.01 per share and (ii) an option to purchase 10,672 shares of our common stock at an exercise price of $1.16 per share, which are not yet exercisable. See “Director Compensation” for details regarding the grant of these options.

(12)		As a Special Limited Partner of J.W. Childs Associates, L.P., which manages J.W. Childs Equity Partners II, L.P., and a member of JWC-InSight Co-invest LLC, Mr. Segal may be deemed to beneficially own the 634,130 shares of our common stock owned by J.W. Childs Equity Partners II, L.P. and the 53,511 shares of our common stock held directly by JWC-InSight Co-invest LLC. Mr. Segal disclaims beneficial ownership of such shares. Does not include (i) an option to purchase 10,672 shares of our common stock at an exercise price of $1.01 per share and (ii) an option to purchase 10,672 shares of our common stock at an exercise price of $1.16 per share, which are not yet exercisable. See “Director Compensation” for details regarding the grant of these options.

(13)		Does not include an option to purchase 192,000 shares of our common stock at an exercise price of $0.36 per share, which is not yet exercisable. See “Outstanding Equity Awards at Year End” for details regarding the grant of these options.

(14)		Does not include an option to purchase 65,000 shares of our common stock at an exercise price of $0.36 per share, which is not yet exercisable. See “Outstanding Equity Awards at Year End” for details regarding the grant of these options.

(15)		Does not include an option to purchase 85,000 shares of our common stock at an exercise price of $0.36 per share, which is not yet exercisable. See “Outstanding Equity Awards at Year End” for details regarding the grant of these options.

(16)		Does not include options to 715,064 shares of our common stock at various exercise prices, which are not yet exercisable.


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

Compensation Committee Interlocks and Insider Participation

During fiscal 2009, the Company’s Compensation Committee comprised of Keith E. Rechner (Chairman), James A. Ovenden and Steven G. Segal. No member of our Compensation Committee is or was during fiscal 2009 an employee, or is or has ever been an officer, of the Company or any of its subsidiaries. No executive officer of the Company served as a director or a member of the Compensation Committee of another company, one of whose executive officers served as a member of the Company’s Board of Directors or the Compensation Committee. During fiscal 2009, Mr. Segal was affiliated with J.W. Childs Equity Partners II, L.P., which beneficially owns 8.0% of our common stock. See Item 12. “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters”.

Family-Member Relationship

Patricia K. Kincaid, M.D. is a sister-in-law of Donald F. Hankus, InSight’s Executive Vice President and Chief Information Officer, and a principal or partner of West Rad Medical Group, Inc. (“WRMG”), a professional radiology medical group. During fiscal 2009, we paid WRMG approximately $188,000 in connection with its

106

provision of certain professional services to three fixed-site centers in California. During fiscal 2009, we sold two of these fixed-site centers to affiliates of WRMG in separate transactions for total consideration of approximately $0.5 million. We closed the other fixed-site center in July, 2008, and are no longer actively using the services of WRMG or its affiliates. In addition, an affiliated company of WRMG’s had an economic interest in the joint venture that owned one of these fixed-site centers. WRMG’s provision of professional services to us began more than two years prior to our employment of Mr. Hankus.

Policies and Procedures Regarding Related Persons and Code of Ethical Conduct

We have a written policy that requires all employees to avoid any activity that conflicts or appears to conflict with our interest. This policy extends to the family members of our employees. Each employee is instructed to report any actual or potential conflict of interest to his or her immediate supervisor. Conflicts of interest are only permitted upon the prior written consent of our general counsel. Conflicts of interest that would involve an employee taking for himself or herself an opportunity discovered in connection with his or her employment require the written consent of our Board of Directors.

This policy is part of our Code of Ethical Conduct, a copy of which is posted on our website, www.insighthealth.com, under “About InSight Imaging.” We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K relating to amendments to or waivers of any provision of the Code of Ethical Conduct applicable to our principal executive officer, principal financial officer, principal accounting officer or controller by posting such information on our website, www.insighthealth.com, under “About InSight Imaging.” Moreover, at least annually each director and executive officer completes a detailed questionnaire regarding relationships or arrangements that require disclosure under the SEC’s rules and regulations.

