UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2007

Commission file number: 333-132913

MSC–Medical Services Company

(Exact name of registrant as specified in its charter)

(904) 646-0199

(Registrant’s telephone number, including area code)

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

Securities registered pursuant to Section 12(g) of the Act: None

The registrant has no securities registered pursuant to Sections 12(b) or 12(g). The registrant files periodic reports under the Securities Exchange Act of 1934 solely to comply with requirements under that certain Indenture related to its Senior Secured Floating Rate Notes due 2011. The Indenture and form of note are filed with the Securities and Exchange Commission as part of the registrant’s Registration Statement on Form S-4, amended as of May 17, 2006.

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

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

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

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

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

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

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

Table of Contents

CAUTIONARY STATEMENTS

Unless specified to the contrary, all information in Part I of this Annual Report on Form 10-K is reported as of December 31, 2007, which was the end of our most recently completed fiscal year.

Forward-Looking Statements

Management may from time-to-time make written or oral forward-looking statements with respect to the Company’s annual or long-term goals, including statements contained in this Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, press releases, and other communications. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical earnings and those currently anticipated or projected. Management cautions readers not to place undue reliance on any of the Company’s forward-looking statements, which speak only as of the date made.

Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “may,” “could,” and similar expressions identify forward-looking statements. Forward-looking statements contained in this Annual Report on Form 10-K that involve risks and uncertainties include, without limitation:

In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, management is identifying important factors that could affect the Company’s financial performance and could cause actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. The Company’s future results could be adversely affected by a variety of factors, including those discussed in Item 1A. Risk Factors. In addition, all forward-looking statements are qualified by and should be read in conjunction with the risks described or referred to in Item 1A. Risk Factors.

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For information concerning our financial condition, results of operations and related financial data, you should review the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the “Financial Statements and Supplementary Data” sections of this document. You also should review and consider the risks relating to our business and industry that we describe below under “Risk Factors”.

PART I

Unless the context indicates or otherwise requires, the terms “The Company,” “we,” “us,” “our,” and “MSC” refer to MSC-Medical Services Company and “our parent” refers to the owner of 100% of our equity interests, MCP-MSC Acquisition, Inc. MSC-Medical Services Company became a wholly owned subsidiary of MCP-MSC Acquisition, Inc. on March 31, 2005.

The Company

MSC is one of the largest procurement providers of pharmacy and medical products and services to workers’ compensation payors in the United States. We coordinate the delivery of these products and services from our vendor network to workers’ compensation patients on behalf of our clients, which include large insurers, state or local governments, self insured companies and third party administrators, or TPAs. By offering our clients a “one stop shop” to outsource these activities, we offer cost savings by leveraging purchasing volumes and by reducing the administrative burdens associated with directly procuring such products and services. We serve 22 of the 25 largest U.S. workers’ compensation insurers and all 10 of the largest TPAs.

We have built a proprietary nationwide network of over 7,000 vendors to provide over 20,000 health care products and services to ill or injured workers outside the clinical setting. After a physician treats the affected worker, a regimen of care is prescribed, including a suite of products and services to be delivered outside the clinical setting. The products and services that we provide can be divided into two groups:

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Case managers typically handle hundreds of cases at a time and may need to order multiple Medical Products and Services over a period of months to years for each case. We streamline the time-consuming process of administering, procuring and billing for these products and services, which we estimate represent only approximately 18% of total workers’ compensation claims expense. Our clients have increasingly outsourced these activities to enable their case managers to focus on managing indemnity payments and hospital, clinic and physician costs, which we estimate represent the remaining 82% of the total claims expense. A typical case management process involving our Medical Products and Services proceeds as follows:

Our PBM services enable clients to more effectively manage pharmaceutical costs. Our pharmacy service offering provides patients with a retail card to present to pharmacists for workers’ compensation related prescription fills. As part of the PBM service we contact patients before and after delivery of the retail card to encourage its use. By increasing usage rates and therefore increasing penetration, we help clients realize direct cost savings through the lower prices we have negotiated via our network. In addition, our program enables our clients to more effectively manage their overall spending on pharmaceuticals by controlling drug utilization through a customized formulary. Our efforts to increase card usage are particularly important to workers’ compensation payors because legislation generally does not allow a payor to limit claimants to use of a specific provider network.

For the workers’ compensation insurance carriers and TPAs, we employ a two-pronged sales and marketing strategy that targets clients’ corporate and field offices. At the corporate level, we seek designation as a preferred provider on our product and service offerings. Obtaining preferred provider status typically indicates that our client will work, in conjunction with our sales force, to increase usage of our products and services by case managers. In the field offices, our sales force educates case managers on the benefits of using our services, thereby increasing our penetration rate within that particular customer account.

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Industry Overview

According to the Survey of Occupational Injuries and Illnesses by the Bureau of Labor Statistics (BLS), U.S. Department of Labor, nonfatal workplace injuries and illnesses occurred at a rate of 4.4 cases per 100 equivalent full-time workers among private industry employers in 2006. This was a decline from the rate of 4.6 cases per 100 equivalent full-time workers reported by the BLS for 2005. The rate resulted from a total of 4.1 million nonfatal injuries and illnesses in private industry workplaces during 2006, relatively unchanged compared to 2005, and a 2 percent increase in the number of hours worked. Incidence rates for injuries and illnesses combined declined significantly in 2006 for most case types, with the exception of cases with days away from work.

According to IMS Healthcare, Inc. (“IMS”), an independent third party provider of information to the pharmaceutical and healthcare industry, pharmaceutical sales in the United States are expected to grow between 5% and 6% in 2008 and between 3% and 6% compounded annually over the next five years. IMS also forecasted that certain sectors of the market, such as biotechnology, specialty products and the generics market will grow at higher rates.

The factors contributing to the growth of the pharmaceutical industry in the United States, and other industry trends, include:

Introduction of New Pharmaceuticals. Traditional research and development, as well as the advent of new research, production and delivery methods, such as biotechnology and gene research and therapy, continue to generate new compounds and delivery methods that are more effective in treating injuries and diseases. These compounds have been responsible for significant increases in pharmaceutical sales. We believe ongoing research and development of pharmaceutical drugs will provide opportunities for continued growth of our PBM business.

Increased Use of Drug Therapies. In response to rising healthcare costs, governmental and private payors have adopted cost containment measures that encourage the use of efficient drug therapies to treat injuries. While aggregate healthcare costs have risen, we believe drug therapy has had a beneficial impact on overall healthcare costs by reducing expensive surgeries and prolonged hospital stays. Pharmaceutical manufacturers’ continued emphasis on research and development is expected to result in the continuing introduction of cost-effective drug therapies and new uses for existing drug therapies.

Legislative Developments. The Deficit Reduction Act of 2005 (“DRA”) has reduced Medicaid reimbursement for certain prescription drugs, and the U.S. Congress may consider further reductions to Medicaid reimbursement. We continue to monitor state and federal regulatory changes to determine possible impacts on our operation and how we approach the market to manage any changes.

Expiration of Patents for Brand Name Pharmaceuticals. A significant number of patents for widely-used brand name pharmaceutical products will expire during the next several years. We consider this a favorable trend because generic products have historically provided a greater gross profit margin opportunity than brand name products.

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Business Strategy

Increase Sales at Our Existing Clients

We have an experienced sales force that is well-positioned to increase sales at our existing clients. We estimate that purchases during 2007 by our top ten clients represent less than 40% of their aggregate spending on the types of products and services we provide. We seek to increase sales to existing clients by:

Continue to Pursue New Clients

We target new client relationships and have a strong track record of winning accounts. During the year ended December 31, 2007, we gained 113 new clients. We believe that our two-pronged sales approach, reputation for quality service, national coverage and scale, and competitive pricing positions us well to win new clients. In addition, we have an opportunity for additional revenue growth due to our strong competitive position in the fragmented markets we serve, especially the Medical Product and Services product category.

Growth in Market Share Through Acquisition

On an ongoing basis, we actively seek strategic growth opportunities in the form of potential acquisitions that are well matched to our core competencies. Potential acquisitions are sought out and researched based on a variety of factors including growth potential, value, and potential synergies with our existing business model. Subsequent to year end, we completed the acquisition of three companies within the workers compensation industry that met our strategic objectives. See Note 20 to Consolidated Financial Statements for a discussion of such subsequent acquisitions.

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Increase Margins Through Cost Management

In the past, we focused our efforts primarily on increasing sales and quality of service, with a limited focus on increasing profit through cost management. During 2006 and continuing into 2007, we began to focus on leveraging our size and reducing costs through several of the following strategic initiatives:

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Product Lines

Our products and services are listed below in order of revenue contribution:

PBM services. Our PBM services are predominately administered through a retail card program that enables patients to access prescription drugs at approximately 64,700 retail and institutional pharmacies nationwide. We also provide clinical support services such as drug utilization review and formulary management. Our PBM services program benefits clients and patients by providing convenient access to prescribed medications while controlling eligibility, drug safety and drug suitability through a proprietary formulary designed for workers’ compensation injuries and customized for our clients. We also provide certain clients with a retroactive review of a patient’s prescription history to recommend improvements in treatment and reductions in drug costs. We currently have an exclusive partnership with one vendor, Restat, a division of The F. Dohmen Co. (“Restat”), who has contracted with national pharmacies at negotiated rates for prescription pharmaceuticals offered in our PBM services product line.

Medical Devices. We provide, through our vendors, a wide variety of medical devices, including continuous passive motion machines, bone growth stimulators, transcutaneous electrical nerve stimulation units (“TENS units”) and other related products. In addition to coordinating delivery of these devices, we actively monitor equipment usage and manage the ordering of monthly supplies such as batteries, electrodes and other consumables. These add-on services minimize costs by shipping only necessary supplies each month.

Home Health Services. We coordinate in-home nursing, IV therapy, home health aide and rehabilitation and therapist services for workers’ compensation patients. Our CSRs directly communicate with patients and in-home nurses and therapists to verify that patients receive appropriate care. We regularly conduct follow up surveys with patients after they receive services in an effort to ensure patient satisfaction.

