UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

ý		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
		For the quarterly period ended June 30, 2004
OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
		For the transition period from to

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended September 30, 2006

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 333-101399

MQ ASSOCIATES, INC.
(Exact name of company as specified in its charter)
Delaware		52-2148018
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
4300 North Point Parkway Alpharetta, Georgia		30022
(Address of principal executive offices)		(Zip code)
Company’s telephone number, including area code: 770-300-0101
(Former name, former address and former fiscal year, if changed since last report)

MQ ASSOCIATES, INC.

(Exact name of company as specified in its charter)

Delaware		52-2148018
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
3480 Preston Ridge Road Suite 600 Alpharetta, Georgia		30005
(Address of principal executive offices)		(Zip code)

Company’s telephone number, including area code: 770-300-0101

4300 North Point Parkway
Alpharetta, Georgia 30022

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether MQ Associates, Inc. (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 MQ Associates, Inc. was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ý x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, ~~(as~~or ~~defined~~a non-accelerated infiler. See definition of “accelerated filer and large ~~Rule~~accelerated filer” in Rule 12b-2 of the Exchange Act). (Check ~~Yes o No ý~~one):

Large accelerated filer o Accelerated filer o Non-accelerated filer x

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

Indicate the number of shares outstanding of each of MQ Associates, Inc.’s classes of common stock, as of the latest practicable date.

At ~~August~~November 610, ~~2004~~2006, the number of shares outstanding of each of MQ Associates, Inc.’s classes of common equity were as follows: 72,100,000 shares of Class A common stock, $.001 par value per ~~shares~~ share, and 28,605,000 shares of common stock, $.001 par value per share.

MQ ASSOCIATES, INC. QUARTERLY REPORT ON FORM 10-Q INDEX

QUARTERLY REPORT ON FORM 10-Q

		Page Number
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets as of September 30, 2006 (unaudited) and December 31, 2005	4 - 5
	Consolidated Statements of Operations (unaudited) for each of the three and nine months ended September 30, 2006 and 2005	6
	Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2006 and 2005	7 - 8
	Notes to Consolidated Financial Statements (unaudited)	9 - 22
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23- 33
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	33
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 5.	Other Information	35
Item 6.	Exhibits	36
	Signatures	37

INDEX

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets as of June 30, 2004 (unaudited) and December 31, 2003
	Consolidated Statements of Operations (unaudited) for each of the three and six months ended June 30, 2004 and June 30, 2003
	Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2004 and June 30, 2003
	Notes to Consolidated Financial Statements
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures About Market Risk
Item 4.	Controls and Procedures
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings
Item 5.	Other Information
Item 6.	Exhibits and Reports on Form 8-K
	Signatures

Forward-Looking Statements

This report contains or may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, without limitation, statements regarding our future growth and profitability, growth strategy and trends in the industry in which we operate. These forward-looking statements are based on our current expectations and are subject to a number of risks, uncertainties and assumptions. We can give no assurance that such forward-looking statements will prove to be correct. Among the most important factors that could cause actual results to differ significantly from those expressed or implied by such forward-looking statements are the results of the previously announced inquiry by the Securities and Exchange Commission (“SEC”) or any other future action taken by the SEC, general economic and business conditions, the effect of healthcare industry trends on third-party reimbursement rates and demand for our services, limitations and delays in reimbursement by third-party payors, changes in governmental regulations that affect our ability to do business, actions of our competitors, introduction of new technologies, risks associated with our acquisition strategy and integration costs, and the additional risk factors set forth under Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2005 (“2005 10-K”), as well as in our other periodic reports filed with the SEC.

All forward-looking statements in this report apply only as of the date of this report and are expressly qualified in their entirety by the cautionary statements included in this report. We undertake no obligations to publicly update or revise forward-looking statements which may be made to reflect events or circumstances after the date made or to reflect the occurrence of unanticipated events.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MQ ~~ASSOCIATES~~Associates, ~~INC~~ Inc. & Subsidiaries Consolidated Balance Sheets (in thousands)

CONSOLIDATED BALANCE SHEETS

	Sept. 30,			December 31,
	2006			2005
	(unaudited)
ASSETS
Current assets
Cash and cash equivalents		$	788		$	11,604
Patient receivables, net of allowances		27,372			27,784
Related party receivables		—			162
Other receivables		1,452			1,726
Prepaid expenses and other		2,563			2,363
Deferred income taxes		3,079			2,012
Total current assets		35,254			45,651
Property and equipment, net		77,078			86,151
Goodwill		34,304			35,335
Certificates of need		15,823			15,917
Other intangible assets, net		329			465
Debt issuance costs, net		10,352			12,122
Other		1,984			2,805
Total assets		$	175,124		$	198,446

(in thousands, except share data)

	June 30, 2004		December 31, 2003
	(unaudited)		(derived from audited financial statements)
ASSETS
Current assets
Cash and cash equivalents	$	2,418	$	6,731
Patient receivables, net of allowance for doubtful accounts of $1,974 and $1,685	67,342		61,490
Related party receivables	1,299		782
Other receivables	1,766		2,049
Prepaid expenses and other	4,006		2,619
Deferred income taxes	594		594
Total current assets	77,425		74,265
Property and equipment, net	87,527		82,107
Goodwill	34,415		33,855
Intangible assets, net	14,158		10,722
Debt issuance costs, net	12,302		13,384
Other	6,788		9,148
Total assets	$	232,615	$	223,481

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

MQ ASSOCIATES, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

	June 30, 2004			December 31, 2003
	(unaudited)			(derived from audited financial statements)
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities
Accounts payable	$	2,833		$	6,596
Accrued payroll and related taxes	6,273			5,371
Accrued interest	7,334			7,278
Accrued radiologist fees	4,014			3,359
Other accrued expenses	6,265			4,321
Current portion of long-term debt	600			600
Current portion of obligations under capital leases	1,917			1,584
Total current liabilities	29,236			29,109
Long-term debt	248,542			244,966
Obligations under capital leases	2,678			2,517
Deferred income taxes	9,713			8,174
Other long-term liabilities	1,507			499
Total liabilities	291,676			285,265
Commitments and contingencies
Redeemable preferred stock
Series A Convertible, $.001 par value; nonvoting; 35,000,000 shares authorized, issued and outstanding	35,000			35,000
Series B Convertible, $.001 par value; nonvoting; 15,000,000 shares authorized, issued and outstanding	15,000			15,000
	50,000			50,000
Stockholders’ deficit
Class A common stock, $.001 par value; voting; 115,000,000 shares authorized; 72,100,000 issued and outstanding	72			72
Common stock, $.001 par value; voting; 195,000,000 shares authorized; 28,605,000 issued and outstanding	29			29
Additional paid-in capital	63,389			63,389
Accumulated deficit	(172,551		)	(175,274		)
Total stockholders’ deficit	(109,061		)	(111,784		)
Total liabilities and stockholders’ deficit	$	232,615		$	223,481

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

MQ ~~ASSOCIATES~~Associates, ~~INC~~ Inc. & Subsidiaries Consolidated Balance Sheets (Continued) (in thousands, except share data)

CONSOLIDATED STATEMENTS OF OPERATIONS

	Sept. 30,			December 31,
	2006			2005
	(unaudited)
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities
Accounts payable	$	5,899			$	11,456
Accrued payroll and related taxes	7,772				6,257
Accrued interest	2,699				8,378
Accrued radiologist fees	3,955				3,845
Other liabilities	2,025				2,063
Other accrued expenses	6,700				8,122
Income taxes payable	428				212
Current portion of long-term debt	528				9,754
Current portion of obligations under capital leases	1,046				1,157
Total current liabilities	31,052				51,244
Long-term debt	336,674				325,305
Obligations under capital leases	735				1,489
Deferred income taxes	8,075				6,627
Other long-term liabilities	2,116				2,084
Total liabilities	378,652				386,749
Commitments and contingencies
Redeemable preferred stock
Series A Convertible, $.001 par value; nonvoting; 55,000,000 shares authorized, issued and outstanding	55,000				55,000
Series B Convertible, $.001 par value; nonvoting; 15,000,000 shares authorized, issued and outstanding	15,000				15,000
	70,000				70,000
Stockholders’ deficit
Class A Convertible common stock, $.001 par value; voting; 115,000,000 shares authorized; 72,100,000 issued and outstanding	72				72
Common stock, $.001 par value; voting; 195,000,000 shares authorized; 28,605,000 shares issued and outstanding	29				29
Additional paid-in capital	30				—
Accumulated deficit	(273,659		)		(258,404		)
Total stockholders’ deficit	(273,528		)		(258,303		)
Total liabilities and stockholders’ deficit	$	175,124			$	198,446