Director Independence

Our common stock does not trade on any national securities exchange or any inter-dealer quotation system which has requirements as to the independence of directors; however, in accordance with the rules of the SEC, the following statements regarding director independence are based on the requirements of the NASDAQ Stock Market. Based on these independence requirements, we believe that our directors are independent, except for Mr. Hallman, our President and Chief Executive Officer, and Mr. Linden. Mr. Linden is the Chief Investment Strategist of Bennett Management Corporation, which is an affiliate of James D. Bennett, who through affiliates, is the largest beneficial holder of our common stock.


ITEM 14.	*PRINCIPAL ACCOUNTING FEES AND SERVICES*

The following table presents information about fees that PWC, our independent public registered accountants, charged us (1) to audit our annual consolidated financial statements for the years ended June 30, 2009 and 2008, and (2) for other services rendered during those years.


	2009		2008

Audit Fees(1)	$	386,000	$	673,000
Audit Related Fees		—		—
Tax Fees(2)		159,000		162,000

Subtotal	$	545,000	$	835,000
All Other Fees		—		—

Total Fees	$	545,000	$	835,000


(1)		Audit Fees — fees for auditing our annual consolidated financial statements, reviewing the condensed consolidated financial statements included in our quarterly reports on Form 10-Q and registration statement related to an exchange offer and other SEC filings.

(2)		Tax Fees — fees for reviewing federal, state, and local income and franchise tax returns, tax research and other tax planning services.

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The charter for Holdings’ audit committee requires that the audit committee (or a representative of the committee) pre-approve all audit and non-audit services performed by our independent registered public accounting firm. Consistent with this policy, for the years ended June 30, 2009 and 2008 all audit and non-audit services performed by PWC were pre-approved by a representative of Holdings’ audit committee.

PART IV


ITEM 15.	*EXHIBITS, FINANCIAL STATEMENT SCHEDULES*


ITEM 15 (a) (1).	*FINANCIAL STATEMENTS*

Included in Part II of this report:


Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements


ITEM 15 (a) (2).	*FINANCIAL STATEMENT SCHEDULES*


Schedule II — Valuation and Qualifying Accounts

All other schedules have been omitted because they are either not required or not applicable, or the information is presented in the consolidated financial statements or notes thereto.


ITEM 15 (a) (3).	*EXHIBITS*


Exhibit
Number			Description and References

	*2	.1	Second Amended Joint Prepackaged Plan of Reorganization of InSight Health Services Holdings Corp. (the “Company”), et al. dated May 29, 2007, previously filed and incorporated herein by reference from the Company’s Annual Report on Form 10-K, filed on September 21, 2007.
	*2	.2	Amended Plan Supplement of the Company, et al. dated July 7, 2007, previously filed and incorporated herein by reference from the Company’s Annual Report on Form 10-K, filed on September 21, 2007.
	*3	.1	Amended and Restated Certificate of Incorporation of the Company, previously filed and incorporated herein by reference from the Company’s Annual Report on Form 10-K, filed on September 21, 2007.
	*3	.2	Second Amended and Restated Bylaws of the Company, previously filed and incorporated herein by reference from the Company’s Annual Report on Form 10-K, filed on September 21, 2007.
	*4	.1	Indenture, dated September 22, 2005, by and among InSight Health Services Corp. (“InSight”), the Company, the subsidiary guarantors (named therein) and U.S. Bank National Association, with respect to Senior Secured Floating Rate Notes due 2011, previously filed and incorporated herein by reference from InSight’s Registration Statement on Form S-4, filed on October 28, 2005.
	*4	.2	First Supplemental Indenture, dated as of May 18, 2006, to the Indenture dated September 22, 2005, previously filed and incorporated herein by reference from the Company’s Annual Report on Form 10-K, filed on September 27, 2006.
	*4	.3	Second Supplemental Indenture, dated as of May 29, 2007, to the Indenture dated September 22, 2005, previously filed and incorporated herein by reference from the Company’s Current Report on Form 8-K, filed on June 4, 2007.
	*4	.4	Third Supplemental Indenture, dated as of July 9, 2007, to the Indenture dated September 22, 2005, previously filed and incorporated herein by reference from the Company’s Annual Report on Form 10-K, filed on September 21, 2007.