Durable Medical Equipment (DME). We procure the delivery of in-home equipment to workers’ compensation patients, including such items as hospital beds, wheelchairs and patient lifts. After delivery of the equipment, our CSRs or representatives of our outsourcing partners, follow up with the patient to verify that the vendor provided timely delivery, sufficient product explanation and training and all necessary support services. We provide over 2,900 products in our DME line.

Orthotics & Prosthetics. We coordinate with patients to provide treatment from a practitioner who will fit orthotics and prosthetics in the patient’s home or in the practitioner’s office.

Mail Order Pharmacy. Our Mail Order Pharmacy Services, pursuant to which workers’ compensation patients may obtain their prescribed medications through home delivery, are outsourced to an outside vendor.

Transportation. We procure transportation services for patients, including ambulatory services, air transportation services, and wheelchair and stretcher services from the hospital to the patient’s home, as well as transportation to and from caregivers’ offices or hospitals for aftercare. We also provide translation services between non-English speaking patients and healthcare professionals or our clients’ representatives. Revenues from this service are included in transportation revenue.

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Medical Supplies. We provide patients with basic medical supplies, including wound care, urinary care and other common and easily-shipped personal care products. These medical supplies are products commonly utilized when providing health care, such as gauze, sterile gloves, wraps, bandages, tubing or swabs.

Sales and Marketing

Corporate Sales Team Organization

Our nationwide sales and marketing organization is led by our Chief Executive Officer and our Senior Vice President of Sales, who recently joined the Company. Our Senior Vice President of National Accounts, focuses on our medical products and services, and our Vice President of Pharmacy Sales, focuses on the pharmaceutical product lines.

The field sales force is led by Regional Vice Presidents (“RVPs”) and Regional Area Directors, who are responsible for identifying and responding to preferred provider opportunities at the corporate level of potential clients as well as directing the activities of field sales representatives in their respective regions. Within these regions we introduced Pharmaceutical-specific RVPs in 2006 and recently we have sharpened the focus of our sales initiative by adding dedicated sales representatives whose focus is growing new PBM business while our Medical Products and Services team focuses on increasing penetration within our existing customer relationships as well as winning new Medical Products and Service business on a regional basis. Both RVPs and our field sales representatives are responsible for visiting individual claims offices and educating case managers on the products and services that we offer as well as our record of cost containment and high-quality client service.

While our field sales force is organized by region, our inside sales force is organized by client so that we are able to fulfill each client’s specific billing, reporting and client service requirements. Through direct mailers, promotional products and continuous client contact, the inside sales force works to maintain our prominent position within each claims office.

We offer our sales force an attractive base salary and the potential for incentive bonuses in an effort to foster a team environment within our sales organization. Management believes that this positive team environment is critical to building and maintaining solid relationships with case managers, which enable us to increase sales penetration within claims offices.

Sales Process

We have a two-pronged approach to sales development at large insurance carriers and TPA customers. The first tier is at the payor’s headquarters, where we seek preferred provider status from each client on our offered products and services. Our Senior Vice President of National Accounts, Senior Vice President of Sales and Regional Vice Presidents and Area Directors are primarily responsible for actively managing this level of sales. Activities within the first tier include:

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The second tier of sales development occurs at the case manager level at clients’ claims offices. We work in connection with our payors’ corporate offices to promote our services. While many payors recognize the benefits of outsourcing the procurement of Medical Products and Services, the decision on a case-by-case basis often remains with a case manager, and payors are often reluctant to mandate compliance with corporate policies. As a result, the presence of our sales force within claims offices and our continued efforts to maximize case manager usage of our services is key to increasing network compliance.

With our information technology system (“IT System”), we are able to analyze purchases of our products or use of our services by claims offices and case managers and can target sales force efforts where we believe we can have the greatest impact. Our sales force seeks to maximize contact between our sales representatives and case managers through the following activities:

Information Technology

The Ancillary business process is supported by a combination of a medical distribution program from Fastrack Healthcare Systems (“Fastrack) and a proprietary front-end application called CSRD. The Fastrack and CSRD systems simplify the order entry, vendor selection and billing process. The CSRD application has an advanced selection engine that determines the best vendors based on criteria such as price, quality and geography and presents these vendors to the CSR.

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As part of our 2006 IT System enhancements MSC developed “Auto Authorization” which automated the process of obtaining authorization when a prescription is denied at the pharmacy. Prior to the automation of this process, the pharmacist was required to call MSC and a CSR would enter the prescription information into MSC’s website (OASIS) so that it could be accepted or denied by the adjuster. A CSR would then communicate the adjuster’s decision back to the pharmacy via phone or fax. The Auto Authorization application has significantly reduced the need for CSR’s manual intervention by taking an electronic denial from the pharmacy and routing it to the adjuster via email and MSC’s website. This process results in better application of the customer’s business rules, as well as reduced wait time for claimants at the pharmacies. Under this process, the adjuster is able to log into the website and authorize or deny the prescription and the result is automatically faxed to the pharmacy. Auto Authorization was introduced on a limited scale in October 2005 and further enhancements, as well as a full roll-out, were completed during fiscal 2006.

In 2007 a new system called MVP was developed and deployed to support the pharmacy billing process. This new system integrates with other pharmacy systems to ensure all pharmacy charges are properly validated against global edits, customer specific business rules and is priced with the latest fee schedule information. This system ensures that the pharmacy charges are over 99.99% accurate and facilitates the payment process.

MSC employs Electronic Data Interchange, or EDI, with certain customers and vendors. EDI facilitates the electronic exchange of patient eligibility and billing between MSC and its clients, eliminating the need for manual data entry. Benefits of EDI include lower processing costs and reduced error rates. Substantially all of our Pharmaceuticals product line employs EDI. During 2007 we added 23 additional Pharmaceuticals customers to EDI. For 2008, we will continue to encourage additional Medical Products and Services customers to increase EDI usage. As of December 31, 2007, the total of EDI customers was 65. In addition to EDI, we offer our customers an Electronic Funds Transfer option for the settlement of payments to us. We believe that our productivity and margins will continue to improve as additional clients adopt EDI and Electronic Funds Transfer.

The states of Texas and California are developing electronic billing standards for worker’s compensation claims. The state of Texas will require all worker’s compensation payors and providers (subject to very limited exemptions) to utilize electronic billing effective January 1, 2008. The state of California will also require all worker’s compensation payors to be able to accept electronic billing from providers. No effective date for compliance has been set by the state of California, however, we anticipate such effective date to be in 2008.

Competition

We compete in a highly fragmented industry. Our competition consists of: (1) national procurement providers and national PBMs; (2) local or regional networks or vendors who have direct relationships with physicians and payors; and (3) manufacturers who distribute their products directly to clients.

Quality, efficiency of service and pricing are the principal basis of competition in the worker’s compensation industry. We believe that our history of quality client service, our consistent efforts to maximize case manager usage of our services, and our competitive

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prices place us in a favorable position relative to our competitors. Our principal competitors among national procurement providers offering PBM and Medical Products and Services that we provide are PMSI (a division of AmerisourceBergen), Progressive Medical, One Call Medical, Health Esystems, Modern Medical, TechHealth and Cypress Care.

Specifically within our Pharmaceuticals product line, our competitors currently, and may in the future, include many well-established companies that have significant financial, marketing and other resources. We compete with a wide variety of competitors, including large national PBMs, such as Medco Health Solutions, Caremark Rx, Inc. and Express Scripts, many of which have existing relationships with carriers on the group health side. Each of these companies has national sales and account teams, mail service pharmacies and extensive technology infrastructure. We believe that our disciplined focus on the workers’ compensation industry and our systematic efforts to maximize usage of our PBM services are a competitive advantage relative to larger national PBMs, for which workers’ compensation claims are only a small portion of their overall service offering.

Employees

As of December 31, 2007, we employed 633 full time employees. We believe that we have a good working relationship with our employees. None of our employees are subject to a collective bargaining agreement.

Our business involves a number of risks, some of which are beyond our control. The risks and uncertainties we describe below are not the only ones we face. Additional risks and uncertainties that we do not currently know or that we currently believe to be immaterial may also adversely affect our business.

Risks Relating to Our Business

Intense competition may erode our profit margins.

The provision of health care products and services for the workers’ compensation industry is highly competitive. We compete primarily with the following:

We compete based on client service and ability to drive utilization, as well as on cost containment and clinical management services provided to our customers. We cannot be sure that we will continue to remain competitive, nor can we be sure that we will be able to market our services to clients successfully. Competition in our market could lead us to reduce the prices that we charge to our clients, which would exert pressure on our gross profits and gross margins. If we do not compete effectively, our business, profitability and growth prospects would suffer.

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Competition from other national procurement providers and national PBMs could adversely affect our future financial results. Our principal current competitors among national procurement providers and national PBMs are PMSI (a division of AmerisourceBergen), Progressive Medical, Concentra Operating Corporation, Express Scripts, Modern Medical, TechHealth and Cypress Care. Some of these competitors have greater financial resources than we have. Market share gains by these competitors would affect our ability to grow our business.

If additional large, national health care entities that do not currently directly compete with us move into the workers’ compensation PBM services and Medical Products and Services market, competition could significantly increase. Larger, national health care entities have significant financial resources, national sales and account teams, mail order pharmacies and extensive technology infrastructure. Because our Pharmaceuticals product line accounted for approximately 53% of 2007 revenue, if entities of national scope and leverage move meaningfully into the workers’ compensation pharmaceuticals market, our business, profitability and growth prospects could suffer. In addition, companies that currently compete in certain of our product lines could begin competing with additional product lines through the acquisition of an existing company or de novo expansion into new product lines. Additionally, consolidation, especially by way of the acquisition of any of our competitors by any large, national health care entity, could also lead to increased competition.

