**U.S.
      Securities and Exchange Commission**


**Washington,
      D.C. 20549**





**FORM
      10-K**





[X]
            ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934For
                the fiscal year ended: December 31, 2005[ 
                ]
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934Commission
                File Number: 001-31584





**I-TRAX,
      INC.**


(Exact
      name of registrant as specified in its charter)





**Delaware**
            
            **23-3057155**(State
                or other jurisdiction of incorporation or organization)
            
            (I.R.S.
                Employer Identification Number)





**4
      Hillman Drive, Suite 130**


**Chadds
      Ford, Pennsylvania 19317**





(Address
      of principal executive offices)


(Zip
      Code)





**(610)
      459-2405**


(Registrant’s
      telephone number, including area code)





**Securities
      registered under Section 12(b) of the Exchange Act:**  None





**Securities
      registered under Section 12(g) of the Exchange Act:**  Common
      Stock, $.001 par value





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





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





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 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. [X] Yes [ ] No





Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of 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, or a non-accelerated filer. See definition of “accelerated
      filer” and large accelerated filer in Rule 12b-2 of Securities Exchange Act.
      (Check one):





Large
                accelerated filer [ ]
            Accelerated
                filer [ ]
            Non-Accelerated
                filer [X]





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





The
      aggregate market value of the voting and non-voting common stock held by
      non-affiliates of the registrant as of June 30, 2005, the last business day
      of
      the registrant’s most recently completed second fiscal quarter, was
      approximately $45,487,104.





The
      number of outstanding shares of the registrant’s common stock as of March 1,
      2006, was 36,081,877.





Documents
      Incorporated by Reference: Portions of the Proxy Statement for the 2006 annual
      stockholders’ meeting are incorporated by reference into Part III.











**TABLE
      OF CONTENTS**





**Item**
            
            **Page****Part
                I**1.
            Business
            11A.
            Risk
                Factors
            61B.
            Unresolved
                Staff Comments
            172.
            Properties
            173.
            Legal
                Proceedings
            174.
            Submission
                of Matters to a Vote of Security Holders
            17**Part
                II**5.
            Market
                for Registrant’s Common Equity, related Stockholder Matters and Issuer
                Purchases
              ofEquity
                Securities
            186.
            Selected
                Financial Data
            187.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operation
            207A.
            Quantitative
                and Qualitative Disclosure About Market Risk
            338.
            Financial
                Statements and Supplementary Data
            349.
            Changes
                in and Disagreements With Accountants on Accounting and Financial
                Disclosure
            659A.
            Controls
                and Procedures
            659B.
            Other
                Information
            65**Part
                III**10.
            Directors
                and Executive Officers of the Registrant
            6511.
            Executive
                Compensation
            6512.
            Security
                Ownership of Certain Beneficial Owners and Management and Related
              Stockholders
                Matters
            6513.
            Certain
                Relationships and Related Transactions
            6514.
            Principal
                Account Fees and Services
            66**Part
                IV**15.
            Exhibits
                and Financial Statement Schedules
            66











**PART
      I**





**Item
      1.**  **Business**





This
      report includes forward-looking statements. Other than statements of historical
      facts, all statements included in this report regarding our strategy, future
      operations, financial position, future revenues, projected costs, prospects,
      plans, and objectives of management are forward-looking statements. The words
      “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,”
“projects,” “will,” “would” and similar expressions are intended to identify
      forward-looking statements, although not all forward-looking statements contain
      these identifying words. We cannot guarantee that we actually will achieve
      the
      plans, intentions or expectations disclosed in our forward-looking statements
      and you should not place undue reliance on our forward-looking statements.
      Actual results or events could differ materially from the plans, intentions
      and
      expectations disclosed in the forward-looking statements we make. We have
      included important factors in the cautionary statements included in this report,
      particularly under the heading “Risk Factors” beginning on page 6, which we
      believe could cause actual results or events to differ materially from those
      stated in or implied by the forward-looking statements we make. Our
      forward-looking statements do not reflect the potential impact of any future
      acquisitions, mergers, dispositions, joint ventures or investments we may
      make.





**Our
      Business**





I-trax
      is
      a provider of integrated workplace health and productivity management solutions
      for employers, employees, dependents and retirees. We are focused on helping
      companies achieve employer of choice status by making the workplace safe and
      improving the quality of care and the productivity of the workforce while
      mitigating healthcare costs. We were formed by the merger of I-trax, Inc. and
      Meridian Occupational Healthcare Associates, Inc., which did business as CHD
      Meridian Healthcare, on March 19, 2004.





Our
      services are designed to allow employers to contract directly for a wide range
      of healthcare needs. We deliver these services at or near the client’s work site
      by opening, staffing and managing a health center or pharmacy dedicated to
      the
      client and its eligible population. We also provide support services to enhance
      our on-site health centers by using the Internet and our call center services.
      In all, we provide care “face to face,” telephonically, and via the Internet. We
      believe that our integrated care delivery model enhances the trusted
      relationship established by our clinical providers on-site with their patients,
      using the support services of our call center and our Internet programs.





We
      believe our services improve the health status of employees and mitigate the
      upward cost trend experienced by employers, employees, and government agencies.
      By proactively managing the healthcare needs of our clients’ employees and their
      families, we believe our programs improve health, increase productivity, reduce
      absenteeism, reduce the need for future critical care, and manage overall costs. We
      also
      believe the breadth of our services allows our clients the flexibility to meet
      each of the following needs in a cost-effective and professional manner:
      pharmacy; primary care; occupational health; corporate health; wellness;
      lifestyle management; and disease management.





As
      of
      December 31, 2005, we were providing services to approximately 113 clients,
      including large financial institutions, consumer products manufacturers, health
      plans, integrated delivery networks, automotive and automotive parts
      manufacturers, and diversified industrial companies. For 96 of such clients,
      we
      operated 193 on-site facilities in 32 states, and for 17 of such clients, we
      provided a variety of health management programs. Our client retention rate
      is
      high due to strong client relationships that are supported by the critical
      nature of our services, the benefits achieved by employer and employee
      constituents, and the utilization of multi-year service contracts.






1





**Our
      Services**





***Occupational
      Health Services*** ****





We
      provide professional staffing and management of on-site health facilities that
      address the occupational health, workers’ compensation injuries, and minor
      illnesses of an employer’s workforce. These programs are designed to operate
      across the entire array of occupational health regulatory environments and
      emphasize work-related injury cost-reduction, treatment, medical surveillance
      or
      testing, disability management, case management, return-to-work coordination,
      medical community relations or oversight, on-site physical therapy and injury
      prevention, and ergonomic assessment and intervention. Our health programs
      are
      intended to improve compliance with treatment protocols and drug formularies,
      enhance employee productivity, and allow for greater employer control of
      occupational health costs. At December 31, 2005, we were operating 87
      occupational health facilities compared to 78 such facilities at December 31,
      2004.





***Primary
      Care Services*** ****





We
      operate employer-sponsored on-site health centers designed to integrate with
      the
      employer’s existing healthcare plans. In such arrangements, employers contract
      with us directly for primary care health services and in the process regain
      control of costs, quality and access. Generally, each of our health centers
      services a single employer and offers health management programs for the primary
      care needs of the eligible population, including routine primary care, urgent
      care, specialty services, optometry services, laboratory and radiology services,
      and other prevention and disease management programs. Clients often combine
      our
      health center with a dedicated pharmacy. We also offer customized solutions
      in
      network management and absence management, including non-work related injury
      case management and disability management. Our physicians, nurses, and other
      staff are dedicated to the customer’s population, allowing employees, retirees,
      and their dependents to receive cost-effective, high quality, accessible and
      convenient care. At December 31, 2005 and December 31, 2004, we were operating
      21 primary care centers.





***Pharmacy
      Care Management Services***





We
      operate employer-sponsored on-site pharmacies that offer prescription services
      exclusively to the client’s eligible population. Clients often combine our
      pharmacy with a dedicated primary care center. By leveraging prescription volume
      across our client base and procuring pharmaceuticals as a captive class of
      trade, we purchase products at considerable savings for our clients, thus
      significantly and positively affecting what we understand is one of our clients’
fastest-growing healthcare cost categories. Our information technology system
      integrates with our clients’ existing pharmacy management programs and plans,
      and improves employees’ prescription fulfillment convenience. At December 31,
      2005, we were operating 28 pharmacies, compared to 27 pharmacies at December
      31,
      2004.





***Corporate
      Health Services***





We
      offer
      custom designed workplace programs that combine preventative care, occupational
      health, medical surveillance and testing, travel medicine and health education
      to non-industrial clients that do not experience significant physical injury
      rates, but nonetheless maintain large workforces with general and specialized
      medical needs. Clients to which we provide corporate health services include
      financial service, insurance, advertising and consulting firms. At December
      31,
      2005, we were operating 57 corporate healthcare facilities, compared to 51
      such
      facilities at December 31, 2004.






2





***Telehealth
      Services***





In
      addition to providing telehealth support to our on-site services, wellness
      programs and disease management programs, we also offer our triage and health
      information program — MyNurseLineTM — as
      a
      separate service. MyNurseLine is a technology-enabled, clinical nurse triage
      service that is available to members 24 hours per day, 7 days per week. The
      service improves access to information, helps consumers become more informed
      about their choices, and empowers them to make correct choices, all of which
      reduces costs. MyNurseLine service allows for rapid assessment of a caller’s
      condition, triaging them to the appropriate level of care ranging from urgent
      care referral to guided self-care at home. At
      December 31, 2005, we were providing stand-alone MyNurseLineTM
      services to 17 clients.





***Other
      Services***





***Predictive
      Science.*** All of
      our services may incorporate predictive science to analyze our client’s medical
      claims and pharmacy and clinical data to predict future healthcare costs, which
      of those costs are avoidable, the health conditions that will drive those costs,
      and the people within our clients’ populations who are at risk for those
      conditions. Using this information, we tailor our programs to help the client
      achieve better care, savings and other desired results.