(unaudited)

(in thousands)

	Three months ended June 30,						Six months ended June 30,
	2004			2003			2004			2003
Net revenues from services	$	71,012		$	59,613		$	138,032		$	115,360
Costs and expenses
Operating expenses, excluding depreciation	29,580			25,815			57,635			50,394
Marketing, general and administrative expenses	25,765			18,922			47,499			36,619
Depreciation and amortization	7,921			7,301			15,619			14,182
Income from operations	7,746			7,575			17,279			14,165
Interest expense	6,396			6,061			12,853			11,875
Interest income	9			(4		)	(4		)	(8		)
Equity in earnings of unconsolidated joint venture	(35		)	—			(108		)	—
Income before provision for income taxes	1,376			1,518			4,538			2,298
Provision for income taxes	550			608			1,815			920
Net income	$	826		$	910		$	2,723		$	1,378

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

MQ ~~ASSOCIATES~~Associates, ~~INC~~ Inc. & Subsidiaries Consolidated Statements of Operations (unaudited) (in thousands)

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months Ended Sept. 30,						Nine Months Ended Sept. 30,
	2006			2005			2006			2005
Net revenue from services	$	67,878		$	74,289		$	208,700		$	222,744
Costs and expenses:
Costs of services	29,929			33,551			94,137			102,507
Marketing, general and administrative expenses	23,091			27,386			72,439			80,482
(Gain) loss on disposal of assets	(2,255		)	—			(754		)	1,243
Depreciation and amortization	8,336			8,803			25,485			26,943
Income from operations	8,777			4,549			17,393			11,569
Interest expense	10,610			10,962			31,509			30,195
Interest income	(52		)	(53		)	(163		)	(167		)
Equity in earnings of unconsolidated joint ventures	(61		)	(58		)	(177		)	(182		)
Loss before income taxes	(1,720		)	(6,302		)	(13,776		)	(18,277		)
Provision for income taxes	530			815			1,479			2,363
Net loss	$	(2,250	)	$	(7,117	)	$	(15,255	)	$	(20,640	)

(unaudited)

(in thousands)

	Six months ended June 30,
	2004			2003
Cash flows from operating activities
Net income	$	2,723		$	1,378
Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities
Depreciation and amortization	15,619			14,182
Amortization of bond discount	120			36
Amoritzation of debt issue costs	974			792
Bad debt expense	6,185			4,816
Equity in earnings of unconsolidated joint venture	(108		)	—
Changes in operating assets and liabilities
Patient receivables	(12,037		)	(9,963		)
Related party and other receivables	(280		)	207
Prepaid expenses and other current assets	(1,387		)	(423		)
Other assets	(371		)	(360		)
Accounts payable	(3,763		)	(990		)
Accrued payroll and related taxes	902			1,068
Other accrued expenses	4,253			2,743
Net cash and cash equivalents provided by operating activities	12,830			13,486
Cash flows from investing activities
Purchases of property and equipment	(15,827		)	(9,539		)
Acquisitions of businesses, net of cash acquired	(5,485		)	(3,441		)
Proceeds from loan repayments	69			55
Net cash and cash equivalents used in investing activities	(21,243		)	(12,925		)
Cash flows from financing activities
Payments on capital leases	(708		)	(661		)
Payment of debt issuance costs	(29		)	(520		)
Other	137			—
Payments on long-term debt	(300		)	—
Proceeds from senior credit facility	23,500			13,688
Payments on senior credit facility	(18,500		)	(13,532		)
Net cash and cash equivalents provided by (used in) financing activities	4,100			(1,025		)
Net decrease in cash and cash equivalents	$	(4,313	)	$	(464	)
Cash and cash equivalents, beginning of period	$	6,731		$	3,230
Cash and cash equivalents, end of period	$	2,418		$	2,766
Supplemental disclosure of cash flow information
Cash paid for interest	$	11,705		$	11,322
Cash paid for taxes	$	862		$	304
Supplemental schedule of non-cash investing and financing activities
Acquisition of businesses
Fair value of assets acquired	$	5,485		$	5,441
Less deposit paid in prior year	—			(2,000		)
	$	5,485		$	3,441
Equipment acquired through capital leases	$	1,203		$	1,917

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

MQ Associates, Inc. & Subsidiaries Consolidated Statements of Cash Flows (unaudited) (in thousands)

Notes to Consolidated Financial Statements

	Nine Months Ended Sept. 30,
	2006			2005
Cash flows from operating activities
Net loss	$	(15,255	)	$	(20,640	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	25,485			26,943
Accreted bond interest	9,288			8,249
Amortization of bond discount	232			206
Amortization of debt issuance costs	1,770			1,756
Bad debt expense	10,867			11,703
Compensation related to stock options	30			—
Deferred income taxes	381			964
Equity in earnings of unconsolidated joint ventures	(177		)	(182		)
Proceeds from unconsolidated joint ventures	223			383
(Gain) loss on disposal of assets	(754		)	1,243
Changes in operating assets and liabilities, net of acquisitions:
Patient receivables	(10,455		)	(8,787		)
Related party and other receivables	436			1,474
Prepaid expenses and other current assets	(200		)	(862		)
Other assets	732			655
Accounts payable	(5,557		)	(6,802		)
Accrued payroll and related taxes	1,515			2,259
Income taxes payable	216			(42		)
Other liabilities	(38		)	884
Other accrued expenses	(6,959		)	163
Net cash provided by operating activities	11,780			19,567
Cash flows used in investing activities
Purchase of property and equipment	(19,510		)	(9,400		)
Proceeds from sale of property and equipment	5,201			—
Acquisitions of businesses	—			(2,500		)
Non-acquisition intangibles	(47		)	(97		)
Net cash used in investing activities	$	(14,356	)	$	(11,997	)

~~(unaudited)~~The accompanying notes are an integral part of the consolidated financial statements.

(in thousands, except share data)

1. Basis of Presentation, Principles of Consolidation, Use of Estimates and Reclassifications

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared by MQ Associates, Inc. and its subsidiaries (collectively, the “Company”) in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, the consolidated financial statements do not include all information and notes required by generally accepted accounting principles for complete financial statements. The accompanying consolidated financial statements should be read in conjunction with the annual consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003. In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2004, are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2004.

Principles of Consolidation

MedQuest, Inc. (“MedQuest”) is a wholly-owned subsidiary of MQ Associates, Inc. MQ Associates, Inc. has no material assets or operations other than its ownership of 100% of the outstanding capital stock of MedQuest. The consolidated financial statements of the Company include the assets, liabilities, revenue and expenses of all majority owned subsidiaries over which the company exercises direct or indirect control. All intercompany transactions have been eliminated in consolidation.

Use of Estimates

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

Reclassifications

Certain reclassifications have been made to the consolidated balance sheet at December 31, 2003 to conform to the presentation at June 30, 2004.

