Cautionary Statement Regarding Forward-Looking Statements

This quarterly report on Form 10-Q contains forward-looking statements within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, including, but not limited to, statements about our plans, strategies and prospects. Words such as "anticipates," "expects," "intends," "plans," "predicts," "believes," "seeks," "estimates," "may," "will," "should," "could," "potential," "continue" and variations of these words or similar expressions are intended to identify forward-looking statements. These forward-looking statements are based on our management's current expectations, estimates and projections. We cannot assure you that we will achieve our plans, intentions or expectations. Certain important factors could cause actual results to differ materially from the forward-looking statements we make in this quarterly report. Representative examples of these factors include:

· the financial impact on our businesses related to the recent weakening of the U.S. economy and its potentially negative impact on the market for life insurance and the financial stability of our customers;

· customer concerns about our financial health stemming from the decline in our operating results and stock price, which may result in the loss of certain customers or a portion of their business;

· concerns about our financial health prompting prospective customers not to engage us, or make it far more challenging for us to compete for their business;

· our anticipated negative cash flow from operations limiting our ability to make the desired level of investment in our businesses;

· our liquidity may be adversely affected by our inability to replace our current Revolving Credit Facility, which expires in October 2009, on terms acceptable to us.

The section of the Company's 2007 annual report entitled "Risk Factors" discusses some of these and other important risks that may affect our business, results of operations, cash flows and financial condition. The factors listed above and the factors described in the "Risk Factors" section and similar discussion in our other filings with the Securities and Exchange Commission ("SEC") are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could have material adverse effects on our future results. Investors should consider these factors before deciding to make or maintain an investment in our securities. The forward-looking statements included in this quarterly report are based on information available to us as of the date of this report. We expressly disclaim any intent or obligation to update any forward-looking statements to reflect subsequent events or circumstances.

Overview

On June 30, 2008, we sold substantially all of the assets and liabilities of our Claims Evaluation Division (CED). In October 2007, we completed the sale of our United Kingdom based subsidiary, Medicals Direct Group (MDG). Except where specific discussions of the CED and MDG are made, our discussion of our results of operations and financial condition excludes the CED and MDG for all periods presented. The CED and MDG have been presented as discontinued operations in the accompanying consolidated financial statements. Effective upon the sale of the CED, we operate within one reportable operating segment: The Health Information Division. See Note 5 to our consolidated financial statements included in this quarterly report for additional information.

Our Health Information Division (HID) consists of the following businesses:

· Portamedic - performs paramedical and medical examinations of individuals seeking insurance coverage, mainly life insurance;

· Infolink - conducts telephone interviews of individuals seeking life insurance coverage, and retrieves the medical records of such individuals, to gather much of the medical information needed in connection with the application process;

· Health & Wellness - established in 2007, conducts wellness screenings for health management companies, including wellness companies, disease management organizations and health plans;

· Heritage Labs - performs tests of blood, urine and/or oral fluid specimens, primarily generated in connection with the paramedical exams and wellness screenings performed by our Portamedic and Health & Wellness business units, and assembles and sells specimen collection kits; and

· Underwriting Solutions - provides underwriting services to the insurance industry on an outsourced basis, without the mortality and morbidity risks.

Our Portamedic paramedical examination business accounted for 70.2% and 69.7% of revenues for the three months ended September 30, 2008 and 2007, respectively, and 69.8% and 70.2% of revenues for the nine month periods ended September 30, 2008 and 2007, respectively.

Financial Results for the Three Month Period Ended September 30, 2008

For the three months ended September 30, 2008, consolidated revenues totaled $47.2 million, a 4.5% decline from the corresponding prior year period. Our gross profit totaled $11.3 million, or 24.0% for the third quarter of 2008, which represents an improvement over our gross profit of 22.0% for the third quarter of 2007. SG&A expenses were $13.3 million in the third quarter of 2008 compared to $13.8 million in the third quarter of 2007, a decrease of approximately 4.0%. For the third quarter of 2008, we incurred a loss from continuing operations of $2.0 million, $(0.03) per share, compared to a loss from continuing operations of $4.5 million, or $(0.07) per share in the third quarter of 2007. Our loss from continuing operations for the third quarter of 2007 included $1.6 million of restructuring and other charges consisting primarily of $0.8 million of branch office closure and severance costs, and the $0.8 million write off of certain business application software. There were no restructuring and other charges recorded in the third quarter of 2008.