Historically, competition in the marketplace has caused us to reduce the prices charged to clients for core services. This trend toward lower pricing, as well as increased demand for enhanced service offerings and higher service levels, has put pressure on operating margins. We expect to continue marketing our services to larger clients, who typically have greater bargaining power than smaller clients. In order to attract these larger clients, we could be forced to further reduce prices, which would exert further pressure on our margins. We can give no assurance that new services provided to these clients will fully compensate for these reduced margins.

We are subject to credit risk with respect to the products and services that we provide on behalf of our clients.

Our business model is such that we are subject to credit risk on many of the products and services that we provide on behalf of our clients. Once we have identified a supplier from our vendor network, we purchase the product or service based on a referral received from our carrier client, who, in turn, pays us pursuant to our agreement for procuring services and the invoice submitted by MSC. Typically, a differential of approximately 60 to 70 days exists between the date of invoice and the date upon which we are paid by our client. We collect the majority of our receivables within 12 months; however, the collection period of some receivables ranges from 24 to 36 months, and in some cases beyond. In the event that receivables are outstanding over long durations of time or in increased amounts, we may need to access our senior secured revolving credit facility or other financing sources to provide working capital for our business, and may incur additional expenses with respect to our collections. In addition, in certain situations, we could decide to

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write off a portion of such receivables in excess of reserves already established. This would have a negative effect on our operating margin and our net income, which effect could be significant. Many factors, including a failure of ours, our outsourcing partner, or our clients’ computer and communications hardware and software systems, could delay payments. To this extent, we depend on the efficient and uninterrupted operation of our outsourcing partner and our clients’ information technology systems. See “—Failure in our information technology systems could significantly disrupt our operations, which could reduce our client base or result in lost revenue.”

Additionally, our clients may dispute the amount of our bills or may default on their obligations due to bankruptcy, lack of liquidity, operational failure or other reasons. While the states in which we do business guarantee the payment obligations of workers’ compensation payors to varying degrees, we cannot be certain that we would be fully reimbursed in the event of a failure or default by one of our clients in payment. We may be materially and adversely affected in the event of a significant failure or default by our clients in payment. Certain of our clients account for significant portions of our revenue. Liberty Mutual accounted for approximately 12.1% of revenues in 2007 and 7.5% gross accounts receivable at December 31, 2007. Sedgwick Claims Management Services, Inc. and its affiliates (“Sedgwick”), accounted for approximately 11% of our revenue for 2007 and approximately 5.0% of gross accounts receivable at December 31, 2007. The majority of the Liberty Mutual accounts receivable outstanding in December stemmed from the Ancillary product lines where we still have an ongoing relationship. If these customers were to go bankrupt or experience financial difficulty or for any other reason would not pay, a significant proportion of our total accounts receivable could become uncollectible, in which case we would likely have to make a substantial provision for bad debt or write off such accounts receivable, which would significantly reduce our net income.

Failure in our information technology systems could significantly disrupt our operations, which could reduce our client base or result in lost revenue.

Our ability to efficiently and successfully coordinate the delivery of treatments, supplies and services to patients on behalf of our clients, as well as our ability to provide customized and efficient billing to our clients, is critical to our success and depends upon our data processing systems, as well as the systems of our outsourcing partner, to:

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The Company’s business, financial condition and results of operations may be materially adversely affected if, among other things:

Our operating revenue and profitability could suffer upon our loss of one or more significant clients.

Our business model is dependent upon the development and retention of long standing client relationships. We have not formalized these relationships with many of our clients, including many of those that have awarded us preferred provider status, and therefore have not contractually protected our relationships. Additionally, clients with whom we have entered into written contracts are not obligated to use our services exclusively, or at all, and may terminate at their sole discretion, requiring up to 90 days advanced notice. For the year ended December 31, 2007, our largest client accounted for 11.5% of our unadjusted total billings, and our top ten clients accounted for 43.4% of unadjusted billings. The loss of one or more of our major clients could lead to a significant reduction in revenue and net income. In general, our client relationships are also subject to requests for proposal or other similar bidding processes pursuant to which we could potentially (a) lose the business of our clients or (b) be required to offer reductions in pricing, or other less favorable terms, in order to retain the business of our clients. Either of these events could have a material adverse effect on our business.

If key employees leave MSC, our operating results may be adversely affected.

Many of our client relationships depend upon relationships that have developed over many years between management and our clients’ senior executives, and between our field sales force and case managers at our clients. If certain of these managers or certain of our regional field sales representatives leave us, our client relationships could be impaired, which could adversely affect our revenue. We cannot be certain that we will be able to retain these or any other key employees.

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Additionally, we generally depend on our senior management for our operations. If some of these managers leave us, operating results could be adversely affected. We cannot provide any assurance that we will be able to retain these or any other key employees.

We are dependent on our vendors and our outsourcing partner for the efficient provision of services.

Our business depends on third party vendors, including our outsourcing partner, to perform services or deliver products as ordered, and our margins are dependent on our ability to negotiate favorable pricing for products and services. Vendors’ failure to efficiently provide services or deliver products may result in additional costs to us, for example by requiring us to use an out of network vendor with whom we have not negotiated favorable pricing. We are dependent on our outsourcing partner to perform many critical billing functions, vendor invoice processing, reporting, and other backroom operations. If any of these services are not delivered on time or the partner’s people, processes, or IT systems fail, relationships with our customers could be negatively impacted and could result in a material adverse effect on our business and additional costs.

With respect to certain of our product lines, our vendor network is highly concentrated.

With respect to certain products and services, our vendor network is highly concentrated. We currently utilize Restat as our processor in our retail PBM services product line, which represented approximately 53% of our total 2007 revenue. Additionally, we have outsourced with our Mail Order Pharmacy services to a single vendor. If either our PBM services vendor or our Mail Order Pharmacy services vendor were to breach its contract with us or suffer adverse developments affecting its ability to provide services to us, our business could be significantly disrupted. While replacements exist, the process of transitioning to a new vendor could be costly and time consuming and could materially adversely affect our operations.

Failure to expand into additional product lines could impede our future growth and adversely affect our competitive position.

As part of our growth strategy, we may expand into new product lines. We might achieve this by contracting with vendors in a new product line, and marketing that line to our clients. An attempt at such development may not be successful. For example, we may partner with vendors who prove to be unreliable, or we may find that our clients’ demand for the new service falls short of our expectations. In such an event, we might lose our investment, including the value of our management’s and employees’ diverted time and energy.

We also might expand into new product lines through the acquisition of smaller regional and national procurement providers that we believe will, in each case, enable us to generate revenue growth and enhance our competitive position. Such future acquisitions may involve significant cash expenditures and operating losses that could have a material adverse effect on our financial condition and results of operations. Additionally, such future acquisitions may not lead to successful results, as acquisitions involve numerous risks and challenges including:

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Failure to effectively integrate the targets of our acquisitions could negatively impact our customers and result in lost revenue, increased costs and negative impact o our brand. The integration of any such acquisitions may not lead to successful results, as acquisitions involve numerous risks as outlined above.

Changes in prescription patterns may affect our financial results.

Our financial results with respect to Pharmaceuticals will vary depending on the drugs prescribed to patients utilizing our retail card and our mail order pharmacy services. Filling of certain prescriptions creates more favorable margins than does filling of other prescriptions. The Company earns a higher margin on mail order transactions versus retail card transactions. Variables include the average wholesale price of the drug, whether a drug is under patent or generic and regulatory changes adopted by the various state workers’ compensation agencies, such as closed formulary directives. Changes in prescribing patterns may occur and may have a negative effect on our margins.

Occurrence of natural disasters, including hurricanes, may damage our facilities and limit our ability to operate.

Our operations are based in Florida. The occurrence of a natural disaster in Florida could damage our facilities and limit our ability to operate. Material damage to our Florida facility could significantly disrupt the operation of our business. We have developed a business continuity plan, including plans for the relocation of IT Systems and staff, to limit the disruption to our business in the event of a natural disaster. Natural disasters as well as fire and other accidents could result in substantial facility-reconstruction costs to us, and additionally could result in disruption, delay or suspension of our business operations and substantial costs to reconstruct files and records.

The Company’s indebtedness may limit its ability to obtain additional financing in the future and may limit its flexibility to react to industry or economic conditions.

The Company maintains an asset-based revolving line of credit (“LOC”), which permits maximum borrowings of up to $40 million. Availability of borrowings depends upon a borrowing base calculation consisting of accounts receivable, subject to satisfaction of certain eligibility requirements. Any deterioration in the ability to collect on these assets could reduce the availability of borrowings under the LOC. At December 31, 2007, there were $18.6 million of outstanding borrowings under the LOC and the Company had sufficient assets based on eligible accounts receivables to borrow up to an additional $4.1 million.

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Increases in the level of the Company’s indebtedness could adversely affect the Company’s liquidity and reduce the Company’s ability to:

Operating cash requirements are normally funded by borrowings under the LOC and cash flow from operating activities. The Company expects that sources of capital to fund future growth in the business will be provided by a combination of cash flow from operating activities, borrowings under the LOC and/or other financing arrangements. However, adverse changes to the Company’s operations may disrupt the Company’s ability to maintain adequate levels of liquidity.

If the Company is unable to generate sufficient cash flow from operating activities to service the indebtedness, the Company will be forced to adopt an alternative strategy that may include the following options:

Regulatory Risks

Changes in the regulation of workers’ compensation may affect our revenue and income.

Changes in the nature of health care delivery to workers’ compensation claimants, including the possible expansion of managed care practices in connection with such delivery, could fundamentally alter the nature of the industry in which we operate, thereby requiring us to make significant changes to our business and exposing us to new competition. Workers’ compensation benefits are federally mandated, state-regulated programs that require employers to provide comprehensive medical benefits and wage replacement to employees that are injured at work. Due to the complex nature of state and federal regulation of workers’ compensation, reimbursement practices differ from those in the general health care industry. States determine the level of medical care required to be provided, the ability of injured employees to select health care providers, and the maximum level of reimbursement. We may not be able to adjust our business model or operations to accommodate fundamental changes in workers’ compensation-related health care delivery and, even if we could do so, our profitability and growth prospects could suffer.