***Interventions
      and Clinical Expertise.*** All of
      our services may also include personalized health and disease interventions
      for
      individuals who suffer from, or are at high risk for, acute or chronic disease
      as well as programs tailored for individuals who are at low risk. Depending
      on
      the individual’s level of risk, our custom-tailored interventions include
      self-help programs available through the web or person-assisted programs
      administered through our call center. All interventions include lifestyle and
      risk reduction programs that follow evidence-based clinical guidelines to
      optimize health, fitness, productivity, and quality of life.





**Our
      Client Contracts**





Our
      client contracts for on-site health centers and pharmacies are typically for
      an
      initial term of three years and renew automatically in the absence of notice
      to
      the contrary. Under these contracts, we typically provide services to our
      clients’ employees, dependents and retirees, although arrangements vary
      depending on the contract. We charge these clients for our services on a “cost
      plus” and “fixed fee” basis to provide care to these individuals. We typically
      review the costs of operating our health centers and pharmacies with our clients
      annually.





Under
      contracts covering our telehealth services, we typically charge our clients
      a
      per member or per employee per month fee or a per-call fee. Fees may increase
      with a corresponding increase in the level of service we provide. Basic
      personalized health management programs provide inbound telephone access to
      a
      nurse or healthcare professional for triage or health information, 24 hours
      per
      day, 7 days per week, for employees, health plan members and, in many instances,
      dependents. Enhanced programs, which we introduced in October 2003, provide
      inbound and outbound contacts by telephone, mail and e-mail and electronic
      health information and tools.





**Our
      Strategy**





Our
      business strategy is to grow by providing our clients, their employees, families
      and retirees with healthcare services that deliver excellent patient care,
      value-added information systems and effective cost management strategies, thus
      helping our clients achieve employer of choice status in their marketplace.
      To
      this end, we seek to:






3


·
            Establish
                and leverage a flexible menu of integrated wellness, productivity
                and
                disease management solutions and delivery platforms, on a value added
                basis for effective human capital management. 
 ·
            Exceed
                client expectations in the delivery of our services through trusted
                relationships and by reporting tangible improvements in care,
                satisfaction, healthcare costs, clinical delivery and outcomes excellence. 
 ·
            Attract
                and convert a significant flow of new prospective clients at a rate
                faster
                than market growth. 
 ·
            Build
                for our employees a desirable and stimulating workplace environment
                that
                attracts, motivates and rewards high performance.




**Corporate
      History**





I-trax
      was incorporated in Delaware on September 15, 2000 at the direction of the
      Board
      of Directors of I-trax Health Management Solutions, Inc., I-trax’s then parent
      company. On February 5, 2001, I-trax became the holding company of I-trax Health
      Management at the closing of a reorganization pursuant to Section 251(g) of
      Delaware General Corporation Law. At the effective time of the reorganization,
      all of the stockholders of I-trax Health Management became the stockholders
      of
      I-trax and I-trax Health Management became a wholly owned subsidiary of I-trax.
      Further, all outstanding shares of I-trax Health Management were converted
      into
      shares of I-trax in a non-taxable transaction.





We
      acquired WellComm Group LLC effective February 6, 2002. In the acquisition,
      we
      paid the WellComm stockholders approximately $2,200,000 in cash and 1,488,000
      shares of our common stock. We also issued to each of two senior officers of
      WellComm options to acquire 56,000 shares of our common stock at a nominal
      exercise price. Because the acquisition was structured as a merger, we also
      assumed all of WellComm’s liabilities, which equaled approximately $775,000.





We
      funded
      this acquisition by selling a 6% convertible senior debenture in the aggregate
      principal amount of $2,000,000 to Palladin Opportunity Fund LLC. We also issued
      Palladin a warrant to purchase up to 307,692 shares of our common stock. As
      of
      March 19, 2004, Palladin has converted all amounts outstanding under the
      debenture into common stock and has exercised the warrant in full at the
      conversion price and exercise price of $1.75 per share.


We
        acquired CHD Meridian Healthcare on March 19, 2004. The various companies
        that
        comprised CHD Meridian Healthcare have provided on-site healthcare services
        for
        well over 20 years.
 
 Under
        the
        merger agreement, we delivered to CHD Meridian Healthcare stockholders
        10,000,000 shares of I-trax common stock, 400,000 shares of I-trax Series
        A
        Convertible Preferred Stock, each of which is convertible into 10 shares
        of
        I-trax common stock, and paid $25,508,000 in cash. Immediately prior to the
        merger, CHD Meridian Healthcare redeemed certain of its then outstanding
        shares
        of common stock and options to purchase common stock for approximately
        $9,492,000 in the aggregate. Immediately following the closing of the merger,
        we
        also redeemed from former CHD Meridian Healthcare stockholders that participated
        in the merger, pro rata, an aggregate of 200,000 shares of Series A Convertible
        Preferred Stock at their original issue price of $25.00 per share or $5,000,000
        in the aggregate. Accordingly, CHD Meridian Healthcare stockholders and option
        holders received an aggregate of approximately $40,000,000 of cash in, or
        immediately prior to, the merger. In the merger, we also assumed all of CHD
        Meridian Healthcare’s liabilities, which equaled approximately $21,505,000.
 
 To
        fund
        $30,508,000 required to pay the cash portion of the merger consideration
        and to
        redeem the preferred stock, we sold 1,000,000 shares of Series A Convertible
        Preferred Stock at a purchase price of $25.00 per share for gross proceeds
        of
        $25,000,000, and borrowed $12,000,000 under a new senior secured credit facility
        from a national lender.




4





Under
      the
      merger agreement and the related financing documents, we registered for resale
      the shares of common stock issued in the merger and issuable upon conversion
      of
      shares of Series A Convertible Preferred Stock issued in the merger and in
      the
      related financing.





Finally,
      on April 5, 2005, we released to former CHD Meridian Healthcare stockholders
      from escrow 3,859,200 shares of our common stock because we achieved in 2004
      an
      agreed upon milestone for earnings before interest, taxes, depreciation and
      amortization in our on-site business.





**Competition**





On-site
      health centers and pharmacies dedicated to specific employers, and their
      employees and dependents, represent a small segment of the overall United States
      healthcare market. We refer to this segment as on-site healthcare. Within the
      on-site healthcare segment, a large portion of the on-site facilities are
      operated directly by the employers. A smaller portion is operated by third-party
      vendors like us. We therefore believe that our predominant competitors within
      on-site healthcare are large, self-insured employers that operate their own
      on-site facilities. Among the third-party vendors operating on-site facilities,
      our primary competitors are regional providers and certain companies competing
      nationally such as Concentra, Whole Health Management, and Medcor.





Because
      of the regulatory and historical developments, on-site facilities dedicated
      to
      occupational healthcare represent the most significant portion of all on-site
      facilities in the United States. If we exclude on-site facilities operated
      by
      third-party vendors and dedicated to occupational healthcare, we believe that
      we
      are the largest third-party provider of on-site healthcare in the United States.





Notwithstanding
      our substantial presence in the on-site healthcare, numerous companies operating
      in other segments of the healthcare market are currently delivering one or
      several components of our services. These companies include disease management
      companies, health insurers and plans, Internet health information companies
      and
      pharmacy benefit management companies, among others. Many of these companies
      are
      larger than we are and have greater resources, including access to capital,
      than
      we do. We believe, however, that our broad expertise in establishing and
      managing on-site healthcare facilities and the community of physicians, nurses
      and other employees that deliver care to our patients allow us to compete
      effectively against these larger competitors. Disease management and care
      enhancement companies that deliver a component of our services include
      Healthways, Lifemasters, Matria, Allere, SHPS, Inc., and Future Health. Pharmacy
      benefit management companies, which also deliver a component of our services,
      include Caremark Rx, Drugmax, Express Scripts and national pharmacy chains,
      such
      as Walgreens.





**Intellectual
      Property**





Our
      proprietary on-site operating manuals and software applications are protected
      by
      United States copyright laws. We have registered the use of certain of our
      trade
      names and service names in the United States. We also have the rights to a
      number of Internet domain names, including i-trax.com and .net, MyFamilyMD.com
      and .net, and CHDMeridian.com. We continue to explore potential availability
      of
      patent protection for our business processes and innovations.





**Employees**





We
      believe our success depends to a significant extent on our ability to attract,
      motivate and retain highly skilled, vision-oriented healthcare professionals,
      management and other employees. To this end, we focus on incentive programs
      for
      our employees and endeavor to build a workplace environment that attracts,
      motivates and recognizes high performance. As of December 31, 2005, we had
      994
      full-time






5






employees,
      120 part-time employees, 595 nurses employed on an “as needed” basis, and 13
      temporary employees.




**Item
      1A.**  **Risk
      Factors**





In
      addition to other information in this Annual Report, you should carefully
      consider the following risks and the other information in evaluating I-trax
      and
      its business. Our business, financial condition and results of operations could
      be materially and adversely affected by each of these risks.





***Risks
      Related to Our Company***





***If
      we are not able to implement our business strategy of deploying our integrated
      services effectively to existing and new clients, we will not be able to grow
      our revenue.***





Although
      we believe that there is significant demand for our services and products among
      businesses, there are many reasons why we may be unable to execute our business
      strategy, including our possible inability to:





·
            deploy
                our integrated workplace health and productivity management solutions
                on a
                large scale;





·
            attract
                a sufficiently large number of self-insured employers to purchase
                our
                services;





·
            increase
                awareness of our brand;





·
            strengthen
                user loyalty;





·
            develop
                and improve our services and solutions;





·
            continue
                to develop and upgrade our services and solutions; and





·
            attract,
                retain and motivate qualified personnel.