Financial Results for the Nine Month Period Ended September 30, 2008

For the nine months ended September 30, 2008, consolidated revenues totaled $150.8 million, a 4.1% decline from the corresponding prior year period. Our gross profit totaled $38.7 million, or 25.7% for the nine month period ended September 30, 2008, which represents an improvement over our gross profit of 23.0% for the nine month period ended September 30, 2007. SG&A expenses were $39.9 million in the nine month period ended September 30, 2008, a decline of $1.2 million, or 3.0%, in comparison to the nine month period ended September 30, 2007. For the nine month period ended September 30, 2008, we incurred a loss from continuing operations of $3.0 million, $(0.04) per share, compared to a loss from continuing operations of $8.2 million, or $(0.12) per share in the nine month period ended September 30, 2007. Our loss from continuing operations for the nine month period ended September 30, 2008 included restructuring and other charges totaling $1.7 million, consisting primarily of severance related to the resignation of the previous CEO, charges related to the early termination of an agreement with outside consultants utilized in our 2006 strategic review and restructuring charges related to office closures and severance. The loss from continuing operations for the nine month period ended September 30, 2007 included restructuring and other charges totaling $2.9 million pertaining to office closures, employee severance costs and the aforementioned software write-off.

Portamedic

In the quarter ended September 30, 2008, Portamedic revenues decreased 3.8% in comparison to the prior year period. We continue to believe that achieving acceptable profitability levels will require top-line revenue growth, including the reversal of past revenue declines. Although we have approvals from over 90% of the insurance carriers in the marketplace, the number of paramedical examinations we complete on life insurance applicants continues to decline. The rate of decline in the number of paramedical examinations completed by our Portamedic business was 8.4% in the third quarter of 2008 in comparison to the third quarter of the prior year. This represents a slight decrease from the 9.2% decline experienced by Portamedic in the second quarter of 2008. We must achieve greater success in turning carrier approvals into unit sales at the local agent, corporate and brokerage levels. We continue to take steps to strengthen our local sales force: we are hiring more sales representatives, streamlining our sales tracking systems, improving sales training, and focusing sales incentives on increases in paramedical exams completed (i.e. unit goals). We will continue to take advantage of cost saving opportunities as they arise, but our focus in 2008 continues to be on increasing profitable revenue.

There were approximately nine million applications for life insurance submitted in the United States in 2007. As a result, notwithstanding the rate of decline in applications submitted; we believe that the market continues to offer attractive opportunities to a company that can sell its services effectively and distinguish itself from its competitors.

We are taking the following steps to address our need for top-line revenue growth and distinguish ourselves from our competitors:
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† On September 15, 2008, we appointed a new President of Portamedic with more than 25 years experience as a senior executive in the insurance industry.

· We have introduced our Mature Assessment service, which assists insurance carriers in their underwriting decisions on older applicants.

· We have introduced a new quality/imaging platform for all paramedical exam reports on a trial basis. This platform allows us to review the accuracy and legibility of examination reports. This new imaging platform, which we plan to extend throughout Portamedic, is expected to improve our quality of service to customers.

· In January 2008, we introduced a revised fee payment system for our examiners. We now pay examiners' fees according to a set payment schedule for each service an examiner provides. Previously, examiners were paid a percentage of the dollar amount of the fees we billed to insurance carriers. As this new payment system makes it easier for examiners to predict their income (fixed vs. variable), we expect it to improve examiner retention and productivity.

· We expect to continue to expand managed scheduling across the Portamedic business. Currently, many of our examiners schedule their own appointments with applicants, and it may take 6 to 7 days to schedule an examination. In those markets where we have introduced managed scheduling on a pilot basis, we have reduced the time required to schedule an examination to as little as 3 to 4 days.