Over the last several years, we have seen substantial changes in the workers’ compensation system in the state of California, including its medical coverage and reimbursement system. Among the changes in the system was a significant reduction to the maximum amounts that we are allowed to charge our clients for our Pharmaceutical products. We currently generate more revenue in

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California than in any other state. We took several measures in response to this development, including cost reductions from our pharmacy vendors and some shifting from retail pharmacy fills to higher-margin mail order. Nonetheless, our results of operations (including our gross margins) were adversely affected by such changes. It is possible that there may be further changes in California or in other states. At least one state in which we do business has considered adopting a single-provider model. If a single provider model were adopted and we were not selected as the single provider (or as a subcontractor to the single provider), we could be entirely excluded from conducting operations in that state. Further changes in California or in other states could require substantial changes to our business, which could impose substantial costs on us, both in operating expenses and in changed revenue patterns, and could result in further margin reductions.

Our compliance in certain states may be subject to challenge.

As an intermediary between health care providers and workers’ compensation payors, we are subject to state laws and regulations affecting the delivery of health care to workers’ compensation beneficiaries. Such requirements may restrict our operations, including our billing relationships, the scope of our vendor network and the services that we provide to our clients, and impose reporting requirements with respect to claims amounts and health care delivery. In addition, there are regulations in certain states that may prohibit intermediaries from charging payors in respect of procured products and services comprehensive fees that are in excess of the purchase prices paid to vendors for those products and services and that do not separately itemize or bill administrative expenses. It is also possible that our billing arrangements with third party administrators and other similar organizations could be subject to challenge. We closely monitor requirements that are applicable to us, including possible changes to the existing regulations, and we have not been subject to any suit or investigation alleging noncompliance to date. However, it is possible that we may be found to be in noncompliance with current requirements or with any future requirements. An administrative or judicial determination that we are in noncompliance with any requirements could result in substantial costs to us, in the form of legal fees, fines and penalties, and modifications of our business structure that could be materially adverse to our business.

In addition, requirements imposed on our clients by state laws and regulations governing workers’ compensation-related health care delivery could affect us indirectly. For example, some states have adopted, and other states may adopt, regulations requiring workers’ compensation payors to report to the state the amounts paid to health care providers for products and services. In most states we do not qualify as a health care provider, and as such, reporting the amounts that payors pay to us may not satisfy such regulations. However, as in our PBM business, we do not always directly contract with health care providers, so we cannot always provide our clients such payment information. A challenge under such regulations could require us or our clients to restructure our or their payment and business arrangements in a manner materially adverse to our business.

Changes in state and federal regulations regarding pharmaceuticals could restrict our ability to conduct our Pharmaceuticals product line.

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Numerous state and federal laws and regulations affect our Pharmaceuticals product line. The categories include, but are not necessarily limited to:

A number of state and federal law enforcement agencies and regulatory agencies have initiated investigations or litigation that involves certain of our competitors in the PBM product line. These investigations involve, among other issues, the propriety of the management of manufacturers’ rebates and the inappropriate coding of prescriptions. The outcome of the investigations and litigation involving some of our competitors could affect our business. For example, an outcome preventing PBMs from receiving rebates from drug manufacturers could result in increased costs.

Average wholesale price, or AWP, is a pricing benchmark published by First DataBank, Inc., as well as others, which is widely used to calculate a portion of the Medicaid and Medicare Part D reimbursements payable to pharmacy providers for the drugs and biologicals they provide. First DataBank recently agreed to a proposed settlement of a legal proceeding that would require First DataBank to stop publishing AWP two years after the settlement becomes effective unless a competitor of First DataBank is publishing AWP at that future time. First DataBank would also be required to change the way it calculates AWP during the two-year interim period. The settlement agreement is not final, and we are evaluating the potential impact that it could have on our business. We currently price and pay for pharmaceuticals based on AWP information derived from data published by a competitor to First DataBank. There can be no assurance that the settlement, if approved, would not have an adverse impact on the business of our customers and/or our business.

The federal government may adopt measures in the future that would further reduce Medicare and/or Medicaid spending or impose additional requirements on health care entities. At this time, we can provide no assurances that such changes, if adopted, would not have an adverse effect on our business.

We believe we are operating our business in substantial compliance with all existing legal requirements material to the operation of our business. Nonetheless, we cannot provide any assurance that one or more of the applicable agencies will not interpret the requirements differently, or, if an enforcement action were brought against us, that our interpretation would prevail. In addition, there are numerous proposed health care laws and regulations at the federal and state levels, and these could materially affect the industry

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in which we operate and our ability to conduct our business. For example, if legislation were enacted permitting drug importation, our clients might obtain pharmaceuticals from foreign pharmacies. Similarly, in states where changes to the state-set maximum billing amounts may occur, such as occurred in California, and in other states where such limits already exist, it is possible, notwithstanding the negotiated character of our pricing, that we could be subject to liability or to repayment of excess amount in some instances for any billing in excess of the legal maximum. We are unable to predict what additional federal or state legislation or regulatory initiatives may be enacted in the future relating to our business or the health care industry in general, or what effect any such legislation or regulations might have on us.

Changes in state health care, licensure or insurance laws could affect our business.

States commonly regulate parties involved in the delivery of health care. For example, many states have so-called all-payor statutes, often paralleling the federal Anti-Kickback and Stark laws, limiting the types of payments that can be made between health care providers and other parties who may influence referrals to those providers. Many of these statutes have not been interpreted to the extent of their federal analogues, and therefore are not as clear in their scope and application. Further development in such interpretations could cause our existing practices to be deemed to be in noncompliance, and therefore could impose costs on us, either as penalties of noncompliance or as the result of restructuring our relationships.

States also have varying licensure requirements. Prior to outsourcing of our mail order pharmacy, we were required in many states to hold licenses as an out-of-state mail order pharmacy. Pursuant to similar requirements, we currently must hold licenses in some states for the delivery of durable medical equipment. Although we believe that we are in compliance with such licensure requirements, it is possible that we are in noncompliance with the requirements of one or more states, and that such noncompliance could result in costs to us. Some states’ licensure requirements also extend to and regulate so-called preferred provider organizations (or similar entities that perform like functions), and entities that perform operations such as utilization and bill review in connection with the delivery of health care. It is possible that this type of regulation could broaden to encompass our business, and that such broadening could result in costs to us.

States also regulate workers’ compensation insurers. This regulation includes both licensure requirements and more direct operational restrictions on the activities of carriers. We do not believe that we are engaged in the business of insurance, and we therefore do not believe that we are subject to such regulation. However, a number of our customers are workers’ compensation insurers subject to state regulation. A change in the insurance laws or regulations of any state could alter the way that some of our customers elect to do business with us, or could make insurance regulations applicable to us directly. This could negatively affect our business.

Federal and state laws that protect patient health information may increase our costs and limit our ability to collect and use that information.

Because we are engaged primarily in the delivery of health care services to workers’ compensation claimants (and, to a significantly lesser degree, to claimants under our clients’ automobile-related personal injury protection policies) and do not electronically bill

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payors for any unrelated claims, we do not believe that we are at this point subject to the administrative simplification provisions of the federal Health Insurance Portability and Accountability Act of 1996 and related rules and regulations (HIPAA). HIPAA contains provisions generally applicable to three aspects of health care delivery: portability and continuity of health insurance for groups and individuals; fraud abuse and prevention; and information exchange. The Department of Health and Human Services has issued final regulations implementing the administrative simplification provisions of HIPAA concerning the privacy and security of individually identifiable health information, and the use of standard transactions and code sets for electronic transactions conducted by covered entities. The HIPAA privacy regulations, with which compliance was required as of April 2003, impose on covered entities (including certain hospitals, physicians, pharmacies, group health plans and certain other health care providers) significant restrictions on the use and disclosure of individually identifiable health information. The HIPAA security regulations, with which compliance was required by April 2005, impose on covered entities certain administrative, technical, and physical safeguard requirements with respect to individually identifiable health information maintained or transmitted electronically. The HIPAA regulations establishing electronic transaction and code set standards require that covered entities use standard transactions and code sets when electronically submitting or receiving to health plans individually identifiable health information in connection with certain health care transactions. These regulations became effective in October 2002, but Congress extended the compliance deadline until October 2003 for organizations that submitted a request for an extension. It is possible that HIPAA will, in the future, be expanded to cover entities engaged in our business, and if in the future we decide to expand our services to include the delivery of health care services to TRICARE or Medicare claimants, we would become subject to the administrative simplification provisions of HIPAA.

In addition, numerous state laws and regulations exist that govern the collection, disclosure, dissemination, use, security and confidentiality of patient information. Because our business requires us to process a substantial volume of patient information, many of those laws and regulations may apply or may be interpreted to apply to us. While we have implemented measures to protect this private information, the costs associated with any further requirements could be substantial, and failure to comply with privacy laws could expose us to substantial civil and criminal penalties. We can provide no assurance that the costs incurred in any future compliance efforts or in penalties that we may incur for failure to comply with privacy laws will not have a material effect on us.

Certain activities of our business could be challenged under consumer protection or other laws.

The federal government and states have consumer protection laws that have been the basis for investigations, lawsuits and multi-state settlements relating to the delivery of, and the provision of insurance coverage for, healthcare services. Such investigations, lawsuits and settlements have targeted, among other issues, the exchange of financial incentives, deceptive billing practices and illegal billing price structures. Although we have not to our knowledge been the subject of any such investigation, lawsuit or settlement, it is possible that these laws could apply to certain activities of our business.

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Tax legislation initiatives could adversely affect the Company’s net earnings and tax liabilities.