Our
      inability to achieve the above goals could adversely affect our revenue.





***Our
      credit facility contains certain covenants and financial tests that limit the
      way we conduct business.***





Our
      senior secured credit facility contains certain covenants and financial tests
      that limit the way we conduct business. Financial tests include a covenant
      measuring the ratio of our funded indebtedness to earnings before interest,
      taxes, depreciation and amortization (as defined in the credit agreement),
      or
      EBITDA, the ratio of our funded indebtedness to capitalization, and our fixed
      charges coverage ratio. Other covenants restrict our ability to incur certain
      debt and complete mergers and dispose of assets without our senior creditor’s
      consent.





We
      amended our senior secured credit facility effective June 29, 2005, in
      anticipation of failing to meet certain covenants because of the restructuring
      of certain of our operations. (Please also see Note 4 in the notes to our
      consolidated financial statements for further information about the
      restructuring.) As a result of this amendment, (1) the aggregate amount that
      can
      be borrowed under the facility increased to the lesser of $15,000,000 or the
      credit facility base calculation, in either case less the amount of






6






outstanding
      letters of credit; (2) compliance with the covenant for the ratio of funded
      indebtedness to EBITDA is waived through December 31, 2006; and (3) covenants
      setting minimum EBITDA targets for periods ending September 30, 2005 through
      December 31, 2006 were added. (Please also see Note 9 in the notes to our
      consolidated financial statements for further information on our credit
      facility.)





The
      covenants and financial tests in the credit facility may prevent us from
      accessing working capital, competing effectively or taking advantage of new
      business opportunities. The failure to comply with these covenants or meet
      these
      ratios and other tests could result in a default under our credit facility.
      Unless we are able to negotiate an amendment, forbearance or waiver, we may
      be
      required to repay all amounts then outstanding, which we could probably not
      do,
      and if we could do so, it would have a material adverse effect on our business,
      results of operations and financial condition.





Borrowings
      under our credit facility also are secured by liens on substantially all of
      our
      assets and the assets of our subsidiaries. If we are in default under one of
      these credit facilities, our secured creditor could foreclose on all or
      substantially all of our assets and the assets of our subsidiaries. In addition,
      our credit facility matures on April 1, 2007. Accordingly, on April 1, 2006,
      all
      indebtedness under the credit facility will be classified as a short-term
      liability. We cannot assure you that we will generate sufficient cash flow
      to
      repay our indebtedness, and we further cannot assure you that, if the need
      arises, we will be able to obtain additional financing or to refinance our
      indebtedness on terms acceptable to us, if at all. Any such failure to obtain
      financing could have a material adverse effect on our business, results of
      operations and financial condition.





***We
      have a history of net losses and may incur a net loss in
      2006.***





Although
      we earned a net profit in the quarters ended September 30, 2005 and December
      31,
      2005, we did not earn a net profit for the entire 2005 year and may not earn
      a
      net profit in 2006 due to the many factors, including the following:





·
            our
                need to invest in the further development and enhancement of our
                workplace
                health and productivity management
                solutions;





·
            our
                need to strengthen our position as a respected and preferred provider
                of
                integrated health and wellness solutions;
                and





·
            our
                need to prepare for seasonal and other trends in the healthcare sector,
                and overall economic conditions, which may make our growth and results
                of
                operations inconsistent.





Consequently,
      one or any combination of these factors may result in our inability to generate
      a net profit in 2006.





***We
      may require additional capital to implement our growth
      strategy.***





We
      may
      require additional funds to continue development of our business, including
      by
      acquisition. We expect to obtain these funds from operating activities and,
      as
      necessary, financing activities. Financing activities may include equity or
      debt
      financings, which could dilute stockholder ownership in the business. We cannot
      provide assurance that additional funding will be available on acceptable terms,
      if at all. If adequate funds are not available, we may have to delay our growth
      strategy or scale-back or eliminate certain operations. Therefore, if we are
      unable to obtain adequate funds, we may suffer an adverse impact on our
      business, financial condition and results of operations.






7




***Loss
      of advantageous pharmaceutical pricing could adversely affect our income and
      the
      value we provide to our clients.***





We
      receive favorable pricing from pharmaceutical manufacturers as a result of
      our
      class of trade designation, which means that we only sell pharmaceutical
      products to our clients’ employees, dependents and retirees. We also receive
      rebates on branded drugs from the pharmaceutical manufacturers. We pass on
      most
      of the benefit of our class of trade pricing and the branded drug rebates to
      our
      clients under the terms of client contracts. In the past, retail pharmacies
      have
      brought legal cases against pharmaceutical manufacturers challenging class
      of
      trade designations as unlawful price discrimination under the Robinson-Patman
      Act. Although these challenges have generally failed, there remains a
      possibility that we could lose the benefit of this favorable pricing, either
      due
      to a legal challenge or to a change in policies of the pharmaceutical
      manufacturers. Such a loss would diminish the value that we can provide to
      our
      clients and, therefore, make our services less attractive and put pressure
      on
      our margins.





***Increasing
      competition for contracts to establish and manage employer-dedicated pharmacies
      and clinics increases the likelihood that we may lose business to our
      competitors.***





CHD
      Meridian Healthcare pioneered the field of employer-dedicated pharmacies and
      primary care clinics. Although CHD Meridian Healthcare has always faced
      competition from other methods by which business enterprises can arrange and
      pay
      for healthcare services for their employees, until recently we rarely
      experienced direct competition for a contract to manage a particular employer’s
      pharmacy or clinic. We have recently begun to see direct competition for
      employer-dedicated pharmacy management contracts. We expect this competition
      will increase over time. Although we believe that we have certain advantages
      in
      facing such competition, including our experience and know-how, some of our
      competitors and potential competitors, including prescription benefit management
      companies are substantially larger and better-capitalized than we are. We
      believe that the potential market for employer-dedicated pharmacies is large
      enough for us to meet our growth plans despite increasing competition, but
      there
      are no assurances that we will in fact be able to do so. Our ability to maintain
      existing clients, expand services to existing clients, add new clients so as
      to
      meet our growth objectives, and maintain attractive pricing for our services,
      will depend on the interplay among overall growth in the use of
      employer-dedicated facilities, entry of new competitors into our business,
      and
      our success or failure in maintaining our market position in relation to these
      new entrants. If we cannot successfully compete in the market for managing
      employer dedicated pharmacies, our business and results of operations could
      be
      negatively affected.





In
      addition to this increasing head-to-head competition for contracts to establish
      and manage employer-dedicated facilities, we expect to continue to face
      competition for large employers’ healthcare budgets from other kinds of
      enterprises, including health insurers, managed health care plans, and retail
      pharmacy chains. Increased competition could reduce the profitability of our
      pharmacy operations.  We may be forced to cut our management fees or pass
      on to our customers an increased share of the volume discounts and generic
      drug
      incentives that we receive from our wholesale drug distributor, which would
      adversely affect our financial results.





***Our
      business involves exposure to professional liability claims, and a failure
      to
      manage effectively our professional liability risks could expose us to
      unexpected expenses, thus resulting in losses.***





Under
      the
      terms of our contracts to manage employer sponsored clinics or pharmacies,
      we
      must procure professional liability insurance covering the operations of such
      facilities. We also typically agree to indemnify our clients against
      professional liability claims arising out of acts or omissions of healthcare






8




providers
      working at the clinics and pharmacies we manage. Further, under the terms of
      our
      service agreements with affiliated professional corporations, we are
      contractually obligated to procure malpractice insurance on behalf of the
      professional corporations and their employed healthcare providers. Finally,
      there also exists the possibility that we may be subject to professional
      liability claims even though neither the healthcare providers nor we were
      directly responsible for the injury. As a result of these contractual
      arrangements, we routinely incur expenses arising out of professional liability
      claims. If we fail to manage the professional liability claims and associated
      risk effectively, we may sustain financial losses.





Although
      we maintain professional liability insurance with respect to such claims, our
      professional liability insurance policies are written on a “claims-made” basis,
      meaning that they cover only claims made during the policy period, and not
      events that occur during the policy period but result in a claim after the
      expiration of the policy. With this insurance strategy, we must renew or replace
      coverage each year to have coverage for prior years’ operations. Availability
      and cost of such coverage are subject to market conditions, which can fluctuate
      significantly.





Certain
      of our past professional liability insurance policy years were insured by two
      insurance companies that are now either insolvent or under regulatory
      supervision. As a result, we are partially uninsured for those periods. We
      have
      established reserves in connection with the six pending claims from such policy
      years. Although we believe such reserves are reasonable based on our historic
      loss experience, there is no assurance that these reserves will be sufficient
      to
      pay all judgments or settlements that may result from such claims.





Our
      professional liability insurance for the period May 1, 2003 to April 30, 2004
      provided for self-insured retention of $500,000. A self-insured retention is
      the
      amount we assume under our insurance policy as if we are the insurer subject
      to
      the terms of the policy and related regulatory scheme. This means that we are
      partially uninsured against a variety of claims that may arise from such policy
      year.





We
      have
      reserved for projected future professional liability expenses based on actuarial
      estimates of potential losses that may emerge in the future as a result of
      past
      operations. These reserves, however, could prove inadequate, as the size of
      our
      ultimate uninsured liability could exceed our established reserves and we could
      sustain losses in excess of our reserves.





Since
      May
      1, 2004 we have purchased primary professional liability insurance from a
      captive insurance subsidiary, Green Hills Insurance Company, or GHIC, and excess
      coverage from third-party insurers. GHIC maintains separate reserves based
      on
      actuarial estimates of potential losses up to the policy limits. However, there
      can be no assurance that these reserves will be sufficient to meet potential
      losses and we could be required to meet losses or loss adjustment expenses
      out
      of other resources.