108


Exhibit
Number			Description and References

	*4	.5	Fourth Supplemental Indenture, dated as of December 16, 2009, to the Indenture dated September 22, 2005, previously filed and incorporated herein by reference from the Company’s Annual Report on Form 10-Q, filed on February 17, 2009.
	*4	.6	Security Agreement, dated September 22, 2005, by and among the Loan Parties (as defined therein) and U.S. Bank National Association, as Collateral Agent, previously filed and incorporated herein by reference from InSight’s Registration Statement on Form S-4, filed on October 28, 2005.
	*4	.7	Pledge Agreement, dated September 22, 2005, by and among the Loan Parties (as defined therein) and U.S. Bank National Association, as Collateral Agent, previously filed and incorporated herein by reference from InSight’s Registration Statement on Form S-4, filed on October 28, 2005.
	*4	.8	Collateral Agency Agreement, dated September 22, 2005, among the Loan Parties (as defined therein) and U.S. Bank National Association, as Trustee and Collateral Agent, previously filed and incorporated herein by reference from InSight’s Registration Statement on Form S-4, filed on October 28, 2005.
	*4	.9	Registration Rights Agreement, dated as of August 1, 2007, by and among the Company and certain holders of the Company’s common stock, previously filed and incorporated herein by reference from the Company’s Annual Report on Form 10-K, filed on September 21, 2007.
	*10	.1	Second Amended and Restated Loan and Security Agreement, dated August 31, 2007, by and among InSight’s subsidiaries listed therein, the lenders named therein and Bank of America, N.A. as collateral and administrative agent, previously filed and incorporated herein by reference from the Company’s Current Report on Form 8-K, filed on August 7, 2007.
	*10	.2	Executive Employment Agreement, dated October 22, 2004, among InSight, the Company and Patricia R. Blank, previously filed and incorporated herein by reference from the Company’s Current Report on Form 8-K, filed on January 26, 2005.
	*10	.3	Executive Employment Agreement, dated April 7, 2008, among InSight, and Louis E. Hallman, III, previously filed and incorporated herein by reference from the Company’s Current Report on Form 8-K, filed on April 14, 2008.
	*10	.4	Executive Employment Agreement, dated August 10, 2005, among InSight, the Company and Donald F. Hankus, previously filed and incorporated herein by reference from the Company’s Current Report on Form 8-K, filed on September 30, 2005.
	*10	.5	Form of Amended and Restated Indemnification Agreement, previously filed and incorporated herein by reference from the Company’s Annual Report on Form 10-K, filed on September 22, 2005.
	*10	.6	Form of the Company’s and InSight’s Indemnification Agreement, previously filed and incorporated by references from the Company’s Annual Report Form 10-K filed on September 21, 2007.
	*10	.7	The Company’s 2008 Director Stock Option Plan, previously filed and incorporated herein by reference from the Company’s Current Report on Form 8-K, filed on April 18, 2008.
	*10	.8	Form of the Company’s 2008 Director Stock Option Plan Nonstatutory Stock Option Grant Agreement with an exercise price of $1.01 per share, previously filed and incorporated herein by reference from the Company’s Current Report on Form 8-K, filed on April 18, 2008.
	*10	.9	Form of the Company’s 2008 Director Stock Option Plan Nonstatutory Stock Option Grant Agreement with an exercise price of $1.16 per share, previously filed and incorporated herein by reference from the Company’s Current Report on Form 8-K, filed on April 18, 2008.
	*10	.10	The Company’s 2008 Employee Stock Option Plan previously filed and incorporated herein by reference from the Company’s Current Report on Form 8-K, filed on April 18, 2008.
	*10	.11	Form of the Company’s 2008 Employee Stock Option Plan Nonstatutory Stock Option Grant Agreement, previously filed and incorporated herein by reference from the Company’s Current Report on Form 8-K, filed on April 18, 2008.
	*10	.12	Executive Employment Agreement dated May 15, 2008, by and between InSight and Bernard J. O’Rourke, previously filed and incorporated herein by reference from the Company’s Current Report on Form 8-K, filed on May 21, 2008.
	*10	.13	Executive Employment Agreement dated October 27, 2008, by and between InSight and Keith S. Kelson, previously filed and incorporated herein by reference from the Company’s Current Report on Form 8-K, filed on November 4, 2008.

109


Exhibit
Number			Description and References

	*10	.14	Executive Employment Agreement dated October 27, 2008, by and between InSight and Steven M. King, previously filed and incorporated herein by reference from the Company’s Current Report on Form 8-K, filed on November 4, 2008.
	21	.1	Subsidiaries of Company, filed herewith.
	31	.1	Certification of Louis E. Hallman, III, the Company’s Chief Executive Officer, pursuant to Rule 15d-14 of the Securities Exchange Act of 1934, filed herewith.
	31	.2	Certification of Keith S. Kelson, the Company’s Chief Financial Officer, pursuant to Rule 15d-14 of the Securities Exchange Act of 1934, filed herewith.
	32	.1	Certification of Louis E. Hallman, III, the Company’s Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
	32	.2	Certification of Keith S. Kelson, the Company’s 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.