2MQ Associates, Inc. ~~Long-Term~~ & ~~Debt~~Subsidiaries Consolidated Statements of Cash Flows (Continued) (unaudited) (in thousands)

Long-term debt consists of the following:

	Nine Months Ended Sept. 30,
	2006			2005
Cash flows used in financing activities
Payments of obligations under capital leases	$	(865	)	$	(885	)
Sale of preferred stock	—			20,000
Proceeds from senior credit facility	10,000			28,613
Payments on senior credit facility	(10,000		)	(51,113		)
Payments on Tranche B term loan	(7,375		)	(450		)
Net cash provided used in financing activities	(8,240		)	(3,835		)
Net (decrease) increase in cash and cash equivalents	(10,816		)	3,735
Cash and cash equivalents, beginning of period	11,604			997
Cash and cash equivalents, end of period	$	788		$	4,732
Supplemental disclosure of cash flow information
Cash paid for interest	$	25,898		$	25,068
Cash paid for taxes, net	$	931		$	1,430

	June 30, 2004		December 31, 2003
Revolving credit facility, due August 2007	$	13,000	$	8,000
Tranche B term facility, due through September 2009	59,400		59,700
117/8% senior subordinated notes, net of discount of $3,418 and $3,538, due August 2012	176,581		176,462
	248,981		244,162
Fair value adjustment related to 117/8% senior subordinated notes	161		1,404
Less current portion	600		600
	$	248,542	$	244,966

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

Future maturities of long-term debt, including the effects of the bond discount, are as follows:

Year ending December 31,	Amount
2004	$	300
2005	600
2006	600
2007	13,600
2008	28,800
Thereafter	205,081
	$	248,981

Senior credit facility

In September 2003, the Company amended its senior credit facility to allow for borrowings not to exceed $60,000 under a Tranche B term facility (as amended, the “Senior Credit Facility”). Concurrent with the amendment of the Senior Credit Facility, the Company also borrowed $60,000 under the Tranche B term facility and applied the net proceeds against the borrowings outstanding under the Senior Credit Facility.

The Senior Credit Facility provides for a revolving credit facility not to exceed $80,000 and a Tranche B term facility of $60,000. The Senior Credit Facility is guaranteed by MQ Associates, Inc. and each of MQ Associates’ and MedQuest’s existing and future domestic subsidiaries and certain foreign subsidiaries. MedQuest’s obligations under the Senior Credit Facility and the guarantors’ obligations under the guarantees are collateralized by substantially all of the assets of MedQuest and the guarantors.

The Senior Credit Facility has certain financial covenants related to the maintenance of minimum/maximum levels of consolidated leverage, senior leverage and fixed charge coverage ratios. The Company was in compliance with all covenants under the Senior Credit Facility at June 30, 2004.

~~Revolving~~MQ ~~credit~~Associates, Inc. & ~~facility~~Subsidiaries Notes to Consolidated Financial Statements (unaudited) (in thousands, except share data or as otherwise disclosed)

Borrowings under the revolving credit facility accrue interest at the option of MedQuest, at either: (a) the greater of (i) the prime rate or (ii) the Federal funds effective rate (subject to certain adjustments) plus ½ of 1~~%, in either case, plus an applicable margin of 1~~.~~50%~~ Business ~~per annum, or (b) the Eurodollar rate, plus an applicable margin of 2.50% per annum. Borrowings at June 30, 2004 are based upon the Eurodollar rate (i.e. 1.94% at June 30, 2004)~~ and ~~amounted to $13,000 at June 30,~~ ~~2004.~~Basis ~~The revolving credit facility also provides for a commitment fee equal to ½~~ of 1% per annum. The margins related to the prime rate and Eurodollar rate borrowings and commitment fee are subject to adjustment based upon the Company’s consolidated leverage ratio, as defined. Borrowings available under the revolving credit facility, net of $618 in letters of credit, amount to $66,382 at June 30, 2004.Presentation

~~Tranche~~As Bof ~~term~~September 30, 2006, ~~facility~~MQ Associates, Inc. (“MQA”), through MedQuest, Inc. (“MedQuest”), a wholly owned subsidiary of MQA, and MedQuest’s subsidiaries (collectively with MQA and MedQuest, the “Company”), operated 91 outpatient diagnostic imaging centers located in 13 states, primarily in the southeastern and southwestern United States. The outpatient diagnostic imaging centers provide medical imaging services to patients referred by physicians and bill governmental agencies, national and local insurance carriers, as well as individual patients who reside in the respective service areas. The Company operates in one reportable segment.

~~Borrowings~~The accompanying unaudited ~~under~~consolidated financial statements have been prepared by the ~~Tranche~~Company Bin accordance ~~term~~with ~~facility~~accounting ~~accrue~~principles ~~interest~~generally ataccepted in the ~~option~~United States of ~~MedQuest,~~America ~~at either:~~for ~~(a)~~interim financial information and with the ~~greater~~instructions to Form 10-Q and Rule 10-01 of ~~(i)~~Regulation S-X. Accordingly, the ~~prime~~consolidated financial ~~rate~~statements ordo ~~(ii)~~not ~~the~~include ~~Federal~~all ~~funds~~information and notes required by ~~effective~~generally ~~rate~~accepted ~~(subject~~accounting toprinciples ~~certain~~for ~~adjustments)~~complete ~~plus~~financial ~~1/2~~statements. ofThe accompanying ~~1%,~~consolidated financial statements should be read in ~~either~~conjunction with ~~case,~~the annual consolidated financial statements and the notes thereto ~~plus~~included anin ~~applicable~~the ~~margin~~Company’s ofAnnual ~~2.75%~~Report ~~per~~on ~~annum~~Form 10-K for the year ended December 31, or2005 (bthe “2005 10-K”). In the ~~Eurodollar~~opinion ~~rate~~of management, ~~plus an~~all ~~applicable~~adjustments ~~margin~~(consisting of ~~3.75%~~normal ~~per~~recurring ~~annum.~~ items) considered ~~Borrowings~~necessary ~~were~~for ~~based~~a ~~upon~~fair ~~the~~presentation ~~Eurodollar~~have ~~rate~~been (iincluded.e. ~~1.94%~~Operating atresults for the ~~June~~three and nine months ended September 30, ~~2004)~~2006 ~~and~~are ~~amounted~~not tonecessarily indicative ~~$59,400~~of atthe ~~June~~results of operations that may be expected for the year ending December 3031, ~~2004~~2006.

~~Commencing with~~2. New ~~the fiscal year ending December 31, 2004, and annually thereafter,~~Accounting ~~not more than 75% of excess cash flows, as defined, must be applied against certain outstanding borrowings under the Senior Credit Facility.~~Pronouncements

~~Senior~~In ~~subordinated~~June 2006, ~~notes~~the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109,” which clarifies the accounting for uncertainty in income taxes in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute for the measurement and financial statement recognition of a tax position taken or expected to be taken in a tax return. The interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The adoption of FIN 48 is not expected to have a material impact on the Company’s consolidated results of operations, financial position or liquidity.

~~The 117/8%~~In ~~senior subordinated notes (“Notes”)~~September 2006, ~~due in~~ ~~August of~~the ~~2012,~~FASB ~~were~~ issued inStatement ~~the~~of ~~aggregate~~Financial ~~principal~~Standards ~~amount~~No. 157 of(“SFAS ~~$180~~No. 157”),~~000,~~ ~~net~~“Fair ofValue ~~a discount of $3~~Measurements,~~832,~~” which isclarifies ~~being amortized as interest expense over~~ the ~~life~~definition of ~~the~~fair ~~Notes. The~~value, establishes ~~Notes~~a ~~also provide~~framework for anmeasuring ~~optional~~fair ~~early~~value, ~~redemption~~and byexpands ~~MedQuest~~the ~~upon a change in control,~~disclosures asof ~~defined,~~fair ~~prior~~value tomeasurements. ~~August~~SFAS No. ~~15,~~157 ~~2007~~is ateffective ~~100%~~for offiscal ~~the principal amount, or~~years onbeginning or after ~~August~~November 15, 2007. atThe ~~the~~Company ~~redemption~~is ~~prices~~currently ~~expressed~~assessing ~~as a~~the ~~percentage~~impact of ~~the~~SFAS ~~principal~~No. 157 ~~amount,~~on ~~plus~~its ~~accrued~~consolidated ~~and~~financial ~~unpaid interest as follows:~~statements.

Twelve months beginning August 15,	Optional Redemption Percentage
2007	105.938	%
2008	103.958	%
2009	101.979	%
2010 and thereafter	100.000	%

In September 2006, the SEC issued SAB No. 108 (“SAB No. 108”), “Considering the Effects of Prior Year Misstatements when Qualifying Misstatements in Current Year Financial Statements.” SAB No. 108 provides guidance on the consideration of effects of the prior year misstatement in quantifying current year misstatements for the purpose of a materiality assessment. The SEC staff believes registrants must quantify errors using both a balance sheet and income statement approach and evaluate whether either approach results in a material misstatement, when all relevant quantitative and qualitative factors are considered.