***Our
      subsidiary insurance company, GHIC, subjects us to additional regulatory
      requirements and to risks associated with the insurance
      business.***





Operating
      an insurance subsidiary represents additional risk to our operations, including
      a potential perception among our existing and potential clients that we are
      not
      adequately insured. We have retained a third-party captive insurance company
      manager and have engaged an actuarial consulting firm for the insurance
      subsidiary. We are subject to the risks associated with any insurance business,
      which include investment risk relating to the performance of our invested assets
      set aside as reserves for future claims, the uncertainty of making actuarial
      estimates of projected future professional liability losses, and loss adjustment
      expenses. Failure to make an adequate return on our investments, to maintain
      the
      principal of invested funds, or to estimate future losses and loss adjustment
      expenses accurately could cause asserted and unasserted claims to exceed our
      reserves causing us to sustain losses. Also,






9




maintaining
      the insurance subsidiary has exposed us to substantial additional regulatory
      requirements, with attendant risks if we fail to comply with applicable
      regulations.





***If
      our clients do not provide us with accurate data, or if we do not process such
      data accurately, we may not be able to fulfill some of our client contracts.***





Implementation
      and delivery of some of our programs, including our disease management programs,
      is highly dependent on data about individuals supplied to us by our clients,
      and
      on our information technology systems that process such data upon receipt.
      If we
      do not receive timely and accurate data from our clients, or if our information
      technology systems do not process such data accurately, we may not be able
      to
      fulfill our client contracts, which could have a material adverse effect on
      our
      business, results of operations and financial condition.





***We
      may be sued and incur losses if we provide inaccurate health information on
      our
      website or inadvertently disclose confidential health information to
      unauthorized users.***





Because
      some users of our services access health content and services relating to the
      medical condition of the users on our website or distribute our content to
      others, third-parties may sue us for defamation, negligence, copyright or
      trademark infringement, personal injury or other matters. We could also become
      liable if confidential information is disclosed inappropriately. These types
      of
      claims have been brought, sometimes successfully, against online services in
      the
      past. Others could also sue us for the content and services accessible from
      our
      website through links to other websites or through content and materials that
      may be posted by our users in chat rooms or bulletin boards. Any such liability
      could have a material adverse effect on our reputation and our business, results
      of operations or financial position.





We
      also
      retain confidential healthcare information on our servers. Therefore, our
      facilities and infrastructure must remain secure and be perceived by clients
      to
      be secure. Although we operate our software applications from a secure facility
      managed by a reputable third party, our infrastructure may be vulnerable to
      physical or virtual break-ins, computer viruses, programming errors or similar
      disruptive problems. A material security breach could damage our reputation
      or
      result in liability to us.





***If
      we lose key employees or fail to recruit and retain other skilled employees,
      we
      may not be able to continue our growth.***





Our
      business greatly depends on, among others, Frank A. Martin, chairman and
      director, R. Dixon Thayer, chief executive officer and director, Dr. Raymond
      J.
      Fabius, our president and chief medical officer, and David R. Bock, executive
      vice president and chief financial officer. If we cannot retain any one of
      these
      individuals, we will lose employees with considerable operational experience
      and
      knowledge of our business, which could significantly reduce our ability to
      compete and succeed in the future.





We
      maintain employment agreements with Messrs. Martin, Thayer and Bock and Dr.
      Fabius. In December 2005, Mr. Martin’s employment agreement renewed for a
      one-year term ending December 2006. In February 2005, we entered into an
      employment agreement with Mr. Thayer for an initial term of three years. In
      April 2005, we entered into an employment agreement with Dr. Fabius for an
      initial term of three years, and in November 2004, we entered into an employment
      agreement with Mr. Bock for an initial term of three years. Each employment
      agreement may be terminated by us with or without cause and by the applicable
      executive with or without good reason.





Our
      future success also depends on our ability to attract, retain and motivate
      highly skilled employees. As we secure new contracts and implement our services
      and products, we will need to hire






10




additional
      personnel in all operational areas. We may be unable, however, to attract,
      assimilate or retain such highly qualified personnel. Although we have not
      experienced such difficulties in the recent past, we may do so in the future,
      especially if labor markets continue to tighten. If we cannot attract new
      personnel or retain and motivate current personnel, the service level we provide
      to our clients may suffer, which may cause us to lose clients and revenue.





***Our
      sales cycle is complex, which prolongs the sales cycle and complicates our
      ability to predict our growth.***





The
      workplace health and productivity management segment is growing rapidly and
      has
      many providers offering complex services that are quite different from one
      another, and require clients to incur substantial upfront and continuing costs.
      Potential clients, therefore, take a long time to evaluate and purchase such
      services. The sales and implementation process for our services is also lengthy
      because it involves a significant technical evaluation and requires our clients
      to commit time and other resources. Delays occur often because of clients’
internal budgets, processes associated with significant capital commitments,
      information technology related issues, and general caution associated with
      new
      services. Our sales cycle, therefore, is unpredictable and has generally ranged
      from 3 to 24 months from contact to contract. The time needed to implement
      our
      services is also difficult to predict, and the process may last 18 months in
      extreme circumstances. Therefore, before we see a single patient and record
      any
      revenue from a new site, we expend substantial time, effort and money that
      we
      may not recoup.





***Deterioration
      of the financial health of our clients, many of which are large U.S.
      manufacturing enterprises, may impair our business volume and collections.***





An
      adverse trend in certain U.S. manufacturing industries is leading to plant
      closings and layoffs that could eliminate or reduce the need for some of our
      employer-dedicated healthcare facilities. Because of the risks associated with
      client insolvency, and the concentration of CHD Meridian Healthcare’s client
      base, our business is to some extent dependent on the continued health of U.S.
      manufacturing industries. Also, if our client becomes insolvent, we may not
      be
      able to recover outstanding accounts receivable owed by that client, we may
      suffer premature contract termination, and our operating results could be
      adversely affected.





Moreover,
      because our professional liability insurance is written on a “claims-made”
basis, we are protected from malpractice claims only if the company that insured
      us at the time of the alleged “occurrence” is the same company at the time the
      claim is filed. To continue coverage in such circumstances, we must obtain
      “tail” insurance coverage or continue to purchase insurance written on a “claims
      made” basis. We typically charge our clients for tail insurance coverage when
      the contract terminates. If a client is insolvent when the contract terminates,
      however, we may not be able to recoup the cost of tail insurance coverage,
      or
      other costs related to that facility’s shutdown.





***Our
      clients and we are dependent on software technologies and are therefore subject
      to frequent change and risks associated with Internet viruses and outages,
      which
      could destroy the information we maintain or prevent our clients from accessing
      important information.***





The
      web-based software applications we use to operate our on-site facilities and
      deliver other services depend on the continuous, reliable and secure operation
      of Internet servers and related hardware and software. Viruses and outages
      on
      the Internet could cause outages of our applications from time to time. To
      the
      extent that our services are interrupted, our users will be inconvenienced
      and
      our reputation may be diminished. If access to our system becomes unavailable
      at
      a critical time, our clients may allege we are liable, which could depress
      our
      stock price, cause significant negative publicity, and possibly lead to
      litigation. Although our computer and communications hardware is protected
      by
      physical and software safeguards, it is still vulnerable to fire, storm, flood,
      power loss, telecommunications failures, physical or software






11




break-ins
      and similar events. We do not have 100% redundancy for all of our computer
      and
      telecommunications facilities. Consequently, a catastrophic event could have
      a
      significant negative effect on our business, results of operations, and
      financial condition.





We
      also
      depend on third parties to provide certain of our clients and on-site facilities
      with Internet and online services necessary for access to our servers. It is
      possible that our clients will experience difficulties with Internet and other
      online services due to system failures, including failures unrelated to our
      systems. Any sustained disruption in Internet access provided by third parties
      could have a material adverse effect on our business, results of operations
      and
      financial condition.





***We
      are dependent on our ability to deploy and implement our services and
      information technology efficiently.***





Certain
      of our services are dependent on efficient deployment, implementation, and
      scalability of information technology, and each client has unique information
      technology needs. We must continue to develop efficiency in integrating systems
      and scalability to accommodate a greater number of clients, improved work flow,
      and new functionality. If we fail to respond to these requirements, our ability
      to process new business could be slowed, which ultimately could have a material
      adverse effect on our business, results of operations and financial condition.





***We
      may be unable to compete successfully against companies offering services
      similar to ours, which will impair our revenue growth.***





On-site
      health centers and pharmacies dedicated to specific employers, and their
      employees and dependents, represent a small segment of the overall United States
      healthcare market. In this segment, we compete with large, self-insured
      employers that operate their own on-site facilities and third-party vendors
      such
      as Concentra, Whole Health Management and Medcor. We also compete against
      numerous other companies operating in other segments of the healthcare market.
      These companies include disease management companies, health insurers and plans,
      Internet health information companies and pharmacy benefit management companies,
      among others. Disease management and care enhancement companies that deliver
      a
      component of our services include Healthways, Lifemasters, Matria, Allere,
      SHPS,
      Inc., and Future Health. Pharmacy benefit management companies, which also
      deliver a component of our services, include Caremark Rx, Drugmax, Express
      Scripts and national pharmacy chains, such as Walgreens.





Many
      of
      these companies are larger than we are and enjoy:





·
            greater
                name recognition and larger marketing budgets and resources;





·
            larger
                customer and user bases;





·
            larger
                production and technical staffs;





·
            substantially
                greater financial, technical and other resources;
                and





·
            a
                wider array of online products and
                services.





To
      be
      competitive, we must continue to enhance our products and services as well
      as
      our sales and marketing channels. If we do not, we will not be able to grow
      our
      revenue.