The Company is subject to the tax laws and regulations of the United States Federal, state and local governments. From time to time, various legislative initiatives may be proposed that could adversely affect the Company’s tax positions. There can be no assurance that the Company’s effective tax rate will not be adversely affected by these initiatives. In addition, United States Federal, state and local tax laws and regulations are extremely complex and subject to varying interpretations. Although the Company believes that its historical tax positions are sound and consistent with applicable laws, regulations and existing precedent, there can be no assurance that the Company’s tax positions will not be challenged by relevant tax authorities or that the Company would be successful in any such challenge.

The Company has received no written comments regarding its periodic or current reports from the staff of the Securities and Exchange Commission that were issued 180 days or more preceding the end of fiscal year 2007 and there are no open comments.

We lease our main facility, including our executive offices, which is currently located at 841 Prudential Drive, Suite 900, Jacksonville, FL 32223. The lease for approximately 100,000 square feet has a 94 month term which commenced in September 2007. The lease provides for an option to renew and extend the lease for two terms of five years each, commencing at the expiration of the initial term of the lease. The Company also has the option to contract 24,415 square feet of the space through calendar year 2008.

We are from time to time involved in litigation incidental to the conduct of our business. We believe that no litigation currently pending against us, if adversely decided, would have a material adverse effect on our financial position or results of operations.

No matters were submitted to a vote of shareholders during the quarter ended December 31, 2007.

PART II

Market Information

Shares of the Company’s common stock are not quoted for sale on any public market.

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The following table sets forth our selected historical financial data as of the dates and for the periods indicated. We derived the selected historical statement of income data for the years-ended December 31, 2003 and 2004 and the three months ended March 31, 2005 and the selected historical balance sheet data as of December 31, 2003 and 2004 and the three months ended March 31, 2005 from the audited consolidated financial statements of the Predecessor. We derived the selected historical statement of income data for the period form April 1, 2005 through December 31, 2005 and the selected historical balance sheet data as of December 31, 2005 from the audited consolidated financial statements of MSC-Medical Services Company (Successor). We derived the selected historical statement of income data for the years ended December 31, 2007 and 2006 and the selected historical balance sheet data as of December 31, 2007 and 2006 from our audited financial statements for the period then ended.

The selected financial data below should be read in conjunction with the Company’s financial statements and the notes thereto and Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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Overview

MSC-Medical Services Company is one of the largest procurement provider of health care products and services to workers’ compensation payors in the United States, based on its knowledge of the industry. The Company coordinates the delivery of these products and services from its vendor network to workers’ compensation patients on behalf of its clients, which include payors such as insurers and third party administrators.

The Company was established in 1986 as a local, family-owned company focused on providing durable medical equipment to patients on behalf of a variety of payors, including group health insurers. Over time, the Company broadened its product offerings, creating a regional network focused solely on the workers’ compensation market. In 2002, the Company consummated a recapitalization when an institutional investor acquired a controlling interest. After the recapitalization, the Company expanded its business to a national level and hired additional management to assist in the achievement of its growth strategy.

On March 31, 2005, through a series of transactions, the Company was acquired (the “Acquisition”) by MCP-MSC Acquisition, Inc., a Delaware corporation formed by investment funds affiliated with Monitor Clipper Partners, LLC, certain other institutional investors and members of management.

Factors affecting our financial results

Revenue. Revenue consists of amounts charged to customers for the products and services we provide. Overall, revenue is affected by the size of the workers’ compensation market for Pharmaceuticals and Medical Products and Services, federal and state fee schedules mandating maximum billable amounts, the extent of outsourcing in the industry and any market share changes resulting from shifts with existing customers and the acquisition of the business of new customers. These factors combine to affect the number of patients served and revenue per patient.

We have identified two distinct product lines consisting of Pharmaceuticals, comprised primarily of PBM services and mail order prescription medication, and Medical Products and Services which describes all other components of revenue. In our Pharmaceuticals product line, revenue per patient reflects costs of new and existing medications, drug prescribing patterns and drug utilization controls, for example, generic substitution. In our Medical Products and Services product line, revenue per patient is largely driven by the nature and quantity of products and services used by patients and the prices we are able to charge our customers for the provision of such products and services.

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We operate in a competitive market place where revenue may be affected by the competitive bidding process among other service providers. In addition, our customers may also periodically engage in formal requests for proposals (“RFP”) on non-contracted, as well as contracted business. We have historically and may decide in the future to offer reduced pricing in certain situations given the overall economics of the proposed business identified in the RFP and the competitive environment. The outcome of these RFP’s could have a positive or adverse impact on our future revenues, gross margin and operating income. In 2006 Liberty Mutual submitted an RFP for its two geographically focused workers’ compensation pharmaceutical programs. In March of 2007, MSC was informed of Liberty Mutual’s intent to award the contract to another vendor and thereby terminate our agreement. The effective date of the termination was June 4, 2007. The termination of the PBM agreement had no effect on the Company’s other services to Liberty Mutual, including Home Health Services and Durable Medical Equipment. Liberty Mutual represented approximately 12% of the Company’s total billings for the year ended December 31, 2007 compared to 19% in the prior year. Gross billings before sales adjustments from the Liberty Mutual PBM Agreement totaled approximately $38.3 million in the year ended 2007 compared to $42.8 million in prior year.

Additionally, there is continuing consolidation within the healthcare industry leading to increased competition. In this regard, one of our non-contracted Ancillary business customers took action in fiscal year 2007 to consolidate its vendor relationships, thereby reducing the number of vendors they utilize. While this action had an adverse short-term impact on our Ancillary revenue growth as the customer accounted for approximately 3% of total billings for the year ended December 31, 2006, we continue to believe our competitive product offering and value proposition affords us opportunities for revenue growth from this industry-wide consolidation in the future.

Cost of Revenue. Cost of revenue consists of payments to vendors for delivery of products and services, customer service representative costs (CSR), inventory carrying costs and shipping costs. In our Pharmaceutical Services product line, cost of revenue also includes credits for vendor rebates, as well as costs related to other service providers (e.g. retail card distributor). We negotiate prices for the provision of services and products with vendors in our network. In many cases, prices are pre-negotiated under a contract or pre-agreed price list with vendors. Prior to procuring products or services, we typically obtain written or verbal authorization and pricing approval from customers to minimize reimbursement risk. We also typically finalize the cost of products and services with our vendors before delivery.

Gross Profit. Gross profit reflects the differential between the price at which we sell our products and services and the cost of revenue. Margins are positively affected when we negotiate lower costs from our vendors without a change in pricing to our customers. Conversely, margins are negatively affected when we lower prices charged to customers without receiving a reduction in costs from vendors. Examples of this include customer negotiations where we agree to lower prices, and certain legislative changes which result in a decrease in prices that can be charged. Fluctuations in revenue or the cost of revenue do not necessarily result in

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corresponding changes in gross profit margins. For example, in the Pharmaceutical Services product line, the price at which we are able to procure pharmaceuticals and the prices we charge customers are frequently tied to a common measurement, such as AWP. As the benchmark moves up or down, revenue and cost of revenue move correspondingly, leaving gross profit margins largely unaffected. During fiscal 2007, the proportion of generic drugs dispensed increased, which has generally reduced revenue while improving overall gross margins.

Significant customers. For the year ended December 31, 2007, Liberty Mutual, our largest customer accounted for approximately 12.3% of our billings versus 19.4% for the year ended December 31, 2006. One other customer, Sedgwick, accounted for approximately 11% and 9.4%, respectively, for the year ended December 31, 2007 and 2006. Billings to our top ten customers decreased for the year ended December 31, 2007 and represented 43% of total billings for this period versus 48% for the same period in 2006.

Operating Expenses. Operating expenses include cash compensation, as well as non-cash compensation associated with stock compensation, other costs associated with our sales force and general and administrative expenses, including expenses related to information technology, accounting, human resources, travel, professional fees, corporate overhead and bad debt expenses.

Results of Operations

Year Ended December 31, 2007 Versus December 31, 2006, and December 31, 2006 versus December 31, 2005.

Total Revenue

Factors contributing to the 3.6% decrease in total net revenue during the year ended December 31, 2007, as compared to the prior year, are the loss of the Liberty Mutual PBM Agreement in June 2007, lower order volume in selected product categories and the loss of a non-contracted Ancillary customer, offset by the continuing implementation of Pharmaceutical services to new customers and the continued shift toward generic drugs, AWP price increases and product mix shift to higher margin products in our Medical Products and Services product lines. The Liberty Mutual PBM Agreement represented approximately $42.8 million of billings in 2006. The loss of the non-contracted customer accounted for $4.4 million of the decrease in Medical Products and Services during the year ended December 31, 2007.

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Factors contributing to the 7.7% increase in total net revenue for the year ended December 31, 2006, as compared to the prior year, were increased prescription fills, increased patients served and increased orders within certain product categories of our Medical Products and Services lines.

During the year ended December 31, 2007, we served 4.6% fewer individual patient injuries compared to the same period in 2006. This decrease in patients is primarily due to losses of (a) the Liberty Mutual PBM Agreement, and (b) a non-contracted Ancillary customer. With out these customers, our patients served increased by 2.5%. However, total revenue per patient injury increased 1.0% as compared to the same period in 2006. This increase is a result of several factors including a shift in product mix within the Medical Products and Services lines as described below, as well as pricing adjustments in certain of our product lines, primarily Pharmaceutical products and Medical Products.

During the year ended December 31, 2006, we served 9.8% more individual patients compared to the same period in 2005. Total revenue per patient injury decreased 1.9% from the comparable period in 2005. This increase is a result of several factors including a shift in product mix within the Medical Products and Services lines as described below, rate adjustments in certain of our product lines, offset by a shift in the mix between brand and generic prescription fills and selected pricing concessions.

The State of New York enacted revisions to the pharmacy and durable goods workers’ compensation fee schedules, effective July 11, 2007, which significantly reduced the maximum allowable reimbursements for pharmacy and ancillary workers’ compensation services in New York. There has been an adverse financial impact to our operating results and cash flow over the short term.