Prior to August 15, 2005, MedQuest may also redeem up to 35% of the Notes with the net cash proceeds of one or more equity offerings at a redemption price of 111.875% of the principal amount thereof, plus accrued and unpaid interest, provided that at least 65% of the original principal amount of the Notes remains outstanding after such redemptions and the redemptions occur within 120 days of the closing of the equity offerings.

The Notes are fully and unconditionally, jointly and severally guaranteed by MQ Associates, Inc. and each of MedQuest’s domestic subsidiaries (See Note 5). The Notes contain certain covenants, including covenants limiting the Company’s ability to incur additional indebtedness and make restricted payments. The Company was in compliance with all covenants under the Notes at June 30, 2004.

~~Debt issuance~~MQ ~~costs amounting to $19~~Associates,~~090,~~ Inc. & ~~with~~Subsidiaries ~~respect~~Notes to ~~the~~Consolidated ~~Senior~~Financial ~~Credit~~Statements ~~Facility and~~(Continued) ~~Notes,~~(unaudited) ~~were~~(in ~~capitalized~~thousands, ~~and~~except ~~are~~share ~~being~~data ~~amortized using~~or ~~the~~as ~~straight~~otherwise ~~line method into interest expense over the lives of the related debt instruments.~~disclosed)

3SAB No. ~~Related~~ 108 is ~~Party~~effective ~~Transactions~~for the first annual period ending after November 15, 2006 with early application encouraged. The Company plans to adopt SAB No. 108 at its fiscal year-end December 31, 2006. The Company does not believe the adoption of SAB No. 108 will have a material impact on its Consolidated Financial Statements.

~~The~~3. Stock ~~Company~~Option ~~had the following related party transactions:~~Plan

In December 2004, the FASB issued Statement of Financial Accounting Standard No. 123 (arevised 2004), ~~The~~“Share ~~Company~~Based ~~incurred~~Payment,” (“SFAS 123R”). SFAS 123R establishes the ~~expenses~~accounting ~~related~~for totransactions ~~certain~~in ~~aviation~~which an entity pays for employee services in share ~~the~~based ~~amount~~payment transactions. SFAS 123R requires companies to measure the cost of ~~$188~~employee ~~and~~services ~~$66~~received in exchange for an award of equity ~~during~~instruments based on the ~~three~~grant-date ~~months~~fair ~~ended~~value ~~June 30,~~of ~~2004~~the ~~and~~award. ~~2003,~~The ~~respectively~~fair value of employee share options and insimilar instruments is estimated using option-pricing models adjusted for the ~~amount~~unique characteristics of ~~$260~~those instruments. ~~and~~That ~~$160~~cost is recognized over the vesting period during which an employee is required to provide service in exchange for the ~~six~~award. ~~months~~The ~~ended~~Company adopted ~~June~~SFAS 123R effective January 301, ~~2004~~2006, ~~and~~using the ~~2003,~~modified-prospective ~~respectively~~transition method. Under this method, ~~related~~compensation tocost ~~services~~is recognized ~~provided~~for byawards ~~Image~~granted ~~Aviation,~~and ~~LLC~~for awards modified, arepurchased ~~company~~or cancelled ~~owned~~in bythe ~~two~~period after adoption. Compensation cost is also recognized for the unvested portion of awards granted prior to adoption during the ~~Company’s~~period ~~stockholders~~when vesting ~~who~~occurs. ~~also~~Prior year financial statements are not restated. The application of SFAS 123R resulted in the ~~Chief~~Company ~~Executive~~recognizing a charge of ~~Officer~~approximately $8 and ~~President~~$30 for compensation cost, net of taxes, for the three and nine months ended September 30, 2006, respectively, due to the estimated grant-date fair value of all awards.

~~(b) The~~For ~~Company~~the ~~rents~~three ~~office space for 19 of its centers~~ and ~~its headquarters~~nine ~~through~~months ~~rental~~ended ~~agreements with Image Properties~~September 30, ~~L.L.C. (“Image”)~~2005, athe ~~company owned~~Company byaccounted ~~two~~for ofits ~~the~~stock ~~Company’s~~based compensation ~~shareholders~~plan ~~who~~using ~~also are~~ the ~~Chief~~intrinsic ~~Executive Officer~~value ~~and~~method ~~President. The~~prescribed ~~rental~~in ~~agreements~~APB ~~provide~~No. 25, “Accounting for ~~rental~~Stock ~~payments in~~Issued ~~amounts~~to ~~ranging~~Employees” ~~from~~as $6allowed tounder ~~$77~~SFAS ~~monthly~~No. ~~The~~ 123, ~~rental agreements~~“Accounting ~~typically are~~ for ~~ten~~Stock-~~year~~Based ~~terms~~Compensation,” ~~with~~(“SFAS ~~five-year~~123”). ~~renewal~~Under ~~options,~~the ~~and~~intrinsic ~~expire~~value atmethod, ~~various~~the ~~dates~~Company ~~through~~did ~~2008. Rent~~not ~~expense for~~recognize ~~related~~compensation ~~party~~expense ~~leases~~for ~~was~~its ~~$933~~stock-based ~~and~~awards to ~~$886~~employees ~~for~~in the three and nine months ended ~~June~~ September 30, ~~2004~~2005. ~~and~~The Company ~~2003,~~adopted ~~respectively,~~the ~~and~~provisions ~~was~~of ~~$1,866~~SFAS ~~and~~123 ~~$1,768~~which ~~for~~required disclosure of the pro ~~six~~forma ~~months~~effects ~~ended~~on ~~June 30,~~earnings ~~2004~~ and ~~2003,~~earnings ~~respectively~~per share as if SFAS 123 had been adopted.

~~(c)~~ The following ~~Company~~table ~~makes~~reflects ~~advances~~pro toforma ~~Image~~net ~~for~~loss ~~building~~as ~~and~~if ~~leasehold improvements made on behalf of~~ the Company~~. The~~ ~~Company~~ had ~~related~~elected ~~party receivables~~to ofadopt ~~$1,299 and $782 at June 30, 2004 and December 31, 2003, for costs incurred on behalf of Image. The Company earns interest income on~~ the ~~balance~~ atfair avalue ~~rate~~approach of ~~approximately~~SFAS ~~6% per annum of the outstanding receivable balance~~No. 123:

4. Commitments and Contingencies

	Three Months Ended September 30, 2005				Nine Months Ended September 30, 2005
Net loss:
As reported		$	(7,117	)		$	(20,640	)
Fair value based compensation cost, net of taxes		(12		)		(36		)
Pro forma net loss		$	(7,129	)		$	(20,676	)

~~The Company~~4. Sale ~~was engaged from time to time in the defense~~ of ~~lawsuits and administrative proceedings arising in the ordinary course and conduct of its business and has insurance policies covering potential insurable losses where this coverage is cost-effective.~~Center

~~In February 2003,~~During the ~~Company~~three ~~received a request for documents from the~~months ~~United~~ended ~~States Department of Justice regarding the Company’s billing and other practices. While the Company believes it is in material compliance with applicable governmental laws and regulations~~September 30, ~~in the event that the United States government believes that any wrongdoing has occurred~~2006, the Company ~~could~~sold beits ~~subject~~Albany tocenter ~~fines~~for ~~and penalties and could be excluded from government reimbursement programs. However~~$4, ~~substantive~~253 ~~negotiations have progressed towards conclusion on this matter~~ and ~~management~~recorded ~~believes that this matter will not have~~ a ~~material~~gain ~~adverse affect~~ on the ~~Company’s financial~~sale ~~position~~of ~~and~~assets ~~results~~ of ~~operations~~$2,496.

In February 2003, a purported class action lawsuit was filed in the State Court of Fulton County in the State of Georgia against the Company, and its officers and directors, as well as various physician groups that conduct business with the Company. This lawsuit raised questions concerning the legality of the purchase service agreements under the Georgia Patient Self-Referral Act of 1993. This lawsuit was dismissed without prejudice, in conjunction with a settlement, in May 2004.

Legal expenses related to the above mentioned matters amounted to $2.4 and $2.7 million for the three months and six months ended June 30, 2004.