12





***If
      other companies develop intellectual property identical or similar to ours,
      we
      will lose what we believe to be our competitive advantage.***





Our
      intellectual property is important to our business. We rely on a combination
      of
      copyright, trademark and trade secret laws, confidentiality procedures and
      contractual provisions to protect our intellectual property. Our efforts to
      protect our intellectual property may not be adequate. Our competitors may
      duplicate our products or services. Conversely, we could be subject to
      intellectual property infringement claims as the number of our competitors
      grows
      and the content and functionality of services overlap with competing offerings.
      Defending against these claims, even if not meritorious, could divert our
      attention from operating our company. If we become liable to third parties
      for
      infringing their intellectual property rights, we could be required to pay
      a
      damage award, change our business model, and restructure our operations, which
      will result in a material adverse effect on our results of operations.





***The
      loss of a major client will significantly reduce our
      revenue.***





For
      the
      year ended December 31, 2005, we had one client that accounted for 13% of our
      revenue. We anticipate that our results of operations in any given period will
      continue to be influenced to a certain extent by a relatively small number
      of
      clients. Accordingly, if we were to lose the business of such a client, our
      results of operations will be materially and adversely affected.





***Risks
      Related to Our Industry***





***The
      healthcare industry is subject to general cost pressures that could reduce
      our
      revenue and gross margins.***





The
      healthcare industry is currently under pressure by governmental and
      private-sector revenue sources to cut costs. These pressures will continue
      and
      possibly intensify. Although we believe that our services assist public health
      agencies, hospitals, health plans and self-insured employers to control the
      high
      costs associated with treating patients, the pressures to reduce costs
      immediately may hinder our ability (or increase the length of time we require)
      to obtain new contracts. In addition, the focus on cost reduction may pressure
      our customers to restructure contracts and reduce our fees.





We
      and
      our client are affected by changes in the laws governing health plan, hospital
      and public health agency reimbursement under governmental programs such as
      Medicare and Medicaid. There are periodic legislative and regulatory initiatives
      to reduce the funding of the Medicare and Medicaid programs in an effort to
      curtail or reduce overall Federal healthcare spending. Federal legislation
      has
      and may continue to significantly reduce Medicare and Medicaid reimbursements
      to
      most hospitals. These reimbursement changes are negatively affecting hospital
      revenues and operations. Such legislative initiatives or government regulations
      could reduce demand for our services, our revenue and gross
      margins.





***We
      are subject to judicial and statutory prohibitions on the corporate practice
      of
      medicine, and failure to comply with these prohibitions will expose us to
      heightened scrutiny by regulatory agencies, fines, litigation and possibly
      loss
      of revenue.***





There
      are
      judicial and statutory prohibitions on the corporate practice of medicine,
      which
      vary from state to state. The corporate practice of medicine doctrine prohibits
      a corporation, other than a professional corporation, from practicing medicine
      or employing physicians. Some states also prohibit a non-physician from
      splitting or sharing fees charged by a physician for medical services. The
      services we provide include establishing and managing medical clinics. Most
      physician services at clinics we manage






13




are
      provided by physicians who are employees of professional corporations with
      which
      we contract to provide non-professional services such as purchasing equipment
      and supplies, patient scheduling, billing, collection, accounting, and computer
      services. The professional corporations control hiring and supervise physicians
      and all medical functions. We have option agreements with the physician-owners
      of these affiliated professional corporations that entitle us to require the
      physician-owners to sell the stock of the professional corporations to any
      licensed physician we designate. This structure is intended to permit
      consolidation of the professional corporations’ financial statements with ours,
      while maintaining sufficient separation to comply with the corporate practice
      of
      medicine doctrine and with fee splitting and fee sharing prohibitions. Although
      we do not believe that this structure violates the corporate practice of
      medicine doctrine or fee splitting or fee sharing prohibitions, such a claim
      may
      be successfully asserted against us in any jurisdiction, which may subject
      us to
      civil and criminal penalties, or we could be required to restructure our
      contractual arrangements with clients. Any restructuring of contractual
      arrangements could result in lower revenue, increased expenses and reduced
      influence over the business decisions of those operations. Alternatively, some
      existing CHD Meridian Healthcare contracts could be found to be illegal and
      unenforceable, which could result in their termination and an associated loss
      of
      revenue, or inability to enforce valuable provisions of those contracts.





***We
      have custody of confidential patient records and if we fail to comply with
      regulations applicable to maintaining such records we may be fined or sued.***





Our
      personnel who staff our on-site pharmacies and clinics have custody of
      confidential patient records. The web-based software applications we use to
      operate our on-site facilities and deliver other services also contain
      confidential patient records. In our capacity as a covered entity or, in some
      instances, as a business associate of a covered entity, we and the records
      we
      hold are subject to a rule entitled Privacy of Individually Identifiable Health
      Information, or Privacy Rule, promulgated by the U.S. Department of Health
      and
      Human Services under the Health Insurance Portability and Accountability Act
      of
      1996, or HIPAA, and also to any state laws that may have more stringent privacy
      requirements. We attempt to protect the privacy and security of confidential
      patient information in accordance with applicable law. We could, however, face
      claims of violation of the Privacy Rule, invasion of privacy or similar claims,
      if our patient records or computer servers were compromised, or if our
      interpretation of the applicable privacy requirements, many of which are
      complex, were incorrect or allegedly incorrect, or if we failed to maintain
      a
      sufficiently effective compliance program. Such security failures could also
      cause significant negative publicity, depress our stock price and lead to
      litigation.





Furthermore,
      although we believe that the Privacy Rule protects our ability to obtain patient
      identifiable medical information for disease management purposes from certain
      of
      our clients, state legislation or regulations will preempt Federal legislation
      if state legislation or regulations are more restrictive. Accordingly, new
      Federal or state legislation or regulations restricting the availability of
      this
      information for disease management purposes could prevent us from performing
      services for our existing clients, and result in termination of our disease
      management contracts and loss of revenue.





***We
      are subject to fraud and abuse statutes because we bill the Medicare and
      Medicaid programs to recover amounts that offset the healthcare costs of our
      clients and if we violate such statutes, we will be subject to civil and
      criminal penalties.***





In
      recent
      years, various government entities have actively investigated potential
      violations of fraud and abuse statutes and regulations by healthcare providers
      and by pharmaceutical manufacturers. The fraud and abuse provisions of the
      Social Security Act provide civil and criminal penalties and potential exclusion
      from the Medicare and Medicaid programs for persons or businesses who offer,
      pay, solicit or receive remuneration in order to induce referrals of patients
      covered by Federal healthcare programs (which include Medicare, Medicaid,
      TriCare and other Federally funded health programs).






14




Although
      our services and those of our affiliated professional corporations are generally
      paid for by employer clients, we bill the Medicare and Medicaid programs and
      private insurance companies, as agent of our affiliated professional
      corporations, to recover reimbursable amounts that offset the healthcare costs
      borne by our clients. We are therefore subject to various regulations under
      the
      Medicare and Medicaid programs, including fraud and abuse prohibitions. We
      believe that we are compliant with these requirements, but could face claims
      of
      non-compliance if our interpretations of the applicable requirements, many
      of
      which are complex, were incorrect or allegedly incorrect, or if we fail to
      maintain a sufficiently effective compliance program.





***The
      professionals who staff our affiliated professional corporations as well as
      those we employ are subject to state and Federal licensure requirements and
      if
      we fail to comply with such licensure requirements, we may be scrutinized by
      regulatory agencies and fined.***





The
      doctors, nurses and other healthcare professionals who staff our affiliated
      professional corporations, the nurses who staff our care communication centers,
      and the pharmacists and other healthcare professionals, who staff our on-site
      pharmacies and clinics, are subject to individual licensing requirements. All
      of
      our healthcare professionals and facilities subject to such licensing
      requirements are licensed in the state where they are physically present.
      Multiple state licensing requirements for healthcare professionals who provide
      services telephonically over state lines may require us to license some of
      our
      healthcare professionals in more than one state. We continually monitor the
      developments in telemedicine. There is no assurance, however, that new judicial
      decisions or Federal or state legislation or regulations would not increase
      the
      requirement for multi-state licensing of all central operating unit call center
      health professionals, which would increase our administrative costs. Further,
      in
      the event a state regulatory agency alleges that we do not comply with relevant
      licensing requirements, we may be subject to fines and administrative action.





***The
      recently launched Medicare prescription drug benefit legislation could reduce
      the demand for the prescription drug benefits we
      provide.***





The
      Medicare Prescription Drug, Improvement and Modernization Act of 2003 went
      into
      effect in January 2006. This law provides Medicare beneficiaries with insurance
      coverage that offers access to prescription medicines. The prescription drug
      benefit is called Medicare Part D. Under Medicare Part D, drug benefits are
      provided through risk-bearing private plans contracting with the government
      (including plans offering only the Medicare Part D coverage as well as
      integrated plans offering all Medicare benefits). There is an annual open period
      during which Medicare beneficiaries will choose their drug plan from among
      those
      available in their area of residence.





We
      are
      still assessing how this law will affect our business. Subsidies for employers
      providing retiree drug benefits will decrease the costs to those employers
      of
      providing such benefits, and therefore, may increase the number of employers
      willing to provide retiree drug benefits, which would positively affect our
      business. On the other hand, employers that now offer prescription drug benefits
      may decide no longer to do so, on the basis that their retirees now will be
      able
      to obtain such benefits on their own through Medicare. In that case, such
      employers would have less need for employer-dedicated pharmacies of the kinds
      that we establish and manage, which would adversely affect our business.








15





***Risks
      Related to Investment in Our Stock***





***The
      price of our common stock is volatile and investors may lose money if they
      invest in our stock.***





Our
      stock
      price has been and we believe will continue to be volatile. For example, from
      March 1, 2004 through March 1, 2006, the price of our stock has fluctuated
      from
      a high of $5.70 to a low of $1.07. Our stock’s volatility is influenced by the
      market’s perceptions of the healthcare sector in general, or other companies
      believed to be similar to us, and by the market’s perception of our operations
      and future prospects. Many of these perceptions are beyond our control. In
      addition, as of March 1, 2006, 36,081,877 shares of our common stock were issued
      and outstanding and the three-month average daily trading volume of our common
      stock was approximately 370,000 shares. Therefore, the ability to achieve
      relatively quick liquidity without a negative impact on our stock price is
      limited.