Total margins increased 1.1% for the year ended December 31, 2007 versus 2006. In our Pharmaceutical Services line, margins increased 1.3% to 17.0% for the year ended December 31, 2007 versus 2006. Margins also increased 0.7% for the year ended December 31, 2007 versus 2006 in our Medical Products and Services line. This increase is in response to the planned reduction in specific products that are typically higher revenue, lower quantity and lower margin.

Total margins increased 1.4% for the year ended December 31, 2006 versus 2005. In our Pharmaceutical Services line, margins increased 1.4% to 15.7% for the year ended December 31, 2006 versus 2005. Margins also increased 1.6% for the year ended December 31, 2006 versus 2005 in our Medical Products and Services line. The shift in mix from brand to generic positively impacted our PBM line as generic drugs are higher margin products. The results of the reduction of certain lower margin products, along with select rate adjustments yielded a 4.1% increase in Medical Services gross margin in the year ended December 31, 2006 versus the same period in 2005.

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Pharmaceutical Services Revenue

The decrease in Pharmacy Benefit Management Services revenue of 4.8% for the year ended December 31, 2007, as compared to the same period in 2006, is due primarily to the loss of the Liberty Mutual PBM Agreement in early June of 2007, partially offset by new customers and the impact of AWP net price increases. Excluding Liberty Mutual, pharmacy billings for the year ended December 31, 2007 increased by 12.7%, as compared to the same period in 2006. Based on an analysis performed by the Company regarding total spending for workers compensation claims outside of the acute care setting of several of its larger customers, the overall decline is also partially attributable to the decline in customer claims volume, which is partially offset by the increase in the Company’s share of these claims. The increase in PBM services revenue for the year ended December 31, 2006 versus 2005 is due primarily to the acquisition of business from new customers and increases in number of individual patients served. The decline in Mail Order Services (“MO”) revenue of 19.0% in 2007 and 26.5% in 2006 was due primarily to (a) attrition of long-term mail order patients who have been in the mail order program since the inception of our retail pharmaceutical services program, (b) improved screening practices designed to identify mail order candidates versus the historic method of using mail order as the default when adding new patients, and (c) implementation of our retail pharmacy card program. All of these factors combined have resulted in less mail order conversion opportunities despite the economic benefit to the customer.

Total prescription fills decreased by 10%, for the year ended December 31, 2007 as compared to the same period in 2006 due to loss of the Liberty Mutual PBM Agreement in early June, partially offset by prescription fill increases for other customers. Excluding Liberty Mutual, prescription fills for the year ended December 31, 2007 increased by 3.5%, as compared to the same period in 2006.

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The decrease in revenue reflects a decline related to prescription fills of $17.4 million (without the impact of the Liberty Mutual PBM Agreement revenue would be up 5%), and a shift in mix from brand to generic of $3.0 million, partially offset by the impact of favorable pricing of $12.0 million. Total prescription fills increased by 9.2% for the year ended December 31, 2006 versus 2005 due to new customer additions, especially customers added during the second half of 2005 whose business was fully ramped up in 2006.

The shift to generic fills is due primarily to industry-wide carrier initiatives that specify a generic fill if available. Generic prescription fills as a percent of total fills was 67.7%, for the year ended December 31, 2007 versus 66.4% during the same period in 2006 and 63.9% for 2005.

Medical Products and Services

During the year ended December 31, 2007, total orders for Medical Products and Services decreased by approximately 11.1%, while billings per order increased by 9.3%, versus the same period in 2006. Revenue for the year ended December 31, 2007 reflects the impact of lower product orders, and a decline in revenue from a non-contracted customer due to its vendor consolidation initiative, offset by an increase in average billings per order achieved as a result of business process improvement for our more service intensive, higher billing value product lines. Excluding the impact of this lost customer, orders for MPS decreased.

During the year ended December 31, 2006, total orders for Medical Products and Services increased by approximately 3.9% versus the same period in 2005. As a result of a planned reduction of certain products, there was a shift in the product mix and an increase in orders for product lines with moderate revenue but higher margins, e.g. Electro-therapy products, IV therapy, pain pumps and

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transportation. The increases are primarily a result of an increased focus on referral volume and business process order fulfillment improvements for our more service intensive and higher dollar volume product lines.

Cost of Revenue

Total cost of revenue, as a percentage of revenue, was 79.3%, 80.3%, and 81.7% for the years ended December 31, 2007, 2006, and 2005 respectively, an average decrease of 1.2%. This decrease as a percentage of revenue is due to (a) favorable vendor pricing actions, (b) more favorable product mix towards higher margin products and services, and (c) savings achieved from productivity gains of internal operating costs, primarily CSR related expenses.

Pharmaceutical Services cost of revenue decreases are a result of decreases in the total number of prescription fills for the year ended December 31, 2007 versus 2006, primarily attributable to the loss of the Liberty Mutual PBM Agreement in early June, 2007. This decrease is offset by an increase in the average cost per fill for branded drugs which increased approximately 8.82% per fill, for the year ended December 31, 2007 as compared to the same period in 2006. Generic cost per fill, however, decreased 5.54%, for the year ended December 31, 2007 as compared to the same period in 2006.

In 2006, Pharmaceutical Services cost of revenue increases are a result of increases in the total number of prescription fills for the year ended December 31, 2006 versus 2005 and an increase in AWP for branded and generic drugs which increased 9.1% and 3.2%, respectively, per fill, for the year ended December 31, 2006 versus 2005. The effect of increased AWP was mitigated by pricing concessions from our PBM vendor and a shift from branded to less expensive generic pharmaceuticals. Our cost for branded fills increased 7.7% while our generic cost per fill decreased 8.5% for the year ended December 31, 2006 versus 2005. As a result, Pharmaceutical Services gross margin percentage improved 1.4% to 15.7% for the year ended December 31, 2006 versus 14.3% for the comparable period in 2005.

Medical Products and Services cost of revenue decreases are primarily a result of product mix shifts, as discussed in Medical Products and Services Revenue above. Medical Products and Services gross margin increased 0.7% to 25.0% for the year ended December 31, 2007 compared to 24.3% for the same period in 2006. Medical Products and Services gross margin increased 1.5% to

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24.3% for the year ended December 31, 2006 versus 22.8% for the same period in 2005. These improvements in gross margin resulted primarily from our efforts to increase margins through various cost improvement initiatives, such as the de-emphasis of certain product lines, pricing actions and product mix shifts.

Expenses

Operating Expenses. Total operating expenses of $45.7 million including 24.6 million of compensation and benefit related expenses, increased $0.9 million for the year ended December 31, 2007, driven primarily by personnel expenses increasing approximately $0.5 million versus 2006, and all other expenses increased approximately $0.5 million versus the same period in 2006. Total operating expenses increased $5.8 million for the year ended December 31, 2006, with total personnel expenses declining approximately $0.4 million versus 2005, overhead expenses declined approximately $0.1 million versus 2005 and all other expenses increased approximately $6.3 million versus 2005 driven mainly by bad debt, sales tax, and consulting fees.

The $0.5 million increase in personnel costs for 2007 over the prior year includes costs for non-cash stock compensation expense, which remained at $1.2 million for the years ended 2006 and 2007. In 2006, the decrease in personnel costs from 2005 was due to the $3.3 million decrease in stock compensation expense, which was offset by $0.8 million of increases related to salaries/wages, health insurance and severance, $1.4 million of temporary IT consultation and $1.2 million of temporary staffing. Stock compensation expense was $4.5 million in 2005 related to the initial adoption of SFAS 123R. We also incurred $1.5 million of increases related to salaries/wages, of which $0.7 million related to IT personnel costs related to non capitalizable projects in 2006. This was offset by a decrease in insurance and benefits of $0.4 million due to a decrease in average full time employees from 2006.

The $0.5 million increase in other operating expenses for the year ended December 31, 2007

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includes $0.6 million of costs associated with relocating to a new leased office facility in September 2007; such costs include a $0.3 million expense for lease termination costs associated with the facility that was vacated by the Company. Such amount is expected to be paid out during the next six months. Bad debt expense remained flat for the year ended December 31, 2007 when compared to the same period in the prior year.

For the year ended December 31, 2006 net bad debt expense increased $2.1 million to $7.6 million versus 2005. This increase is due primarily to the change in the estimation factor for anticipated future losses from 0.85% for the first quarter of 2005 and 1.4% in the second quarter of 2005 to 2.5% of net sales for the third quarter of 2005 through the year ended December 31, 2006 as well as increase in revenues year over year. The estimation factor increased as a result of an analysis performed during the third quarter of 2005 that indicated the estimation factor being used should be increased to address the current collection risk of the Company’s portfolio of receivables. We continue to review this estimation factor on a quarterly basis. As a result, we released a total of $0.5 million from the bad debt reserve in the third and fourth quarters of fiscal 2006 as detailed in Note 2 to Financial Statements, “Summary of Significant Accounting Policies—Allowance for Doubtful Accounts” (roll forward schedule). Other increases to operating expenses for the year ended December 31, 2006 versus 2005 include $3.1 million of professional and consulting fees related to increased bank fees, SEC filings, Sarbanes Oxley consulting and various business process consulting projects. Other operating expense increases also include $1.1 million of sales tax expense for the year ended December 31, 2006 versus 2005. The increase in sales tax expense in fiscal year 2006 relates to the accrual and payment of sales tax expense on sales of certain products. This practice was initiated in the third quarter of fiscal year 2005 as a result of inquiries we were receiving from several states as discussed below in Adjustment to Sales Tax Liability.

Transaction Expenses. Transaction expenses of $24.7 million for the year ended December 31, 2005 include expenses incurred by the selling shareholders upon sale of the Company on March 31, 2005. These expenses include a $7.3 million long-term incentive payment to a former employee pursuant to the terms of his employment contract, $7.1 million in fees to the former owner, $6.2 million in fees to the Company’s financial advisor, a $2.6 million long-term incentive payment to a former officer pursuant to the terms of his employment contract, $0.6 million in payments to employees, $0.6 million in legal expenses and $0.6 million in other fees and accounting-related expenses.