*		Previously filed


ITEM 15 (b).	*The Exhibits described above in Item 15(a)(3) are attached hereto or incorporated by reference herein, as noted.*


ITEM 15 (c).	*Not applicable.*

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SIGNATURES

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

INSIGHT HEALTH SERVICES HOLDINGS CORP.


	By	/s/ Louis E. Hallman, III

Louis E. Hallman, III, President and

Chief Executive Officer

Date: September 21, 2009

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


Signature	Title	Date


/s/ Louis E. Hallman, III Louis E. Hallman, III	President and Chief Executive Officer and Director (Principal Executive Officer)	September 21, 2009

/s/ Keith S. Kelson Keith S. Kelson	Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)	September 21, 2009

/s/ Wayne B. Lowell Wayne B. Lowell	Chairman of the Board and Director	September 21, 2009

/s/ Eugene Linden Eugene Linden	Director	September 21, 2009

/s/ Richard Nevins Richard Nevins	Director	September 21, 2009

/s/ James A. Ovenden James A. Ovenden	Director	September 21, 2009

/s/ Keith E. Rechner Keith E. Rechner	Director	September 21, 2009

/s/ Steven G. Segal Steven G. Segal	Director	September 21, 2009

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SCHEDULE II

INSIGHT HEALTH SERVICES HOLDINGS CORP. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED JUNE 30, 2009, ELEVEN MONTHS ENDED JUNE 30, 2008,
ONE MONTH ENDED JULY 31, 2007 AND THE YEAR ENDED JUNE 30, 2007


	Balance at									Balance at
	Beginning of		Charges to		Charges to					End of
	Period		Expenses		Revenues		Other			Period
	(Amounts in thousands)

Successor
Year ended June 30, 2009:
Allowance for doubtful accounts	$	8,518	$	3,986	$	—	$	(8,100	)(A)	$	4,404
Allowance for contractual adjustments		15,401		—		125,694		(128,176	)(B)		12,919
Valuation Allowance on Deferred Taxes		72,174		—		—		5,448	(C)		77,622

	$	100,199	$	3,986	$	125,694	$	(130,828	)	$	93,537

Eleven months ended June 30, 2008:
Allowance for doubtful accounts	$	12,515	$	5,790	$	—	$	(9,787	)(A)	$	8,518
Allowance for contractual adjustments		21,518		—		153,002		(159,119	)(B)		15,401
Valuation Allowance on Deferred Taxes		89,441		—		—		(17,267	)(C)		72,174

	$	123,474	$	5,790	$	153,002	$	(182,067	)	$	100,199

Predecessor
One month ended July 31, 2007:
Allowance for doubtful accounts	$	12,648	$	389	$	—	$	(522	)(A)	$	12,515
Allowance for contractual adjustments		21,454		—		14,585		(14,521	)(B)		21,518
Valuation Allowance on Deferred Taxes		89,441		—		—		—			89,441

	$	123,543	$	389	$	14,585	$	(15,043	)	$	123,474

Year ended June 30, 2007:
Allowance for doubtful accounts	$	9,788	$	5,643	$	—	$	(2,783	)(A)	$	12,648
Allowance for contractual adjustments		22,712		—		175,085		(176,343	)(B)		21,454
Valuation Allowance on Deferred Taxes		65,572		—		—		23,869	(C)		89,441

	$	98,072	$	5,643	$	175,085	$	(155,257	)	$	123,543


(A)		Write-off of uncollectible accounts.

(B)		Write-off of contractual adjustments, representing the difference between our charge for a procedure and what we receive from payors.

(C)		Changes due to increase or decreases in deferred tax assets and liabilities.