***Shares
      reserved for future issuance upon the conversion of outstanding shares of Series
      A Convertible Preferred Stock and upon the exercise of issued options and
      warrants will cause dilution to our common stockholders.***





As
      of
      March 1, 2006, 5,702,533 shares of our common stock were reserved for issuance
      upon conversion of outstanding shares of Series A Convertible Preferred Stock
      and 6,824,972 shares of our common stock were reserved for issuance upon the
      exercise of our outstanding warrants and options. In addition, outstanding
      shares of our Series A Convertible Preferred Stock accrue dividends at the
      rate
      of 8% per year, which is payable in common stock or cash when shares of our
      Series A Convertible Preferred Stock are converted. Under the current terms
      of
      our senior secured credit facility, however, we are required to pay the
      dividends in shares of common stock. As of December 31, 2005, such accrued
      dividends were approximately $3,048,000. If such dividends were converted into
      common stock at $2.05, the closing price of our common stock on December 31,
      2005, we would issue approximately 1,487,000 additional shares of common stock.
      Our stockholders, therefore, would experience dilution of their investment
      upon
      conversion or exercise, as applicable, of these securities.





***Provisions
      of our certificate of incorporation could impede a takeover of our company,
      even
      though a takeover may benefit our stockholders, or delay or prevent a change
      in
      management.***





Our
      board
      of directors has the authority, without further action by the stockholders,
      to
      issue from time to time, shares of preferred stock in one or more classes or
      series, and to fix the rights and preferences of such preferred stock, subject,
      however, to the limitations contained in the certificate of designations filed
      with respect to our Series A Convertible Preferred Stock. We are subject to
      provisions of Delaware corporate law which, subject to certain exceptions,
      prohibit us from engaging in any “business combination” with a person who,
      together with affiliates and associates, owns 15% or more of our common stock
      (referred to as an interested stockholder) for a period of three years following
      the date that such person became an interested stockholder, unless the business
      combination is approved in a prescribed manner. Additionally, bylaws establish
      an advance notice procedure for stockholder proposals and for nominating
      candidates for election as directors. These provisions of Delaware law and
      of
      our certificate of incorporation and bylaws may have the effect of delaying,
      deterring or preventing a change in our existing management or control, may
      discourage bids for our common stock at a premium over market price and may
      adversely affect the market price, and the voting and other rights of the
      holders of our common stock.








16





**Item
      1B.**  **Unresolved
      Staff Comments**





None.





**Item
      2.**  **Properties**





**Leases**





Certain
      of our executive, administrative and sales offices are located in Chadds Ford,
      Pennsylvania, where we lease approximately 10,100 square feet of office space
      pursuant to a lease expiring in December 2009 at a current base rate of
      $217,000. The property is in good condition.





Certain
      of our executive, administrative and sales offices are located in Nashville,
      Tennessee, where we lease approximately 31,000 square feet of office space
      pursuant to a lease expiring in November 2009 at a current base annual rate
      of
      $803,000. The property is in good condition.





Our
      call
      center is located in Omaha, Nebraska, where we lease approximately 6,200 square
      feet of office space pursuant to a lease expiring in May 2007, at a current
      base
      annual rate of $56,000. The property is in good condition.





Certain
      of our executive and administrative offices are located in Albany, New York,
      where we lease approximately 1,621 square feet of office space pursuant to
      a
      lease expiring in August 2007 at a current base annual rate of $26,000. The
      property is in good condition.





Certain
      of our executive and administrative offices are located in New York, New York,
      where we lease approximately 5,000 square feet of office space pursuant to
      a
      lease expiring in April 2007 at a current base annual rate of $101,000. The
      property is in good condition.





**Real
      Estate Investments**





We
      do not
      invest in real estate, real estate mortgages or securities of entities primarily
      engaged in real estate activities.





**Item
      3.**  **Legal
      Proceedings**





Certain
      of our subsidiaries, including GHIC, are involved in various claims and legal
      actions arising in the ordinary course of our business. In the opinion of
      management, the ultimate disposition of these matters will not have a material
      adverse effect on our overall consolidated financial position, results of
      operations or liquidity.





**Item
      4.**  **Submission
      of Matters to a Vote of Security Holders**





No
      matters were submitted to a vote of our stockholders during the quarter ended
      December 31, 2005.





17


**PART
      II**





**Item
                5.**
            **Market
                for Registrant’s Common Equity, Related Stockholder Matters and Issuer
                Purchases of Equity
                Securities**





**Market
      For Our Common Stock**





Our
      common stock trades on the American Stock Exchange under the symbol “DMX.” The
      following table sets forth the high and low closing prices for our common stock
      for the periods indicated as reported on the American Stock Exchange.





High
            
            Low2005Fourth
                Quarter
            
            $
            2.35
            
            $
            1.10Third
                Quarter
            
            $
            1.53
            
            $
            1.07Second
                Quarter
            
            $
            1.74
            
            $
            1.45First
                Quarter
            
            $
            1.75
            
            $
            1.152004Fourth
                Quarter
            
            $
            2.75
            
            $
            1.29Third
                Quarter
            
            $
            4.26
            
            $
            2.60Second
                Quarter
            
            $
            5.60
            
            $
            3.29First
                Quarter
            
            $
            5.70
            
            $
            3.91





As
      of
      March 1, 2006, there were approximately 403 registered holders of our common
      stock and approximately 47 registered holders of our Series A Convertible
      Preferred Stock. On March 1, 2006, the last reported sales price of our common
      stock was $3.47.





**Dividend
      Policy**





We
      have
      never paid or declared any cash dividends on our common stock and do not
      anticipate paying cash dividends on our common stock in the foreseeable future.





Our
      Series A Convertible Preferred Stock accrues dividends on the original issue
      price at the rate of 8% per annum. The dividends are payable upon conversion
      of
      Series A Convertible Preferred Stock into common stock in additional shares
      of
      common stock or in cash. Under the current terms of our senior secured credit
      facility, however, we are required to pay the dividends in shares of common
      stock.





**Recent
      Sales of Unregistered Securities**





None.





**Purchases
      of Equity Securities by the Issuer and Affiliated
      Purchases**





None.





**Item
                6.**
            **Selected
                Financial Data**





Please
      read the selected consolidated financial data shown below in conjunction with
      “Management’s Discussion and Analysis of Financial Condition and Results of
      Operation” and our consolidated financial statements and related notes included
      elsewhere in this report. This information is






18




derived
      from our audited financial statements and should be read in conjunction with
      those statements, including the related notes. These historical results include
      CHD Meridian Healthcare operations beginning as of April 1, 2004 and are not
      necessarily indicative of results to be expected for any future period.





Year
                Ended December 31,2005
            
            2004(A)
            
            2003
            
            2002(B)
            
            2001(C)(in
                thousands, except per share data)Consolidated
                Statements of Operations Data:Net
                revenue
            
            $
            115,887
            
            $
            76,402
            
            $
            4,189
            
            $
            3,932
            
            $
            613Costs
                and expensesOperating
                and general and administrative expenses
            
            
            111,587
            
            
            74,736
            
            
            7,344
            
            
            8,368
            
            
            12,258Impairment
                of assets
            
            
            12,470
            
            
            --
            
            
            458
            
            
            1,648
            
            
            --Provision
                for loss contracts
            
            
            663
            
            
            --
            
            
            --
            
            
            --
            
            
            --Restructuring
                expenses
            
            
            783
            
            
            --
            
            
            --
            
            
            --
            
            
            --Depreciation
                and amortization
            
            
            3,616
            
            
            3,866
            
            
            1,702
            
            
            2,046
            
            
            799Total
                costs and expenses
            
            
            129,119
            
            
            78,602
            
            
            9,504
            
            
            12,062
            
            
            13,057Operating
                loss
            
            
            (13,232
            )
            
            (2,200
            )
            
            (5,315
            )
            
            (8,130
            )
            
            (12,444
            )Other
                expensesInterest
                expense
            
            
            454
            
            
            1,002
            
            
            2,405
            
            
            1,108
            
            
            490Amortization
                of financing costs
            
            
            239
            
            
            132
            
            
            337
            
            
            187
            
            
            1,425Other
                expenses
            
            
            --
            
            
            350
            
            
            2
            
            
            --
            
            
            --Total
                other expenses
            
            
            693
            
            
            (1,484
            )
            
            2,744
            
            
            1,295
            
            
            1,915Loss
                before provision for income taxes
            
            
            (13,925
            )
            
            (3,684
            )
            
            (8,059
            )
            
            (9,425
            )
            
            (14,359
            )Provision
                for income taxes
            
            
            147
            
            
            253
            
            
            --
            
            
            --
            
            
            --Net
                loss
            
            
            (14,072
            )
            
            (3,937
            )
            
            (8,059
            )
            
            (9,425
            )
            
            (14,359
            )Less
                preferred stock dividend
            
            
            (2,049
            )
            
            (1,878
            )
            
            --
            
            
            --
            
            
            --Less
                deemed dividend
            
            
            --
            
            
            (15,820
            )
            
            --
            
            
            --
            
            
            --Net
                loss attributable to common stockholders
            
            $
            (16,121
            )
            $
            (21,635
            )
            $
            (8,059
            )
            $
            (9,425
            )
            $
            (14,359
            )Loss
                per common share, basic and diluted
            
            $
            (0.54
            )
            $
            (0.96
            )
            $
            (0.74
            )
            $
            (1.04
            )
            $
            (2.71
            )Weighted
                average number of shares outstanding,
              basic
                and diluted
            
            
            29,716,114
            
            
            22,466,262
            
            
            10,904,553
            
            
            9,096,958
            
            
            5,291,403As
                of December 31,2005
            
            
            2004
            
            
            2003
            
            
            2002
            
            
            2001Consolidated
                Balance Sheet Data:Cash
                and cash equivalents
            
            $
            5,386
            
            $
            3,805
            
            $
            574
            
            $
            360
            
            $
            1,029Working
                capital
            
            
            (3,067
            )
            
            26
            
            
            (291
            )
            
            (2,384
            )
            
            (625
            )Goodwill
                and intangible assets
            
            
            72,125
            
            
            84,432
            
            
            10,593
            
            
            12,706
            
            
            2,225Total
                assets
            
            $
            98,983
            
            $
            111,953
            
            $
            13,603
            
            $
            14,407
            
            $
            3,774Senior
                secured credit facility
            
            
            8,649
            
            
            8,308
            
            
            --
            
            
            --
            
            
            --Total
                stockholders’ equity
            
            $
            62,163
            
            $
            71,763
            
            $
            8,385
            
            $
            8,399
            
            $
            1,578


_________________________________________


(A)
            I-trax,
                Inc. acquired Meridian Occupational Healthcare Associates, Inc.,
                which did
                business as CHD Meridian Healthcare, on March 19, 2004.