Although the number of paramedical examinations Portamedic performs continues to decline, we believe that we are the market leader in the industry. We also believe that the steps we are taking to improve our selling ability and the quality of our services will enable us to stabilize the decline experienced in the last several years. However, for the remainder of 2008, market conditions are expected to remain difficult for Portamedic, particularly in light of the recent weakening of the U.S. economy and its potentially negative impact on the market for life insurance and the financial stability of our customers.

Our focus in 2008 remains on increasing profitable revenue. We have a small number of accounts where it actually costs us more than we charge to deliver our services. While we will try to renegotiate these contracts, we may in some cases terminate the account when the applicable contractual obligations expire. We have established a new pricing methodology to insure that all of our new contracts are profitable. This effort to eliminate unprofitable revenue may increase the rate of decline in the number of paramedical examinations Portamedic completes each year.

Heritage Labs

Heritage Labs business consists principally of performing tests of blood, urine and/or oral fluid specimens; and the assembly and sale of kits used in the collection and transportation of such specimens to its lab facility. In the quarter ended September 30, 2008, Heritage Labs revenues decreased 15.7% in comparison to the prior year period. In the third quarter of 2008, approximately 62% of Heritage's revenue came from lab testing and 38% came from the sale of specimen kits.

Since much of Heritage's revenue originates from paramedical exam companies (including Portamedic), Heritage is affected by the same negative market trends affecting Portamedic, namely the decline in the number of life insurance applications. In response, Heritage has taken the following steps to expand its market share and increase revenues:

† Heritage continues to strengthen its sales force. Earlier this year, Heritage hired an individual with significant experience in the life insurance industry to a newly-created position of VP of Sales. In addition, Heritage has hired a Medical Director to better serve our clients with lab and mortality related issues. This reflects our strategy to deliver research and statistical analyses to improve our customers' underwriting performance.

†† Heritage continues to expand its kit assembly business. Heritage is an FDA-registered Class I and Class II medical device assembler. Of the three laboratories providing testing services to the insurance industry -only Heritage is licensed to assemble kits. In October 2008, Heritage announced the award of a contract to manufacture biospecimen kits for the National Children's Study, a study focused on improving children's health and led by a consortium of federal agencies.

· In early 2008, Heritage began to market a line of self-collected finger stick test kits directly to customers, under the trade name "Appraise". These kits test hemoglobin A1c. The hemoglobin A1c test is particularly important for diabetics, who must constantly monitor their hemoglobin A1c levels. Revenues for the nine months ended September 30, 2008 were approximately $0.2 million, but are expected to increase as our distribution channels expand. The test kits are currently available in retail locations including Wal-Mart, Rite Aid and other locations nationwide.

†† We have added incentives for Portamedic sales representatives to sell Heritage Labs services.

Looking ahead in 2008, one major challenge for Heritage Labs is the loss of a significant customer who transferred their lab testing services to a different company's lab. The customer expressed no dissatisfaction with Heritage in terms of quality or service. Revenues lost from this customer in the quarter ended September 30, 2008, compared to the prior year quarter totaled $1.0 million. Heritage's annual revenues for this customer are expected to decline by approximately $4.0 million, beginning in May 2008.

Hooper Holmes Underwriting Solutions (HHUS)

Our Underwriting Solutions business provides underwriting services (including full underwriting, simplified issue underwriting, trial application analysis and telephone interviewing services), retrieves and summarizes attending physicians' statements (APSs), retrieves prescription histories, and performs underwriting audits.

In 2008, HHUS has continued to migrate away from their past reliance on one major customer. Although revenues were down 10% (or $1.0 million) for the nine month period ended September 30, 2008 in comparison to the prior year period, revenues from new HHUS customers approximated $1.8 million for the nine month period ended September 30, 2008. HHUS currently provides underwriting services to approximately 55 companies. For the remainder of 2008, replacing this lost revenue will remain a challenge, along with the previously noted declining number of applications for life insurance. In response, not only is HHUS making efforts to expand its existing lines of business, it is also seeking to expand its role in the rapidly growing life settlements market. HHUS's role in the life settlements market is to assist the life settlement brokers and providers by gathering medical-related information on the policyholder and assigning a life expectancy rating. At present, HHUS is a small player in this market. We are seeking to obtain a life settlement license in the State of Florida, which we see as being important to the growth of our life settlements business. However, HHUS is facing various regulatory challenges in connection with the application, stemming from it being part of a publicly-traded company. HHUS is currently working with the State of Florida to resolve these issues.