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EXHIBIT INDEX


Exhibit
Number			Description and References

	*2	.1	Second Amended Joint Prepackaged Plan of Reorganization of InSight Health Services Holdings Corp. (the “Company”), et al. dated May 29, 2007, previously filed and incorporated herein by reference from the Company’s Annual Report on Form 10-K, filed on September 21, 2007.
	*2	.2	Amended Plan Supplement of the Company, et al. dated July 7, 2007, previously filed and incorporated herein by reference from the Company’s Annual Report on Form 10-K, filed on September 21, 2007.
	*3	.1	Amended and Restated Certificate of Incorporation of the Company, previously filed and incorporated herein by reference from the Company’s Annual Report on Form 10-K, filed on September 21, 2007.
	*3	.2	Second Amended and Restated Bylaws of the Company, previously filed and incorporated herein by reference from the Company’s Annual Report on Form 10-K, filed on September 21, 2007.
	*4	.1	Indenture, dated September 22, 2005, by and among InSight Health Services Corp. (“InSight”), the Company, the subsidiary guarantors (named therein) and U.S. Bank National Association, with respect to Senior Secured Floating Rate Notes due 2011, previously filed and incorporated herein by reference from InSight’s Registration Statement on Form S-4, filed on October 28, 2005.
	*4	.2	First Supplemental Indenture, dated as of May 18, 2006, to the Indenture dated September 22, 2005, previously filed and incorporated herein by reference from the Company’s Annual Report on Form 10-K, filed on September 27, 2006.
	*4	.3	Second Supplemental Indenture, dated as of May 29, 2007, to the Indenture dated September 22, 2005, previously filed and incorporated herein by reference from the Company’s Current Report on Form 8-K, filed on June 4, 2007.
	*4	.4	Third Supplemental Indenture, dated as of July 9, 2007, to the Indenture dated September 22, 2005, previously filed and incorporated herein by reference from the Company’s Annual Report on Form 10-K, filed on September 21, 2007.
	*4	.5	Fourth Supplemental Indenture, dated as of December 16, 2009, to the Indenture dated September 22, 2005, previously filed and incorporated herein by reference from the Company’s Annual Report on Form 10-Q, filed on February 17, 2009.
	*4	.6	Security Agreement, dated September 22, 2005, by and among the Loan Parties (as defined therein) and U.S. Bank National Association, as Collateral Agent, previously filed and incorporated herein by reference from InSight’s Registration Statement on Form S-4, filed on October 28, 2005.
	*4	.7	Pledge Agreement, dated September 22, 2005, by and among the Loan Parties (as defined therein) and U.S. Bank National Association, as Collateral Agent, previously filed and incorporated herein by reference from InSight’s Registration Statement on Form S-4, filed on October 28, 2005.
	*4	.8	Collateral Agency Agreement, dated September 22, 2005, among the Loan Parties (as defined therein) and U.S. Bank National Association, as Trustee and Collateral Agent, previously filed and incorporated herein by reference from InSight’s Registration Statement on Form S-4, filed on October 28, 2005.
	*4	.9	Registration Rights Agreement, dated as of August 1, 2007, by and among the Company and certain holders of the Company’s common stock, previously filed and incorporated herein by reference from the Company’s Annual Report on Form 10-K, filed on September 21, 2007.
	*10	.1	Second Amended and Restated Loan and Security Agreement, dated August 31, 2007, by and among InSight’s subsidiaries listed therein, the lenders named therein and Bank of America, N.A. as collateral and administrative agent, previously filed and incorporated herein by reference from the Company’s Current Report on Form 8-K, filed on August 7, 2007.
	*10	.2	Executive Employment Agreement, dated October 22, 2004, among InSight, the Company and Patricia R. Blank, previously filed and incorporated herein by reference from the Company’s Current Report on Form 8-K, filed on January 26, 2005.
	*10	.3	Executive Employment Agreement, dated April 7, 2008, among InSight, and Louis E. Hallman, III, previously filed and incorporated herein by reference from the Company’s Current Report on Form 8-K, filed on April 14, 2008.