5MQ Associates, Inc. ~~Consolidating~~ & Subsidiaries Notes to Consolidated Financial Statements (Continued) (unaudited) (in thousands, except share data or as otherwise disclosed)

~~The following tables present consolidating financial information for the three months and six months ended June 30, 2004 and 2003 for: 1) MQ Associates, Inc~~5. Center ~~(parent); 2) MedQuest,~~closing Inc. (issuer); 3) the guarantors (on a combined basis) of MedQuest, Inc.’s notes (which represent all of MedQuest’s subsidiaries) and 4) all eliminating adjustments. The consolidating financial statements presented reflect the legal entity compositions at the respective dates. Separate financial statements of MedQuest, Inc., as issuer of the Notes, and the subsidiary guarantors are not presented because: 1) each subsidiary guarantor is 100% owned by MQ Associates, Inc., 2) all guarantees are full and unconditional, and 3) all guarantees are joint and several.costs

The Company provides for ~~Senior~~closed ~~Credit~~center ~~Facility~~liabilities ~~and~~based on the ~~indenture~~present ~~governing~~value of the ~~Notes~~estimated ~~impose certain~~remaining ~~restrictions~~noncancellable onlease payments after the ~~Company~~closing date, ~~including~~net ~~restrictions~~of onestimated subtenant income. The Company estimates the ~~ability~~net tolease ~~incur~~liabilities using a ~~indebtedness,~~discount ~~pay~~rate ~~dividends,~~to ~~make~~calculate ~~investments,~~the ~~grant~~present ~~liens,~~value ~~sell~~of ~~assets~~the ~~and engage~~remaining inlease ~~certain~~payments ~~other~~on closed ~~activities~~centers. InThe ~~addition,~~closed ~~the~~center ~~Senior~~lease ~~Credit~~liabilities ~~Facility requires~~usually ~~the~~are ~~Company~~paid toover ~~maintain~~the remaining ~~certain~~lease ~~financial~~terms ~~ratios. The~~associated ~~Company’s~~with ~~indebtedness~~the ~~under~~closed ~~the~~centers, ~~Senior~~which generally have ~~Credit~~remaining ~~Facility~~terms isranging ~~secured~~from by0 ~~substantially~~to ~~all~~8 ofyears. ~~the~~Any ~~Company’s~~adjustment ~~assets,~~to closed center ~~including~~liabilities ~~inventory,~~related ~~accounts~~to ~~receivable,~~changes ~~real~~in ~~and~~subtenant ~~personal~~income ~~property,~~or actual exit costs ~~intellectual~~differing ~~property~~from ~~and~~original ~~other~~estimates ~~intangibles,~~would ~~and~~be ismade ~~guaranteed~~in bythe ~~MQA~~period ~~and~~in ~~all~~which the ofchange ~~MedQuest’s~~becomes ~~domestic subsidiaries~~known.

The following table summarizes accrual activity during the nine months ended September 30, 2006, for the future lease obligations of centers closed in the normal course of business:

	Liability for Closed Centers
Balance at December 31, 2005		$	922
Additions for closed centers		290
Interest accreted		54
Early termination of leases		(465		)
Payments		(194		)
Balance at September 30, 2006		$	607

The Company recorded a charge to costs of services related to closed centers of $(23) and $290 for the three and nine months ended September 30, 2006, respectively, and $18 and $312 for the three and nine months ended September 30, 2005, respectively. In addition, interest expense related to closed centers was $20 and $54 for the three and nine months ended September 30, 2006, respectively. Furthermore, the Company recorded a loss on disposal of assets related to closed centers of $1,329 for the nine months ended September 30, 2006, and $1,090 for the nine months ended September 30, 2005. There were no centers closed during the three months ended September 30, 2006 and 2005. For the nine months ended September 30, 2006, the loss on disposal of assets related to closed centers included a charge of $1,031 related to goodwill.

6. Contingencies

From time to time, the Company, due to the nature of its business, is subject to litigation and/or regulatory actions, the resolution of which could result in a materially adverse impact upon the Company’s financial position and operating results. At September 30, 2006, the Company was not aware of any such proceedings, other than those disclosed below, that could result in a materially adverse financial impact.

SEC Inquiry

The staff of the SEC has commenced a formal inquiry concerning, among other things, the Company’s previous announcement that it expected to restate its financial statements for prior periods and its inability to timely file its Annual Report on Form 10-K for the year ended December 31, 2004 and its Quarterly Reports on Form 10-Q for the quarters ended March 31, 2005 and June 30, 2005 (which, in each case, were subsequently filed). While the Company is continuing to cooperate with, and to provide requested

MQ ~~ASSOCIATES,~~ ~~INC~~Associates, Inc. & Subsidiaries Notes to Consolidated Financial Statements (Continued) (unaudited) (in thousands, except share data or as otherwise disclosed)

~~CONSOLIDATING~~information ~~BALANCE~~and ~~SHEETS~~documents to the SEC, the Company cannot predict the outcome of the inquiry. Such inquiry could have a material adverse effect on the Company’s business, financial condition and results of operations.

~~(in~~Landlord ~~thousands, except share data)~~Claim

In July 2005, Image Properties L.L.C. (~~unaudited~~“Image Properties”), an entity owned by the Company’s former Chief Executive Officer and former President, made a claim against the Company related to the reconciliation of certain expenses that Image Properties claims it paid on the Company’s behalf with respect to the facilities the Company leases from Image Properties. In August 2006, the Company settled the claim with Image Properties. In connection with the settlement, the Company terminated the existing leases for 15 of its centers with Image Properties, paid $206 for certain expenses related to those leases and entered into new leases for the 15 centers. In connection with the settlement, the Company had a one-time reversal of an accrual for $1,289 related to the claim.

~~June 30,~~7. Consolidating ~~2004~~Financial Statements

	MQ Associates, Inc.			MedQuest, Inc.		Guarantor Subsidiaries	Eliminations		Consolidated
ASSETS
Current Assets
Cash and cash equivalents	$	—				2,418			$	2,418
Patient receivables, net of allowance for doubtful accounts						67,342			67,342
Related party receivables						1,299			1,299
Other receivables						1,766			1,766
Prepaid expenses and other						4,006			4,006
Deferred income taxes						594			594
Total current assets						77,425			77,425
Property and equipment, net						87,527			87,527
Goodwill						34,415			34,415
Intangible assets, net						14,158			14,158
Intercompany receivable	15,775			57,605			(73,380	)
Debt issuance costs, net				12,302					12,302
Other				161		6,627			6,788
Total assets	15,775			70,068		220,152	(73,380	)	232,615
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current Liabilities
Accounts payable						2,833			2,833
Accrued payroll and related taxes						6,273			6,273
Accrued interest				7,334					7,334
Accrued radiologist fees						4,014			4,014
Income taxes payable
Other accrued expenses				161		6,104			6,265
Current portion of long-term debt				600					600
Current portion of obligations under capital leases						1,917			1,917
Total current liabilities				8,095		21,141			29,236
Intercompany payable	74,836			(202,344	)	127,508
Long-term debt				248,542					248,542
Obligations under capital leases						2,678			2,678
Other long-term liabilities						1,507			1,507
Deferred income taxes						9,713			9,713
Total liabilities	$	74,836		54,293		162,547			$	291,676
Commitments and contingencies
Redeemable preferred stock
Series A Convertible, $.001 par value; nonvoting; 35,000,000 shares authorized, issued and outstanding	$	35,000							$	35,000
Series B Convertible, $.001 par value; nonvoting; 15,000,000 shares authorized, issued and outstanding	15,000								15,000
	50,000								50,000
Stockholders’ deficit
Class A common stock, $.001 par value; voting; 115,000,000 shares authorized; 72,100,000 issued and outstanding	72								72
Common stock, $.001 par value; voting; 195,000,000 shares authorized; 28,605,000 issued and outstanding	29								29
Additional paid-in capital	63,389								63,389
Accumulated deficit	(172,551		)	15,775		57,605	(73,380	)	(172,551		)
Total stockholders’ deficit	(109,061		)	15,775		57,605	(73,380	)	(109,061		)
Total liabilities and stockholders’ deficit	$	15,775		70,068		220,152	(73,380	)	$	232,615

The following tables present consolidating financial information as required as of September 30, 2006 and December 31, 2005 and for the three and nine months ended September 30, 2006 and 2005 for: (1) MQA (parent); (2) MedQuest (issuer); (3) the guarantors (on a combined basis, which represent all of MedQuest’s subsidiaries) of the $180.0 million aggregate principal amount of 117¤8% senior subordinated notes due 2012 of MedQuest (the “117¤8% Notes”) and (4) all eliminating adjustments. The consolidating financial statements presented reflect the legal entity compositions at the respective dates.