(B)
            I-trax,
                Inc. acquired WellComm Group LLC on February 6,
                2002.


(C)
            I-trax,
                Inc. acquired iSummit Partners, LLC, which did business as MyFamilyMD,
                on
                February 7, 2001.


19





**Item
                7.**
            **Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operation**





Please
      read the following discussion and analysis together with “Selected Financial
      Data” and our consolidated financial statements and related notes included
      elsewhere in this annual report. This discussion contains certain
      forward-looking statements that involve risks, uncertainties and assumptions.
      You should read the cautionary statements made in this annual report as applying
      to related forward-looking statements wherever they appear in this report
      annual. Our actual results may be materially different from the results we
      discuss in the forward-looking statements due to certain factors, including
      those discussed in “Risk Factors” and other sections of this annual report.





**Our
      Business**





I-trax
      is
      an integrated health and productivity management company formed by the merger
      on
      March 19, 2004 of I-trax, Inc. and Meridian Occupational Healthcare Associates,
      Inc., which did business as CHD Meridian Healthcare. We
      offer
      a range of health and productivity-related services to large, self-insured
      employers. Our services can be integrated or blended as necessary or appropriate
      based on each client’s needs. The
      services include on-site health centers, which deliver primary care, acute
      care
      corporate health, occupational health and pharmacy care management services,
      as
      well as integrated disease management, wellness, and disability management
      programs. We
      believe we are the nation’s largest provider of on-site healthcare on an
      outsourced basis.





We
      believe our services improve the health status of employees and mitigate the
      upward cost trend experienced by employers, employees, and government agencies.
      By proactively managing the healthcare needs of our clients’ employees and their
      families, we believe our programs improve health, increase productivity, reduce
      absenteeism, reduce the need for future critical care, and manage overall costs. We
      also
      believe the breadth of our services allows our clients the flexibility to meet
      each of the following needs in a cost-effective and professional manner:
      pharmacy; primary care; occupational health; corporate health; wellness;
      lifestyle management; and disease management.





We
      deliver our services at or near the client’s work site by opening, staffing and
      managing a health center or pharmacy dedicated to the client and its eligible
      population. We also provide support services to enhance our on-site health
      centers by using the Internet and our call center services. In all, we provide
      care “face to face,” telephonically, and via the Internet. We believe that our
      integrated care delivery model enhances the trusted relationship established
      by
      our clinical providers on-site with their patients, using the support services
      of our call center and our Internet programs.





As
      of
      December 31, 2005, we were providing services to approximately 113 clients,
      including large financial institutions, consumer products manufacturers, health
      plans, integrated delivery networks, automotive and automotive parts
      manufacturers, and diversified industrial companies. For 96 of such clients,
      we
      operated 193 on-site facilities in 32 states, and for 17 of such clients, we
      provided a variety of health management programs. Our client retention rate
      is
      high due to strong client relationships that are supported by the critical
      nature of our services, the benefits achieved by employer and employee
      constituents, and the utilization of multi-year service contracts.





20


**Key
      Financial Trends and Analytical Points**





***Milestones.*** During
      2005, we:


·
            Achieved
                record revenue of $115,887,000, driven by the net addition of sixteen
                facilities and same-site revenue growth of 11.9% over 2004 pro forma
                results; 
 ·
            Made
                record sales of $133,127,000 of pass-through pharmaceutical sales
                as
                compared to $93,766,000 in 2004 on a pro forma basis (because we
                record
                pass-through pharmaceuticals on a net basis, such amounts do not
                appear on
                our consolidated statements of
                operations); 
 ·
            Restructured
                operations resulting in $13,916,000 of charges, a reduction in general
                and
                administrative expenses in the second half of the year, and other
                operational improvements; 
 ·
            Increased
                our earnings before interest, taxes, depreciation and amortization,
                or
                EBITDA, excluding restructuring-related charges to $4,300,000, an
                increase
                of $720,000 and $1,437,000 over comparable pro forma amounts in 2004
                and
                2003, respectively; net losses were $14,072,000, $3,937,000, and
                $8,059,000 for 2005, 2004, and 2003, respectively;
                and 
 ·
            Generated
                positive earnings per common share for the quarters ended September
                30 and
                December 31, excluding $1,509,000 of restructuring-related expense
                reversals.




We
      make ** use
      of
      EBITDA, which is a non-GAAP financial measure. We believe that EBITDA is a
      reliable and useful performance indicator for measuring the growth of our core
      operations. We also evaluate the results of operations for 2005, after excluding
      the charges associated with the second quarter restructuring. We believe such
      an
      analysis allows us to monitor the trend in our core operations. The
      following are our actual results of operations for 2005 and our unaudited pro
      forma results of operations for 2004 and 2003 giving effect to the acquisition
      of CHD Meridian as though the transaction had occurred on January 1, 2004 and
      2003.


21





2005
                (actual)
              
              2004
                (pro
                  forma, unaudited)
              
              2003
                (pro
                  forma, unaudited)Revenue
              
              $
              115,887,000
              
              $
              99,757,000
              
              $
              98,183,000Total
                  costs and expenses
              
              
              129,119,000
              
              
              100,516,000
              (A)
              
              100,677,000
              (C)Operating
                  income
              
              
              (13,232,000
              )
              
              (759,000
              )
              
              (2,494,000
              )Other
                  expenses
              
              
              693,000
              
              
              1,635,000
              (B)
              
              3,377,000
              (D)Income
                  before taxes
              
              
              (13,925,000
              )
              
              (2,394,000
              )
              
              (5,871,000
              )Provision
                  for taxes
              
              
              147,000
              
              
              253,000
              
              
              339,000Net
                  loss
              
              $
              (14,072,000
              )
              $
              (2,647,000
              )
              $
              (6,210,000
              )Reconciliation
                  of net income to adjusted net income
              
              $
              (14,072,000
              )
              $
              (2,647,000
              )
              $
              (6,210,000
              )Add:
                  Impairment of goodwill and long-lived assets
              
              
              12,470,000
              
              
              --
              
              
              458,000Add:
                  Provision for loss contracts
              
              
              663,000
              
              
              --
              
              
              --Add:
                  Restructuring expenses
              
              
              783,000
              
              
              --
              
              
              --Adjusted
                  net loss
              
              $
              (156,000
              )
              $
              (2,647,000
              )
              $
              (5,752,000
              )Reconciliation
                  of net income to EBITDANet
                  income
              
              $
              (14,072,000
              )
              $
              (2,647,000
              )
              $
              (6,210,000
              )Add:
                  Depreciation and amortization
              
              
              3,855,000
              
              
              4,821,000
              
              
              5,240,000Add:
                  Provision for income taxes
              
              
              147,000
              
              
              253,000
              
              
              337,000Add:
                  Interest
              
              
              454,000
              
              
              1,153,000
              
              
              3,038,000EBITDA
              
              $
              (9,616,000
              )
              $
              3,580,000
              
              $
              2,405,000Impairment
                  of goodwill and long-lived assets
              
              
              12,470,000
              
              
              --
              
              
              458,000Provision
                  for loss contracts
              
              
              663,000
              
              
              --
              
              
              --Restructuring
                  expenses
              
              
              783,000
              
              
              --
              
              
              --EBITDA,
                  excluding restructuring-related activities
              
              $
              4,300,000
              
              $
              3,580,000
              
              $
              2,863,000


______________________________________________


(A)
            Includes
                pro forma adjustments of $(2,770,000) for transaction costs expensed
                during the year and $435,000 of amortization of CHD Meridian
                intangibles.


(B)
            Includes
                pro forma adjustment of $180,000 for interest on credit facility
                used to
                fund a portion of the acquisition of CHD
                Meridian.


(C)
            Includes
                pro forma adjustment of $1,740,000 for amortization of CHD Meridian
                intangibles.


(D)
            Includes
                pro forma adjustment of $720,000 for interest on credit facility
                used to
                fund a portion of the acquisition of CHD
                Meridian.





***Restructuring
      and Related Activities.*** During
      2005, we completed an in-depth review of our business strategy, operational
      integration, and our product development efforts, and we concluded that our
      basic strategy could be pursued more effectively with greater concentration
      on
      our core business - on-site healthcare. Certain products and services, including
      legacy health management solutions and related software applications, were
      no
      longer essential to our integrated business model. We therefore moved to
      terminate these services and related contracts, and restructured our operations
      to reduce costs and focus on our on-site business as the platform for expanding
      products and services. Charges of $15,425,000 associated with the restructuring
      were incurred in the second quarter of 2005, with a subsequent reversal of
      $1,509,000 of these charges in the third quarter of 2005 primarily due to
      favorable contract terminations. The restructuring-related charges consisted
      of
      (1) $12,470,000 for impairment to goodwill and long-lived assets, (2) $783,000
      for restructuring charges, and (3) $663,000 for customer contracts determined
      to
      be unprofitable, notwithstanding the reductions of operating expenses
      implemented through the restructuring.