Adjustment to Allowance. Adjustment to allowance for doubtful accounts of $18.5 million for the year ended December, 31 2005 is more completely described in Note 17 to the Financial Statements.

Adjustment to Sales Tax Liability. Adjustment to Sales Tax Liability of $3.0 million for the year ended December 31, 2005 was a result of inquiries from several states regarding the Company’s sales tax filing practices. Based on these inquiries, the Company performed a review of its existing liability for sales tax payable. This analysis included researching the taxability of the Company’s product categories in all states, the voluntary disclosure benefits, and the sales tax exposure existing with all states. The Company’s analysis was completed in the third quarter of 2005 and accordingly the Company incurred a charge and a corresponding adjustment to increase its sales tax liability.

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Impairment of Goodwill and Other Intangibles. For the year ended December 31, 2007, $40.1 million was charged to expense for the impairment of goodwill and $8.4 million was charged for the impairment of trademarks. See Footnote No. 5 of the Notes to the Consolidated Financial Statements for further discussion of impairment testing.

Depreciation and Amortization. For the year ended December 31, 2007, depreciation remained flat when compared to the same period of the prior year. For the year ended December 31, 2006, depreciation and amortization increased $2.9 million to $12 million versus the same period in 2005. The increase is a result of a full year’s amortization of intangible assets resulting from the Acquisition consummated on March 31, 2005, capitalizable projects started in late 2005 and completed in 2006 and other fixed asset additions.

Loss on Disposal of Fixed Assets. In conjunction with the termination of the former lease in 2007 related to the move to the new facility, certain asset were sold or otherwise disposed of. As a result of the disposals, a $15 thousand loss on disposals was realized in 2007.

Litigation Settlement. In conjunction with the sale of the Company in March 2005, an escrow account was established with Wells Fargo Bank as the escrow agent and $15.0 million of the purchase price was deposited in the escrow account to be used as security for and to satisfy claims arising out of the transaction. On May 26, 2006, the parent delivered to the stockholder representative for the sellers of the Company an indemnification claim against the escrow balance. A $12.4 million settlement was reached on May 30, 2007 by and between the Company and the sellers as part of a settlement agreement that included a cash settlement to the Company paid out from the escrow account of $9.0 million and forfeiture of $3.4 million of unpaid tax benefits. Consistent with applicable accounting standards and SEC guidance, this transaction has been accounted for as an adjustment to results of operations.

Operating Income. For the year ended December 31, 2007, operating income decreased $37.0 million versus the same period in 2006, primarily due to the goodwill and other intangible write-off, which was partially offset by the litigation settlement discussed previously. For the year ended December 31, 2006, operating income increased $46.5 million versus the same period in 2005, primarily due to transaction expenses of $24.7 million, the adjustments for allowance for doubtful accounts of $18.5 million and sales tax liabilities of $3.0 million recorded in fiscal 2005.

Interest Expense. Interest expense increased by $0.5 million for the year ended December 31, 2007 versus the same period in 2006. The increase in interest expense is a result of an increase in the average outstanding interest bearing debt. For the year ended December 31, 2006, interest expense increased by $0.6 million versus the same period in 2005. The increase in interest expense is a result of an increase in the average monthly 3-Month LIBOR rate of approximately 1.6% versus the same period in 2005. The interest rate increase was offset by reductions in interest expense in 2006 for certain items that occurred in 2005, such as the write-off of capitalized debt issuance costs incurred as a result of a refinancing under the Company’s Senior Secured Notes and Senior Secured Revolving Credit Facility associated with the permanent financing for the Acquisition.

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Income Tax Benefit. For the year ended December 31, 2007, the income tax benefit increased $3.6 million from the same period in 2006. The litigation settlement mentioned above, was a non-taxable event, therefore not affecting taxable income. For the year ended December 31, 2006, the income tax benefit decreased $18.6 million from the same period in 2005. The December 31, 2005 income tax benefit of $23.7 million was the result of a loss before income taxes arising from the costs associated with the Acquisition. The 17.4% effective tax rate for the year ended December 31, 2007 reflects a 20.1% decrease from the 2006 rate of 37.5% due to the non-taxable litigation settlement along with the goodwill impairment charge. The 37.5% effective rate for the year ended December 31, 2006 reflects a 0.7% decrease from the effective tax rate for the nine month period ended December 31, 2005 of 38.2% primarily due to the effect of non-deductible items for tax purposes. We currently expect to be able to utilize the tax benefit through the reversal of deferred tax liabilities in future periods.

Liquidity and Capital Resources

Operating activities provided $5.7 million, $7.3 million, and used $19.2 million of cash flow for the years ended December 31, 2007, 2006 and 2005, respectively. Operating cash flow for 2007 includes the impact of the litigation settlement. Excluding the impact of this settlement, cash provided by operating activities for the year ended December 31, 2007 was approximately $10.6 million lower than the same period in 2006. The year-to-year decline in operating cash flow activities is primarily the result the loss of cash collections from the Liberty Mutual PBM Agreement combined with the decrease in accounts payable of $9.5 million. The $9.0 million in cash received from the litigation settlement was used to fund payments to vendors and repay outstanding borrowings under the revolving credit facility of $3.5 million. The increase in cash from the litigation settlement was offset by the loss of cash receipts from the Liberty Mutual PBM contract, which terminated in June 2007. Day’s sales outstanding was 68 days for the year ended December 31, 2007 compared to 71 days in 2006 and 68 days in 2005.

The increase in operating cash flow activities for the year ended December 31, 2006 from the prior year was due primarily to a) transaction expenses incurred in connection with the Acquisition in 2005 of $24.7 million, b) decrease in the provision for deferred income tax of $12.4 million for the year ended December 31, 2006 versus 2005, and c) the collection of $7.2 million of income tax receivables in 2006. These provisions were offset by increases in accounts receivable of $14.6 million for the year ended December 31, 2006 versus $12.6 million for the comparable period in 2005.

Investing activities used cash of $4.5 million, $12.8 million, and $303.5 million for the years ended December 31, 2007, 2006 and 2005 respectively. Cash used for investing activities in 2007 was exclusively related to capital expenditures of $4.6 million.

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Cash used by the predecessor’s investing activities in 2005 reflects payments made to the selling shareholders in connection with the Acquisition. The proceeds from income tax refunds received in the year ended December 31, 2006 were disbursed to the former owners in 2006 as required by the purchase agreement. Capital expenditures were $4.0 million for the year ended December 31, 2006 versus $2.8 million for the same period in 2005. These expenditures related primarily to ongoing capitalizable information systems projects and software improvements.

Financing activities for the year ended December 31, 2007 used $1.5 million compared to $3.3 million provided in 2006 and $329.8 million in 2005. We repaid $3.5 million on our revolving credit line, which was drawn in 2006, using the proceeds from the litigation settlement discussed previously. We also borrowed an additional $2.0 million on our revolving credit line to use fund our necessary working capital requirements.

We believe that, based on current levels of operations and anticipated growth, cash from operations, together with other available sources of liquidity, including borrowings available under our senior secured revolving credit facility, will be sufficient to fund operations, anticipated capital expenditures and required payments on our debt for at least the next 12 months. In connection with our borrowings, we made interest payments totaling $21.2 million for the year ended December 31, 2007. Our available sources of liquidity are dependent upon future operating performance, which, in turn, is subject to factors beyond our control, including the conditions of the workers’ compensation industry. The Company cannot assure that its business will generate cash from operations, or that it will be able to obtain financing from other sources, sufficient to satisfy its debt service or other requirements.

As of December 31, 2007, the Company was compliant with all debt covenants.

Subsequent Event

The following statements are subject to risks and uncertainties that could cause actual results to differ materially from those currently anticipated or projected. The estimates and ranges provided are for informational purposes, however, Management cautions readers not to place undue reliance on any of the Company’s forward-looking statements, which speak only as of the date made. See page 3 for “Cautionary Statements – Forward Looking Statements”

As reported on the Company’s Current Reports on Form 8-K dated on February 1, 2008 and March 28, 2008, on January 28, 2008, the Company acquired 100% of the outstanding membership interests of ZoneCare USA of Delray, LLC, a Florida limited liability company (“ZoneCare”), and Speedy Re-employment, LLC, a Florida limited liability company (“Speedy”), and substantially all of the assets of SelectMRI, LLC, a Florida limited liability company (“Select MRI” and together with ZoneCare and Speedy, the “Acquisition Entities”) for $25,000,000, $7,000,000, and $500,000, respectively, paid in cash subject to escrows and holdbacks. In connection with the purchase of the assets of SelectMRI, the Company formed a wholly-owned subsidiary, SelectMRI Acquisition, LLC, a Delaware limited liability company (“Select Acquisition”), which actually acquired the assets of SelectMRI.

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In connection with these acquisitions the Company restructured its debt agreements to account for the acquisitions. On January 18, 2008, the Company entered into Amendment No. 4 (“Amendment No. 4”) to the Credit Agreement dated as of March 31, 2005 among the Company, MCP-MSC Acquisition, Inc., the banks, financial institutions and other lenders party thereto (collectively, the “Lenders”) and Bank of America, N.A., as administrative agent (in such capacity, the “Administrative Agent”) for the Lenders, as amended by Amendment No. 1 to the Credit Agreement dated as of May 12, 2005, Amendment No. 2 to the Credit Agreement dated as of December 9, 2005 and Amendment No. 3 to the Credit Agreement dated as of December 14, 2006. See footnote 6 of the Notes to the Consolidated Financial Statements for other requirements under the Credit Agreement.