In August 2002, MedQuest issued the 117¤8% Notes to fund in part the Company’s recapitalization. The 117¤8% Notes bear interest at the rate of 117¤8% per annum that is payable semi-annually in cash on each February 15 and August 15. In February 2003, MedQuest registered an identical series of senior subordinated notes with the SEC and subsequently completed an exchange of all the unregistered $180.0 million aggregate principal amount of 117¤8% Notes for the registered 117¤8% Notes. The 117¤8% Notes are senior subordinated uncollateralized obligations of MedQuest, ranking junior in right of payment to all of its existing and future senior debt, and are guaranteed by MQA and each of MedQuest’s subsidiaries.

Separate financial statements of MedQuest, as issuer of the 117¤8% Notes, and the subsidiary guarantors are not presented because MedQuest and each subsidiary guarantor are 100% owned by MQA, all guarantees are full and unconditional, and all guarantees are joint and several.

The Company’s senior credit facility (the “Senior Credit Facility”), the indenture governing the 117¤8% Notes and the indenture governing the $136.0 million aggregate principal amount at maturity of 121¤4% senior discount notes due 2012 of MQA (the “121¤4% Notes”) impose certain restrictions on the Company, including restrictions on the Company’s ability to incur indebtedness, pay dividends, make investments, grant liens, sell assets and engage in certain other activities. In addition, the Senior Credit Facility requires the Company to maintain certain financial ratios. MedQuest’s indebtedness under the Senior Credit Facility is collateralized by substantially all of the Company’s assets, including inventory, accounts receivable, real and personal property, intellectual property and other intangibles, and is guaranteed by MQA and all of MedQuest’s subsidiaries.

MQ ~~ASSOCIATES,~~ ~~INC~~Associates, Inc. & Subsidiaries Notes to Consolidated Financial Statements (unaudited) (in thousands, except share data or as otherwise disclosed)

~~CONSOLIDATING~~Consolidating ~~BALANCE~~Balance ~~SHEETS~~Sheets September 30, 2006

(in thousands, except share data)

	MQ Associates, Inc.				MedQuest, Inc.				Guarantor Subsidiaries				Eliminations			Consolidated
ASSETS
Current assets
Cash and cash equivalents		$	1,873			$	—			$	(1,085	)		$	—		$	788
Patient receivables, net of allowances										27,372							27,372
Related party receivables
Other receivables										1,452							1,452
Prepaid expenses and other										2,563							2,563
Deferred income taxes										3,079							3,079
Total current assets		1,873				—				33,381				—			35,254
Property and equipment, net										77,078							77,078
Goodwill										34,304							34,304
Certificates of need										15,823							15,823
Other intangible assets, net										329							329
Investment in subsidiaries		(37,530		)		(67,963		)						105,493			—
Debt issuance costs, net		2,397				7,955											10,352
Other										1,984							1,984
Total assets		$	(33,260	)		$	(60,008	)		$	162,899			$	105,493		$	175,124
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities
Accounts payable		$	—			$	—			$	5,899			$	—		$	5,899
Accrued payroll and related taxes										7,772							7,772
Accrued interest						2,699											2,699
Accrued radiologist fees										3,955							3,955
Other liabilities										2,025							2,025
Other accrued expenses										6,700							6,700
Income taxes payable										428							428
Current portion of long-term debt						528											528
Current portion of obligations under capital leases										1,046							1,046
Total current liabilities		—				3,227				27,825				—			31,052
Intercompany payable		61,408				(253,519		)		192,111							—
Long-term debt		108,860				227,814											336,674
Obligations under capital leases										735							735
Deferred income taxes										8,075							8,075
Other long-term liabilities										2,116							2,116
Total liabilities		170,268				(22,478		)		230,862				—			378,652
Commitments and contingencies
Redeemable preferred stock
Series A Convertible, $.001 par value; nonvoting; 55,000,000 shares authorized, issued and outstanding		55,000															55,000
Series B Convertible, $.001 par value; nonvoting; 15,000,000 shares authorized, issued and outstanding		15,000															15,000
		70,000				—				—				—			70,000
Stockholders’ deficit
Class A Convertible common stock, $.001 par value; voting; 115,000,000 shares authorized; 72,100,000 issued and outstanding		72															72
Common stock, $.001 par value; voting; 195,000,000 shares authorized; 28,605,000 shares issued and outstanding		29															29
Additional paid-in capital		30															30
Accumulated deficit		(273,659		)		(37,530		)		(67,963		)		105,493			(273,659		)
Total stockholders’ deficit		(273,528		)		(37,530		)		(67,963		)		105,493			(273,528		)
Total liabilities and stockholders’ deficit		$	(33,260	)		$	(60,008	)		$	162,899			$	105,493		$	175,124

(unaudited)

December 31, 2003

	MQ Associates, Inc.			MedQuest, Inc.		Guarantor subsidiaries	Eliminations		Consolidated
ASSETS
Current Assets
Cash and cash equivalents	$	—				6,731			$	6,731
Patient receivables, net of allowance for doubtful accounts						61,490			61,490
Related party receivables						782			782
Income taxes receivable
Other receivables						2,049			2,049
Prepaid expenses and other						2,619			2,619
Deferred income taxes						594			594
Total current assets						74,265			74,265
Property and equipment, net						82,107			82,107
Goodwill						33,855			33,855
Intangible assets, net						10,722			10,722
Investment in subsidiary	11,138			42,130			(53,268	)
Debt issue costs, net				13,384					13,384
Other				1,404		7,744			9,148
Total assets	11,138			56,918		208,693	(53,268	)	223,481
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current Liabilities
Accounts payable						6,596			6,596
Accrued payroll and related taxes						5,371			5,371
Other accrued expenses				7,278		7,680			14,958
Current portion of long-term debt				600					600
Current portion of obligations under capital leases						1,584			1,584
Total current liabilities				7,878		21,231			29,109
Intercompany payable	72,922			(207,064	)	134,142
Long-term debt				244,966					244,966
Obligations under capital leases						2,517			2,517
Other long-term liabilities						499			499
Deferred income taxes						8,174			8,174
Total liabilities	$	72,922		45,780		166,563			$	285,265
Commitments and contingencies
Redeemable preferred stock
Series A Convertible, $.001 par value; nonvoting; 35,000,000 shares authorized, issued and outstanding	$	35,000							$	35,000
Series B Convertible, $.001 par value; nonvoting; 15,000,000 shares authorized, issued and outstanding	15,000								15,000
	50,000								50,000
Stockholders’ deficit
Class A common stock, $.001 par value; voting; 115,000,000 shares authorized; 72,100,000 issued and outstanding	72								72
Common stock, $.001 par value; voting; 195,000,000 shares authorized; 28,605,000 issued and outstanding	29								29
Additional paid-in capital	63,389								63,389
Accumulated deficit	(175,274		)	11,138		42,130	(53,268	)	(175,274		)
Total stockholders’ deficit	(111,784		)	11,138		42,130	(53,268	)	(111,784		)
Total liabilities and stockholders’ deficit	$	11,138		56,918		208,693	(53,268	)	$	223,481

MQ ~~ASSOCIATES~~Associates, ~~INC~~ Inc. & Subsidiaries Notes to Consolidated Financial Statements (Continued) (unaudited) (in thousands, except share data or as otherwise disclosed)

~~CONSOLIDATING~~Consolidating Balance ~~STATEMENTS~~Sheets OFDecember 31, ~~OPERATIONS~~2005

(unaudited)