Health & Wellness (H&W)

Our Health and Wellness business completed approximately 32,000 and 15,000 health screenings for the three month periods ended September 30, 2008 and 2007, respectively, and 96,000 and 38,000 for the nine month periods ended September 30, 2008 and 2007, respectively. We currently provide our services to 24 health management companies. H&W's services include event scheduling, provision and fulfillment of all supplies (e.g., examination kits, blood pressure cuffs, stadiometers, scales, centrifuges, lab coats, bandages, etc.) at screening events, event management, biometric screenings (height, weight, BMI, hip, waist, neck, pulse, blood pressure) and blood draws via venipuncture or fingerstick, lab testing, participant and aggregate reporting, data processing and data transmission. Heritage Labs does all of the testing on venipuncture samples we collect at health and wellness screenings.

Through a strategic partnership, H&W is also able to provide the BioSignia "Know Your Number†" suite of reporting services. Know Your Number includes an online health risk assessment, participant report, physician report, participant letter with interventional recommendations, and an aggregate report with interventional recommendations.

We believe that the success of H&W will depend in part upon the proven success of disease management and health and wellness initiatives. If the return on our investment in these initiatives is not sufficiently high, our Health and Wellness business may not reach its full potential. Notwithstanding, we believe we are well positioned to capitalize on this opportunity given our unique set of assets, including our own lab (Heritage), systems and personnel and access to our network of paramedical examiners.

Discontinued Operations

On June 30, 2008, we sold substantially all of the assets and liabilities of the CED operating segment for $5.6 million and received cash payments totaling $5.1 million and a $0.5 million note receivable due in six equal monthly installments beginning July 31, 2008. We recognized a net gain on the sale of the CED of approximately $1.0 million which was reported in loss on sale of subsidiaries of discontinued operations in the accompanying consolidated statement of operations for the nine months ended September 30, 2008.

CED was composed of operations in New York State, known as D & D Associates, Allegiance Health and Medimax, and operations in Michigan, known as the Michigan Evaluation Group. The New York State operations and the Michigan operations were sold to separate third parties with both transactions closing on June 30, 2008. Our decision to sell CED was based on several factors, including CED's limited ability to significantly contribute to our long-term specific goals. We do not expect to have any significant continuing involvement, continuing cash flows or revenues from CED subsequent to the date of sale.

In connection with the sale of MDG in October 2007, we agreed to indemnify the purchaser for certain pre-closing tax liabilities. During the second quarter of 2008, information became available to us relating to certain pre-closing tax obligations of MDG. Based on this information, we recorded a liability totaling $0.8 million during the second quarter of 2008. As of September 30, 2008, based on additional information received, we revised our original accrual for these matters, decreasing the liability to approximately $0.6 million.

During the third quarter of 2008 we were informed of certain additional pre-closing tax obligations relating to MDG. As of September 30, 2008, based on all available information known to date, we have estimated our exposure relating to the additional pre-closing contingent tax obligations to range from $0 to $3.0 million (approximately ?1.7 million). As of September 30, 2008, we have recorded a reserve of approximately $0.8 million, which represents our best estimate of our obligation relating to these additional tax obligations. This amount may change as additional information becomes available.

For the three and nine month periods ended September 30, 2008, we recorded $0.5 million and $1.3 million, respectively in loss on sale of subsidiaries of discontinued operations in the accompanying consolidated statements of operations relating to these pre-closing tax obligations of MDG.

Key Financial and Other Metrics Monitored by Management

In our periodic reports filed with the SEC, we provide certain financial information and metrics about our businesses and information that our management uses in evaluating our performance and financial condition. Our objective in providing this information is to help our shareholders and investors generally understand our overall performance and assess the profitability of our businesses and our prospects for future net cash flows. We monitor the following metrics:

· the number of paramedical examinations performed by Portamedic;

· the average revenue per paramedical examination;

· time service performance, from examination order to completion;

· the MIB Life Index data which represents an indicator of the level of life insurance application activity;

· the number of tele-interviewing/underwriting reports we generate;

· the number of specimens tested by our Heritage Labs subsidiary;

· the average revenue per specimen tested;

· budget to actual financial performance at the branch level as well as in the aggregate; and

· customer and product line profitability.