114


Exhibit
Number			Description and References

	*10	.4	Executive Employment Agreement, dated August 10, 2005, among InSight, the Company and Donald F. Hankus, previously filed and incorporated herein by reference from the Company’s Current Report on Form 8-K, filed on September 30, 2005.
	*10	.5	Form of Amended and Restated Indemnification Agreement, previously filed and incorporated herein by reference from the Company’s Annual Report on Form 10-K, filed on September 22, 2005.
	*10	.6	Form of the Company’s and InSight’s Indemnification Agreement, previously filed and incorporated by references from the Company’s Annual Report Form 10-K filed on September 21, 2007.
	*10	.7	The Company’s 2008 Director Stock Option Plan, previously filed and incorporated herein by reference from the Company’s Current Report on Form 8-K, filed on April 18, 2008.
	*10	.8	Form of the Company’s 2008 Director Stock Option Plan Nonstatutory Stock Option Grant Agreement with an exercise price of $1.01 per share, previously filed and incorporated herein by reference from the Company’s Current Report on Form 8-K, filed on April 18, 2008.
	*10	.9	Form of the Company’s 2008 Director Stock Option Plan Nonstatutory Stock Option Grant Agreement with an exercise price of $1.16 per share, previously filed and incorporated herein by reference from the Company’s Current Report on Form 8-K, filed on April 18, 2008.
	*10	.10	The Company’s 2008 Employee Stock Option Plan previously filed and incorporated herein by reference from the Company’s Current Report on Form 8-K, filed on April 18, 2008.
	*10	.11	Form of the Company’s 2008 Employee Stock Option Plan Nonstatutory Stock Option Grant Agreement, previously filed and incorporated herein by reference from the Company’s Current Report on Form 8-K, filed on April 18, 2008.
	*10	.12	Executive Employment Agreement dated May 15, 2008, by and between InSight and Bernard J. O’Rourke, previously filed and incorporated herein by reference from the Company’s Current Report on Form 8-K, filed on May 21, 2008.
	*10	.13	Executive Employment Agreement dated October 27, 2008, by and between InSight and Keith S. Kelson, previously filed and incorporated herein by reference from the Company’s Current Report on Form 8-K, filed on November 4, 2008.
	*10	.14	Executive Employment Agreement dated October 27, 2008, by and between InSight and Steven M. King, previously filed and incorporated herein by reference from the Company’s Current Report on Form 8-K, filed on November 4, 2008.
	21	.1	Subsidiaries of Company, filed herewith.
	31	.1	Certification of Louis E. Hallman, III, the Company’s Chief Executive Officer, pursuant to Rule 15d-14 of the Securities Exchange Act of 1934, filed herewith.
	31	.2	Certification of Keith S. Kelson, the Company’s Chief Financial Officer, pursuant to Rule 15d-14 of the Securities Exchange Act of 1934, filed herewith.
	32	.1	Certification of Louis E. Hallman, III, the Company’s Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
	32	.2	Certification of Keith S. Kelson, the Company’s 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.


*		Previously filed

115


			Page

PART I
	Item 1.	Business		1
	Item 1A.	Risk Factors		12
	Item 2.	Properties		21
	Item 3.	Legal Proceedings		21
	Item 4.	Submission of Matters to a Vote of Security Holders		21

PART II
	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		22
	Item 6.	Selected Financial Data		23
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		24
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		49
	Item 8.	Financial Statements and Supplementary Data		51
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		93
	Item 9A(T).	Controls and Procedures		93
	Item 9B.	Other Information		93

PART III
	Item 10.	Directors, Executive Officers and Corporate Governance		94
	Item 11.	Executive Compensation		98
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		104
	Item 13.	Certain Relationships and Related Transactions, and Director Independence		106
	Item 14.	Principal Accounting Fees and Services		107

PART IV
	Item 15.	Exhibits, Financial Statement Schedules		108
SIGNATURES				111
EX-21.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2


NAME OF SUBSIDIARY		STATE/PROVINCE OF ORGANIZATION
Berwyn Magnetic Resonance Center, L.L.C.		Illinois
Comprehensive Medical Imaging, Inc.		Delaware
Comprehensive Medical Imaging Centers, Inc.		Delaware
Encinitas Imaging Center, LLC		California
East Bay Medical Imaging, LLC		California
Garfield Imaging Center, Ltd.		California
InSight Health Corp.		Delaware
InSight Health Services Corp.		Delaware
InSight-Premier Health, LLC		Maine
InSight ProScan, LLC		Ohio
Kessler Imaging Associates, LLC		New Jersey
Maxum Health Services Corp.		Delaware
Open MRI, Inc.		Delaware
Orange County Regional PET Center-Irvine, LLC		California
Parkway Imaging Center, LLC		Nevada
Signal Medical Services, Inc.		Delaware
Valencia MRI, LLC		California

	1.		I have reviewed this annual report on Form 10-K for the fiscal year ended June 30, 2009 of InSight Health Services Holdings Corp.:

	2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

	3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

	4.		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	(a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	(b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

	(c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	(d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

	(a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	(b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


/s/ Louis E. Hallman, III Louis E. Hallman, III
President and Chief Executive Officer