In Amendment No. 4, the Company, the Administrative Agent and the Lenders agreed to amend the Credit Agreement in certain respects, including, but not limited to, the items set forth below:

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As reported on the Company’s Current Reports on Form 8-K dated February 8, 2008, and March 28, 2008, on February 5, 2008 the Company, the Parent, each of ZoneCare, ZoneCareUSA DME, LLC, a Florida limited liability company, Speedy, and SelectMRI (the “Subsidiaries”), and U.S. Bank National Association (the “Trustee”) entered Supplemental Indentures (the “Supplemental Indentures”), pursuant to which the Subsidiaries were added as new subsidiaries of the Company under the Indenture (the “Indenture”), dated as of June 21, 2005, between the Company and the Trustee. The Company issued its Senior Secured Floating Rate Notes due 2011 (the “Notes”) under the Indenture. The Supplemental Indentures provide that the Subsidiaries will guarantee all of the obligations of the Company under the Notes and the Indenture, subject to the terms of the Supplemental Indentures. In connection with the Supplemental Indentures, the Subsidiaries entered into Second Lien Security Agreement Supplements on February 5, 2008 (the “Second Lien Security Supplements”) pursuant to which the Subsidiaries joined as parties to the Second Lien Security Agreements among the Company and the Parent, addressed to Trustee, as indenture trustee and collateral agent for the benefit of Trustee and the holders from time to time of the certain second lien notes as defined in such agreement.

On February 5, 2008, the Subsidiaries entered into Security Agreement Supplements (the “Security Agreement Supplements”) with Bank of America, N.A. (the “Administrative Agent”), as administrative agent under the Revolving Credit Agreement (the “Revolving Credit Agreement”), dated as of March 31, 2005, among the Company, the lenders party thereto and the Administrative Agent. Pursuant to the Security Agreement Supplements, the Subsidiaries pledged certain assets as security for the Company’s obligations under the Revolving Credit Agreement and the related loan documents and also agreed to be bound as “Grantors” by all of the terms and provisions of the Security Agreement, dated as of March 31, 2005 and executed in connection with the Revolving Credit Agreement, to the same extent as each of the other Grantors. The Subsidiaries also entered Subsidiary Guaranty Supplements (the “Subsidiary Guaranty Supplements”), dated as of February 5, 2008, with the Administrative Agent, pursuant to which the Subsidiaries agreed to be bound as “Guarantors” by all of the terms and conditions of the Subsidiary Guaranty, dated as of March 31, 2005 and executed in connection with the Revolving Credit Agreement, to the same extent as each of the other Guarantors.

Contractual Obligations

The following table represents our contractual commitments specified below as of December 31, 2007 (in thousands):

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APPLICATION OF CRITICAL ACCOUNTING POLICIES

In preparing the financial statements in conformity with U.S. generally accepted accounting principles, management is required to make certain estimates, judgments, and assumptions. These estimates, judgments, and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. The significant accounting policies which management and the audit committee believe are the most critical to fully understand and evaluate the Company’s financial position and results of operations include the following.

Revenue Recognition

The Company recognizes revenue from product sales and services in the period that the service or rental activity occurs after obtaining a referral and authorization (either written or verbal) from the payor since at that time there is persuasive evidence that an arrangement exists, the price is fixed and determinable, and the collection of the resulting accounts receivable is reasonably assured.

Customers have the right to return consumable products and equipment. Sales allowances are recorded as a reduction of revenue for potential product returns and estimated billing errors. Management analyzes sales allowances quarterly using historical data adjusted for significant changes in volume and business conditions, as well as specific identification of significant returns or billing errors. Estimated provisions for sales allowances are recorded, if necessary, in the period the sale is recorded as a reduction to revenue. As of December 31, 2007 and 2006, the reserve for sales allowance was approximately $0.7 million and $0.5 million, respectively, and is included in the allowance for doubtful accounts balance.

Unbilled accounts receivable represents those transactions for which services have been performed but for which the Company is awaiting final cost information from its service provider, the exact amount of which are uncertain. Each month, the Company estimates this portion of earned but unbilled revenue and the corresponding receivable and cost of good sold, based on historical trends and estimation methodologies. These estimates are adjusted in subsequent periods when information becomes available from the service providers. Historically, these estimates have reasonably approximated the level of revenue actually billed to payors in the

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relevant period. As of December 31, 2007 and 2006, unbilled receivables were approximately 33.7% and 21.9%, respectively, of total accounts receivable. The increase in 2007 over 2006 is due to a lag associated with the new outsourcing process implemented in late 2007.

The Company generally does not charge additional amounts to customers for shipping and handling costs as any such costs are included in the sales price. The Company includes all of its costs of shipping and handling in operating expenses (approximately $0.6 million for the years ended December 31, 2007 and 2006, and $0.9 million for the year ended December 31, 2005, respectively).

Estimating Allowances for Doubtful Accounts

The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability to collect outstanding amounts due from its customers. The allowances include specific amounts for those accounts that are likely to be uncollectible, and a general allowance for those accounts that management currently believes to be collectible but later become uncollectible. Estimates are used to determine the allowances for doubtful accounts and are based on historical collection experience, current economic trends, credit-worthiness of customers, changes in customer payment patterns, and percentages applied to the accounts receivable aging categories. The percentage of each aging category that is reserved is determined by analyzing historical write-offs and current trends in the credit quality of the customer base.

Estimating Useful Lives of Property and Equipment

Property and equipment is recorded at cost and is depreciated on a straight-line basis over the following estimated useful lives.

Management is required to use judgment in determining the estimated useful lives of such assets. Changes in circumstances such as technological advances, changes to the Company’s business model, changes in the Company’s business strategy, or changes in the planned use of property and equipment could result in the actual useful lives differing from the Company’s current estimates. In those cases where the Company determines that the useful life of property and equipment should be shortened or extended, the Company would depreciate the net book value in excess of the estimated salvage value over its revised remaining useful life.

Impairment of Goodwill, Intangibles, and Other Long-Lived Assets

SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS 142”) requires goodwill and indefinite-lived intangible assets to be

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tested for impairment annually or whenever events or changes in circumstances indicate the carrying amount may be impaired. Goodwill and indefinite-lived intangible assets are reviewed for impairment annually as of October 31st. In accordance with SFAS 142, management concluded there is a single reporting unit. Management, based on the opinion of a third party valuation specialist, took an expense charge for an impairment of goodwill amounting to $40.1 million and an impairment of the trademarks amounting to $8.4 million were identified and expensed for the year ended December 31, 2007. The third party specialist used a combination of discounted cash flows and market value approaches to develop the fair values of the intangible assets.

The key factors that lead to the impairment in the fourth quarter of 2007, were the increase in discount rates used to discount expected future cash flows, and recent softening of the ancillary business, which caused management to revise its future projections of ancillary results in the short term from the latest projections used in the analysis performed during the first quarter of 2007. One non-contracted ancillary customer was lost subsequent to the first quarter analysis as well as some temporary declines from ancillary business received from other customers.

The impairment and disposal of long-lived assets is accounted for in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, (“SFAS 144”). SFAS 144 requires that long-lived assets, such as property and equipment and intangible assets subject to amortization, be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Certain factors which may occur and indicate that an impairment exists include, but are not limited to: (i) significant underperformance relative to expected historical or projected future operating results; (ii) significant changes in the manner of the Company’s use of the underlying assets; and (iii) significant adverse industry or market economic trends.

In the event that the carrying value of assets are determined to be unrecoverable, the Company would estimate the fair value of the assets or reporting unit and record an impairment charge for the excess of the carrying value over the fair value. Management must make assumptions regarding estimated future cash flows, revenues, earnings, and other factors to determine the fair value of these respective assets. If these estimates or related assumptions change in the future, the Company may be required to record an impairment charge. Impairment charges would be included in general and administrative expenses in the accompanying statements of operations, and would result in reduced carrying amounts of the related assets in the accompanying balance sheets. With the exception of the goodwill impairment of the intangible assets discussed above, management does not believe there were any circumstances which indicated that the carrying value of any other asset may not be recoverable.

Due to the significant amount of indebtedness that we have incurred in connection with the Transactions, we are exposed to interest rate risk. Pursuant to the terms of our senior secured revolving credit facility, we are required to enter into interest rate swap contracts such that at least 50% of all of our and our parent’s indebtedness is subject to fixed interest rate protection. Based on our current hedging positions, under which we have secured a fixed rate for over 50% of our indebtedness outstanding at December 31, 2007, a 1% increase in interest rates would result in an increase in interest expense of $0.9 million.

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INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

F - 1

Report of Independent Registered Public Accounting Firm

The Board of Directors

MSC – Medical Services Company

We have audited the accompanying consolidated balance sheets of MSC – Medical Services Company (the Company) as of December 31, 2007 and 2006, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years ended December 31, 2007 and 2006, the period April 1, 2005 to December 31, 2005 (Successor), and the period January 1, 2005 to March 31, 2005 (Predecessor). These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the auditing 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 consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of MSC – Medical Services Company at December 31, 2007 and 2006, and the results of its operations and its cash flows for the years ended December 31, 2007 and 2006, the period April 1, 2005 to December 31, 2005 (Successor), and the period January 1, 2005 to March 31, 2005 (Predecessor) in conformity with U.S. generally accepted accounting principles.

As discussed in Note 2 to the financial statements, the Company adopted Statement of Financial Accounting Standards No. 123R, Share-Based Payments in 2006.

F - 2

MSC-Medical Services Company

Consolidated Balance Sheets

December 31, 2007 and 2006

(Dollars in thousands, except share data)

See notes to financial statements.

F - 3

MSC-Medical Services Company

Consolidated Balance Sheets—Continued

December 31, 2007 and 2006

(Dollars in thousands, except share data)

See notes to financial statements.

F - 4

MSC-Medical Services Company

Consolidated Statements of Operations

(Dollars in thousands, except share data)

See notes to financial statements.

F - 5

MSC-Medical Services Company

Consolidated Statements of Changes in Stockholders’ Equity

(Dollars in thousands)