Results of Operations

Comparative Discussion and Analysis of Results of Operations for the three and nine months ended September 30, 2008 and 2007, respectively

The table below sets forth our revenue by business for the periods indicated. Revenues for Health and Wellness for the three and nine month periods ended September 30, 2007 have been presented separately from Portamedic and Heritage Labs, to conform to the 2008 presentation.

Revenues by Component Businesses

(in thousands)                 For the Three Months Ended September 30,                 For the Nine Months Ended September 30,
                             2008                2007              % Change            2008                 2007            % Change

Portamedic               $      33,129       $      34,433               -3.8 %   $      105,278       $      110,349            -4.6 %
Infolink                         5,999               6,561               -8.6 %           19,482               21,060            -7.5 %
Heritage Labs                    3,604               4,273              -15.7 %           12,222               13,237            -7.7 %
Health and Wellness              1,405               1,072               31.1 %            4,629                2,413            91.8 %
Underwriting Solutions           3,059               3,095               -1.1 %            9,181               10,201           -10.0 %
Total                    $      47,196       $      49,434               -4.5 %   $      150,792       $      157,260            -4.1 %

Revenues

Consolidated revenues for the three month period ended September 30, 2008 were $47.2 million, a decline of $2.2 million or 4.5% from the corresponding period of the prior year. For the nine month period ended September 30, 2008, our consolidated revenues were $150.8 million compared to $157.3 million in the corresponding period of the prior year, a decrease of $6.5 million or 4.1%.

Portamedic

Portamedic revenues declined 3.8% for the three month period ended September 30, 2008 compared to the same period of the prior year. For the nine month period ended September 30, 2008, revenues decreased $5.1 million compared to $110.3 million for the same period of the prior year, or 4.6%. The decline in Portamedic revenues for the three and nine month periods ended September 30, 2008, compared to the same period of the prior year reflected a combination of:

· fewer paramedical examinations per day performed in the third quarter (403,000 in 2008, or 6,289 per day vs. 433,000 in 2007, or 6,867 per day) and in the nine month period ended September 30, (1,281,000 in 2008, or 6,672 per day vs. 1,406,000 in 2007, or 7,359 per day); which was partially offset by;

· higher average revenue per paramedical examination in the third quarter ($87.27 in 2008 vs. $83.82 in 2007) and in the nine month period ended September 30, ($86.52 in 2008 vs. $83.08 in 2007).

We attribute the reduction in the number of paramedical examinations performed in the three and nine month periods ended September 30, 2008 to the continued decline in life insurance application activity in the United States (as reported by the MIB Life Index) and therefore the need for fewer paramedical examinations. In addition to the decline in the number of exams resulting from a decrease in life insurance application activity, our revenue also declined due to the consolidation/closing of certain Portamedic offices in 2007 and early 2008 due to profitability considerations. A significant amount of Portamedic volume is derived from local agents and brokers, which has been negatively impacted by the elimination of certain offices. The increase in the average revenue per paramedical exam is primarily attributable to the rate increase for our services instituted on January 1, 2008.

Our Infolink business, tele-underwriting/interviewing and attending physician statement ("APS") retrieval, the latter representing the larger of the two Infolink revenue components, decreased 8.6% to $6.0 million for the three month period ended September 30, 2008 compared to the same period of the prior year. For the nine month period ended September 30, 2008, Infolink revenues decreased to $19.5 million from $21.1 million in the same period of the prior year, or 7.5%. The decrease in revenues is primarily due to a decrease in the number of APS units attributable to the overall decline in life insurance application activity. During the third quarter of 2008, we completed a review of the APS workflow and pricing structure which should allow us to operate more efficiently and generate more profitable revenues.

Heritage Labs

Heritage Labs revenues for the three month period ended September 30, 2008 were . . .