	MQ Associates, Inc.				MedQuest, Inc.				Guarantor Subsidiaries				Eliminations			Consolidated
ASSETS
Current assets
Cash and cash equivalents		$	2,204			$	—			$	9,400			$	—		$	11,604
Patient receivables, net of allowances										27,784							27,784
Related party receivables										162							162
Other receivables										1,726							1,726
Prepaid expenses and other										2,363							2,363
Deferred income taxes										2,012							2,012
Total current assets		2,204				—				43,447				—			45,651
Property and equipment, net										86,151							86,151
Goodwill										35,335							35,335
Certificates of need										15,917							15,917
Other intangible assets, net										465							465
Investment in subsidiaries		(31,876		)		(83,964		)						115,840			—
Debt issuance costs, net		2,705				9,417											12,122
Other										2,805							2,805
Total assets		$	(26,967	)		$	(74,547	)		$	184,120			$	115,840		$	198,446
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities
Accounts payable		$	—			$	—			$	11,456			$	—		$	11,456
Accrued payroll and related taxes										6,257							6,257
Accrued interest		119				8,259											8,378
Accrued radiologist fees										3,845							3,845
Other liabilities										2,063							2,063
Other accrued expenses										8,122							8,122
Income taxes payable										212							212
Current portion of long-term debt						9,754											9,754
Current portion of obligations under capital leases										1,157							1,157
Total current liabilities		119				18,013				33,112				—			51,244
Intercompany payable		61,644				(286,416		)		224,772							—
Long-term debt		99,573				225,732											325,305
Obligations under capital leases										1,489							1,489
Deferred income taxes										6,627							6,627
Other long-term liabilities										2,084							2,084
Total liabilities		161,336				(42,671		)		268,084				—			386,749
Commitments and contingencies
Redeemable preferred stock
Series A Convertible, $.001 par value; nonvoting; 55,000,000 shares authorized, issued and outstanding		55,000															55,000
Series B Convertible, $.001 par value; nonvoting; 15,000,000 shares authorized, issued and outstanding		15,000															15,000
		70,000				—				—				—			70,000
Stockholders’ deficit
Class A Convertible common stock, $.001 par value; voting; 115,000,000 shares authorized; 72,100,000 issued and outstanding		72															72
Common stock, $.001 par value; voting; 195,000,000 shares authorized; 28,605,000 shares issued and outstanding		29															29
Additional paid-in capital		—
Accumulated deficit		(258,404		)		(31,876		)		(83,964		)		115,840			(258,404		)
Total stockholders’ deficit		(258,303		)		(31,876		)		(83,964		)		115,840			(258,303		)
Total liabilities and stockholders’ deficit		$	(26,967	)		$	(74,547	)		$	184,120			$	115,840		$	198,446

(in thousands)

Three months ended June 30, 2004

	MQ Associates, Inc.			MedQuest, Inc.		Guarantor subsidiaries		Eliminations		Consolidated
Net revenues from services	$	—				71,012				$	71,012
Costs and expenses
Operating expenses, excluding depreciation						29,580				29,580
Marketing, general and administrative expenses						25,765				25,765
Depreciation and amortization						7,921				7,921
Income from operations						7,746				7,746
Interest expense	956			5,389		51				6,396
Interest income						9				9
Equity in earnings of unconsolidated joint venture						(35	)			(35		)
Income (loss) before provision for income taxes	(956		)	(5,389	)	7,721				1,376
Provision for income taxes						550				550
Equity in earnings of consolidated subsidiaries	1,782			7,171				(8,953	)
Net income (loss)	$	826		1,782		7,171		(8,953	)	$	826

MQ ~~ASSOCIATES~~Associates, ~~INC~~ Inc. & Subsidiaries Notes to Consolidated Financial Statements (Continued) (unaudited) (in thousands)

~~CONSOLIDATING~~Consolidating Statements ~~STATEMENTS~~of OFOperations ~~OPERATIONS~~Three Months Ended September 30, 2006

(unaudited)

	MQ Associates, Inc.				MedQuest, Inc.				Guarantor Subsidiaries				Eliminations				Consolidated
Net revenue from services		$	—			$	—			$	67,878			$	—			$	67,878
Costs and expenses:
Costs of services										29,929								29,929
Marketing, general and administrative expenses		12								23,079								23,091
(Gain) loss on disposal of assets										(2,255		)						(2,255		)
Depreciation and amortization										8,336								8,336
Income (loss) from operations		(12		)		—				8,789				—				8,777
Interest expense		3,292				7,272				46								10,610
Interest income		(11		)						(41		)						(52		)
Equity earnings of unconsolidated joint ventures										(61		)						(61		)
Income (loss) before provisions for income taxes and equity in earnings of consolidated subsidiaries		(3,293		)		(7,272		)		8,845				—				(1,720		)
Provision for income taxes										530								530
Income (loss) before equity in earnings of consolidated subsidiaries		(3,293		)		(7,272		)		8,315				—				(2,250		)
Equity in earnings of consolidated subsidiaries		1,043				8,315								(9,358		)		—
Net income (loss)		$	(2,250	)		$	1,043			$	8,315			$	(9,358	)		$	(2,250	)

(in thousands)

Three months ended June 30, 2003

	MQ Associates, Inc.			MedQuest, Inc.		Guarantor subsidiaries		Eliminations		Consolidated
Net revenues from services	$	—				59,613				$	59,613
Costs and expenses
Operating expenses, excluding depreciation						25,815				25,815
Marketing, general and administrative expenses						18,922				18,922
Depreciation and amortization						7,301				7,301
Income from operations						7,575				7,575
Interest expense	653			5,313		95				6,061
Interest income						(4	)			(4		)
Income (loss) before provision for income taxes	(653		)	(5,313	)	7,484				1,518
Provision for income taxes						608				608
Equity in earnings of consolidated subsidiaries	1,563			6,876				(8,439	)
Net income (loss)	$	910		1,563		6,876		(8,439	)	$	910

MQ ~~ASSOCIATES~~Associates, ~~INC~~ Inc. & Subsidiaries Notes to Consolidated Financial Statements (Continued) (unaudited) (in thousands)

~~CONSOLIDATING~~Consolidating Statements ~~STATEMENTS~~of OFOperations ~~OPERATIONS~~Three Months Ended September 30, 2005

(unaudited)

	MQ Associates, Inc.				MedQuest, Inc.				Guarantor Subsidiaries				Eliminations				Consolidated
Net revenue from services		$	—			$	—			$	74,289			$	—			$	74,289
Costs and expenses:
Costs of services										33,551								33,551
Marketing, general and administrative expenses		447								26,939								27,386
Depreciation and amortization										8,803								8,803
Income from operations		(447		)		—				4,996				—				4,549
Interest expense		3,074				7,888												10,962
Interest income										(53		)						(53		)
Equity earnings of unconsolidated joint ventures										(58		)						(58		)
Income (loss) before provisions for income taxes and equity in earnings of consolidated subsidiaries		(3,521		)		(7,888		)		5,107				—				(6,302		)
Provision for income taxes										815								815
Income (loss) before equity in earnings of consolidated subsidiaries		(3,521		)		(7,888		)		4,292				—				(7,117		)
Equity in earnings of consolidated subsidiaries		(3,596		)		4,292								(696		)		—
Net income (loss)		$	(7,117	)		$	(3,596	)		$	4,292			$	(696	)		$	(7,117	)

(in thousands)

Six months ended June 30, 2004

	MQ Associates, Inc.			MedQuest, Inc.		Guarantor subsidiaries		Eliminations		Consolidated
Net revenues from services	$	—				138,032				$	138,032
Costs and expenses
Operating expenses, excluding depreciation						57,635				57,635
Marketing, general and administrative expenses						47,499				47,499
Depreciation and amortization						15,619				15,619
Income from operations						17,279				17,279
Interest expense	1,914			10,838		101				12,853
Interest income						(4	)			(4		)
Equity in earnings of unconsolidated joint venture						(108	)			(108		)
Income (loss) before provision for income taxes (benefit)	(1,914		)	(10,838	)	17,290				4,538
Provision for income taxes (benefit)						1,815				1,815
Equity in earnings of consolidated subsidiaries	4,637			15,475				(20,112	)
Net income (loss)	$	2,723		4,637		15,475		(20,112	)	$	2,723

MQ ~~ASSOCIATES~~Associates, ~~INC~~ Inc. & Subsidiaries Notes to Consolidated Financial Statements (Continued) (unaudited) (in thousands)

~~CONSOLIDATING~~Consolidating Statements ~~STATEMENTS~~of OFOperations ~~OPERATIONS~~Nine Months Ended September 30, 2006

(unaudited)

	MQ Associates, Inc.				MedQuest, Inc.				Guarantor Subsidiaries				Eliminations				Consolidated
Net revenue from services		$	—			$	—			$	208,700			$	—			$	208,700
Costs and expenses:
Costs of services										94,137								94,137
Marketing, general and administrative expenses		34								72,405								72,439
Gain on disposal of assets										(754		)						(754		)
Depreciation and amortization										25,485								25,485
Income (loss) from operations		(34		)		—				17,427				—				17,393
Interest expense		9,597				21,655				257								31,509
Interest income		(30		)						(133		)						(163		)
Equity earnings of unconsolidated joint ventures										(177		)						(177		)
Income (loss) before provisions for income taxes and equity in earnings of consolidated subsidiaries		(9,601		)		(21,655		)		17,480				—				(13,776		)
Provision for income taxes										1,479								1,479
Income (loss) before equity in earnings of consolidated subsidiaries		(9,601		)		(21,655		)		16,001				—				(15,255		)
Equity in earnings of consolidated subsidiaries		(5,654		)		16,001								(10,347		)		—
Net income (loss)		$	(15,255	)		$	(5,654	)		$	16,001			$	(10,347	)		$	(15,255	)

(in thousands)

Six months ended June 30, 2003

	MQ Associates, Inc.			MedQuest, Inc.		Guarantor subsidiaries		Eliminations		Consolidated
Net revenues from services	$	—				115,360				$	115,360
Costs and expenses
Operating expenses, excluding depreciation						50,394				50,394
Marketing, general and administrative expenses						36,619				36,619
Depreciation and amortization						14,182				14,182
Income from operations						14,165				14,165
Interest expense	1,337			10,407		131				11,875
Interest income						(8	)			(8		)
Income (loss) before provision for income taxes	(1,337		)	(10,407	)	14,042				2,298
Provision for income taxes						920				920
Equity in earnings of consolidated subsidiaries	2,715			13,122				(15,837	)
Net income (loss)	$	1,378		2,715		13,122		(15,837	)	$	1,378

MQ ~~ASSOCIATES~~Associates, ~~INC~~ Inc. & Subsidiaries Notes to Consolidated Financial Statements (Continued) (unaudited) (in thousands)

~~CONSOLIDATED~~Consolidating Statements ~~STATEMENTS~~of OFOperations ~~CASH~~Nine ~~FLOWS~~Months ~~(unaudited)~~Ended September 30, 2005

(in thousands)

	MQ Associates, Inc.				MedQuest, Inc.				Guarantor Subsidiaries				Eliminations			Consolidated
Net revenue from services		$	—			$	—			$	222,744			$	—		$	222,744
Costs and expenses:
Costs of services										102,507							102,507
Marketing, general and administrative expenses		447								80,035							80,482
Loss on disposal of assets										1,243							1,243
Depreciation and amortization										26,943							26,943
Income from operations		(447		)		—				12,016				—			11,569
Interest expense		8,491				21,704											30,195
Interest income										(167		)					(167		)
Equity earnings of unconsolidated joint ventures										(182		)					(182		)
Income (loss) before provisions for income taxes and equity in earnings of consolidated subsidiaries		(8,938		)		(21,704		)		12,365				—			(18,277		)
Provision for income taxes										2,363							2,363
Income (loss) before equity in earnings of consolidated subsidiaries		(8,938		)		(21,704		)		10,002				—			(20,640		)
Equity in earnings of consolidated subsidiaries		(11,702		)		10,002								1,700			—
Net income (loss)		$	(20,640	)		$	(11,702	)		$	10,002			$	1,700		$	(20,640	)

Six months ended June 30, 2004

	MQ Associates, Inc.			MedQuest, Inc.		Guarantor subsidiaries		Eliminations		Consolidated
Cash flows from operating activities
Net income (loss)	$	2,723		4,637		15,475		(20,112	)	$	2,723
Adjustments to reconcile net income (loss) to net cash and cash equivalents provided by operating activities
Depreciation and amortization						15,619				15,619
Amortization of bond discount				120						120
Amortization of debt issuance costs				974						974
Bad debt expense						6,185				6,185
Equity in earnings of unconsolidated joint venture						(108	)			(108		)
Equity in earnings of consolidated subsidiaries	(4,637		)	(15,475	)			20,112
Changes in operating assets and liabilities
Patient receivables						(12,037	)			(12,037		)
Related party and other receivables						(280	)			(280		)
Intercompany receivable				(1,255	)	(12,752	)	14,007
Intercompany payable	1,914			10,838		1,255		(14,007	)
Prepaid expenses and other current assets						(1,387	)			(1,387		)
Other assets						(371	)			(371		)
Accounts payable						(3,763	)			(3,763		)
Accrued payroll and related taxes						902				902
Other accrued expenses				161		4,092				4,253
Net cash and cash equivalents provided by operating activities						12,830				12,830
Cash flows from investing activities
Purchases of property and equipment						(15,827	)			(15,827		)
Acquisitions of businesses, net of cash acquired						(5,485	)			(5,485		)
Proceeds from loan repayments						69				69
Net cash and cash equivalents used in investing activities						(21,243	)			(21,243		)
Cash flows from financing activities
Payments on capital leases						(708	)			(708		)
Intercompany receivable				(23,500	)	(18,692	)	42,192
Intercompany payable	—			18,692		23,500		(42,192	)	—
Payment of debt issuance costs				(29	)					(29		)
Other				137						137
Proceeds from senior credit facility				23,500						23,500
Payments on senior credit facility				(300	)					(300		)
Payment on long-term debt				(18,500	)					(18,500		)
Net cash and cash equivalents provided by financing activities						4,100				4,100
Net (decrease) increase in cash and cash equivalents						(4,313	)			(4,313		)
Cash and cash equivalents, beginning of period						6,731				6,731
Cash and cash equivalents, end of period						2,418				2,418
Supplemental disclosure of cash flow information
Cash paid for interest						11,705				11,705
Cash paid for taxes						862				862
Supplemental schedule of non-cash investing and financing activities
Acquisition of businesses
Fair value of assets acquired						5,485				5,485
Less deposit paid in prior year
						5,485				5,485
Equipment acquired through capital leases	$	—				1,203				$	1,203

MQ ~~ASSOCIATES~~Associates, ~~INC~~Inc. & Subsidiaries Notes to Consolidated Financial Statements (Continued) (unaudited) (in thousands)

~~CONSOLIDATED~~Consolidating Statements ~~STATEMENTS~~of OFCash ~~CASH~~Flows ~~FLOWS~~Nine ~~(unaudited)~~Months Ended September 30, 2006

(in thousands)

	MQ Associates, Inc.				MedQuest, Inc.				Guarantor Subsidiaries				Eliminations				Consolidated
Cash flows from operating activities
Net income (loss)		$	(15,255	)		$	(5,654	)		$	16,001			$	(10,347	)		$	(15,255	)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation and amortization										25,485								25,485
Accreted bond interest		9,288																9,288
Amortization of bond discount						232												232
Amortization of debt issuance costs		308				1,462												1,770
Bad debt expense										10,867								10,867
Compensation related to stock options		30																30
Deferred income taxes										381								381
Equity in earnings of unconsolidated joint ventures										(177		)						(177		)
Proceeds from unconsolidated joint ventures										223								223
Gain on disposal of assets										(754		)						(754		)
Equity in earnings of consolidated subsidiary		5,654				(16,001		)						10,347				—
Changes in operating assets and liabilities:
Patient receivables										(10,455		)						(10,455		)
Intercompany payable						25,521				(25,521		)						—
Related party and other receivables										436								436
Prepaid expenses and other current assets										(200		)						(200		)
Other assets										732								732
Accounts payable										(5,557		)						(5,557		)
Accrued payroll and related taxes										1,515								1,515
Income taxes payable										216								216
Other liabilities										(38		)						(38		)
Other accrued expenses		(119		)		(5,560		)		(1,280		)						(6,959		)
Net cash (used in) provided by operating activities		(94		)		—				11,874				—				11,780
Cash flows used in investing activities
Purchase of property and equipment										(19,510		)						(19,510		)
Proceeds from sale or property and equipment

Filing Compare · MQ ASSOCIATES INC