22




Our
      restructuring efforts have positively affected our financial performance during
      the second half of 2005. Most notably, we have reduced our general and
      administrative expenses by $558,000 during the second half of the
      year.





***Working
      Capital.*** We rely
      on our senior credit facility to meet our working capital needs. At December
      31,
      2005, we had $4,896,000 available under our credit facility to fund our working
      capital deficit of $3,067,000. Our working capital at December 31, 2004 was
      $26,000. The decrease in our working capital is primarily attributable to
      increases in: (1) accrued dividends payable upon conversion of our Series A
      Convertible Preferred Stock to $3,048,000 at December 31, 2005 from $1,683,000
      at December 31, 2004; (2) actuarially established reserves at GHIC, our captive
      insurer; and (3) accrued rebates payable to our pharmacy clients. O ur
      senior
      secured credit facility requires that we pay the dividends in shares of common
      stock. In
      addition, at December 31, 2004 we had a net tax liability of $328,000 consisting
      of a current deferred tax asset of $1,198,000 and a long-term deferred tax
      liability of $1,526,000. At December 31, 2005, we were in a fully reserved
      tax
      asset position, resulting in the reduction of both the current asset and
      long-term liability, which negatively affected working capital.





During
      2005, we increased the outstanding balance under our credit facility by
      $341,000, from $8,308,000 at December 31, 2004 to $8,649,000 at December 31,
      2005. We used these funds to pay some of the payments associated with our
      restructuring-related activities of $746,000.





***Operating
      trend.*** We
      intend
      to increase revenue by strengthening and expanding our core business and by
      emphasizing our market position as the leading provider of outsourced on-site
      healthcare.





**Results
      of Operations**





We
      commenced reporting financial results that include CHD Meridian Healthcare
      operations beginning as of April 1, 2004. Consequently, our 2004 results do
      not
      include the first quarter results of operations of CHD Meridian Healthcare.
      Our
      2003 results reflect the separate operations of I-trax. Accordingly, in addition
      to providing comparative analysis on a historical basis, we are also providing
      supplemental analysis on our unaudited pro forma information for 2004 and 2003
      that we believe is useful to understand how our results of operations have
      performed on a comparative basis as if the acquisition of CHD Meridian
      Healthcare had occurred on January 1, 2003.





***Year
      Ended December 31, 2005 Compared to Year Ended December 31, 2004***





Revenue
      for the year ended December 31, 2005 was $115,887,000, an increase of
      $39,485,000 from $76,402,000 for the year ended December 31, 2004. The
      substantial increase results from the effects of the CHD Meridian Healthcare
      acquisition, the overall addition of 16 facilities, and year over year growth
      in
      existing site revenue. The quarter ended December 31, 2005 marked our fifth
      consecutive quarter of revenue growth. Although we are committed to year over
      year growth, we cannot predict or forecast continued quarter over quarter
      increases in revenue.





Operating
      expenses, which represent our direct costs associated with the operation of
      our
      on-site and health management services, amounted to $88,457,000 for the year
      ended December 31, 2005, an increase of $30,306,000 from $58,151,000 for the
      year ended December 31, 2004. The substantial increase was the result of the
      CHD
      Meridian Healthcare acquisition and greater number of facilities under
      management. Operating expenses as a percent of revenue were 76.3% for 2005,
      consistent with 76.1% for 2004.





Impairment
      of long-lived assets for the year ended December 31, 2005 was $12,470,000.
      We
      wrote-off software development costs of $3,563,000 associated with proprietary
      software products we no






23






longer
      develop, sell or support. We recorded an impairment charge of $8,424,000 to
      goodwill and $483,000 to miscellaneous long-lived assets, in each case related
      to the acquisitions of iSummit Partners, LLC in 2001 and WellComm Group, LLC
      in
      2002.





Our
      provision for loss contracts for the year ended December 31, 2005 was $663,000.
      We determined that certain customer contracts were likely to continue to be
      unprofitable, notwithstanding implemented reductions in our operating expenses.





Restructuring
      expenses for the year ended December 31, 2005 were $783,000. We recorded
      expenses of one-time termination benefits of $542,000, contract termination
      costs of $172,000 and other associated costs of $69,000 that consists primarily
      of consulting fees.





General
      and administrative expenses, which represent our corporate costs, increased
      to
      $23,130,000 for the year ended December 31, 2005 from $16,585,000 for the year
      ended December 31, 2004. The increase of $6,545,000 is primarily attributable
      to
      the CHD Meridian Healthcare acquisition and to an increase in salaries and
      wages
      expenses paid to the enhanced senior management team.





Depreciation
      and amortization expenses were $3,616,000 for the year ended December 31, 2005,
      a decrease of $250,000 as compared to $3,866,000 for the year ended December
      31,
      2004. The decrease is attributable to certain intangible and long-lived assets
      being fully depreciated during 2005.





Interest
      expense for the year ended December 31, 2005 was $454,000, representing a
      decrease of $548,000 from $1,002,000 for the year ended December 31, 2004.
      Interest expense in 2005 is primarily attributable to our senior secured credit
      facility, as contrasted with 2004 interest expense that also includes non-cash
      charges associated with a convertible debenture and associated warrants.





Amortization
      of financing costs for the year ended December 31, 2005 was $239,000,
      representing an increase of $107,000 from $132,000 for the year ended December
      31, 2004. The increase is due to additional debt issuance costs capitalized
      in
      association with amendments of our senior secured credit facility during 2005
      and 2004.





The
      provision for income taxes for the year ended December 31, 2005 was $147,000,
      representing a decrease of $106,000 from $253,000 for the year ended December
      31, 2004. This increase is related to certain state taxes for CHD Meridian
      Healthcare operations.





Other
      expense for the year ended December 31, 2004 relates to a one-time non-cash
      charge of $350,000 associated with the fair value of certain warrants. This
      charge represents the increase in the fair value of the common stock underlying
      warrants between the date on which the warrants were granted and the date on
      which the registration statement covering the resale of such common stock was
      declared effective by the SEC.





For
      the
      year ended December 31, 2005, our net loss was $14,072,000, as compared to
      a net
      loss of $3,937,000 for the year ended December 31, 2004. The net loss for 2005
      includes restructuring related charges of $13,916,000. The net loss for 2004
      includes $832,000 of transaction related compensation costs, which were included
      in general and administrative expense.





***Year
      Ended December 31, 2004 Compared to Year Ended December 31, 2003***





Revenue
      for the year ended December 31, 2004 was $76,402,000, an increase of $72,213,000
      from $4,189,000 for the year ended December 31, 2003. Of the 2004 revenue,
      $3,695,000 was from our






24




personalized
      health management programs and $72,707,000 from our on-site facilities. The
      substantial increase was the result of the CHD Meridian Healthcare
      acquisition.





Operating
      expenses, which represent our direct costs associated with the operation of
      our
      on-site and health management services, were $58,151,000 for the year ended
      December 31, 2004, an increase of $56,236,000 from $1,915,000 for the year
      ended
      December 31, 2003. The substantial increase was the result of the CHD Meridian
      Healthcare acquisition.





During
      the year ended December 31, 2003, we recorded an impairment charge of
      approximately $458,000 representing the unamortized portion of covenants not
      to
      compete attributable to the founder of WellComm Group, who passed
      away.





General
      and administrative expenses, which represent our corporate costs, increased
      to
      $16,585,000 for the year ended December 31, 2004 from $5,429,000 for the year
      ended December 31, 2003. The increase of $11,156,000 is primarily attributable
      to the addition of $10,199,000 related to the CHD Meridian Healthcare
      acquisition, and to an increase of $1,371,000 in salaries and wages expenses,
      including $832,000 of transaction related compensation costs associated with
      the
      merger offset by a reduction in non-cash charges associated with issuing common
      stock, granting warrants, and having certain stockholders contribute shares
      to
      an investor relations firm as consideration for services.





Depreciation
      and amortization expenses were $3,866,000 for the year ended December 31, 2004,
      an increase of $2,164,000 as compared to $1,702,000 for the year ended December
      31, 2003. This increase is largely attributable to an increase in amortization
      expense of $1,403,000 for the intangibles recorded as part of the CHD Meridian
      Healthcare acquisition.





Interest
      expense for the year ended December 31, 2004 was $1,002,000, representing a
      decrease of $1,403,000 from $2,405,000 for the year ended December 31, 2003.
      For
      the year ended December 31, 2004, interest expense includes a charge of $573,000
      attributable to the unamortized portion of the discount and beneficial
      conversion value associated with the convertible debenture and certain other
      promissory notes. The discount amount was expensed because the convertible
      debenture was converted into common stock and the promissory notes were repaid
      during March 2004. During the year ended December 31, 2003, interest expense
      includes charges of $1,881,000 related to the debenture and warrants issued
      to
      Palladin Opportunity Fund LLC.





Amortization
      of financing costs for the year ended December 31, 2004 was $132,000,
      representing a decrease of $205,000 from $337,000 for the year ended December
      31, 2003. During the year ended December 31, 2004, we recorded financing costs
      related to obtaining and amending our senior secured credit facility. As of
      December 31, 2004, the remaining unamortized financing costs were approximately
      $412,000.





The
      provision for income taxes for the year ended December 31, 2004 was $253,000,
      representing an increase of $253,000 from the year ended December 31, 2003.
      This
      increase is related to certain state taxes for CHD Meridian Healthcare
      operations.





Other
      expense for the year ended December 31, 2004, represents a one-time non-cash
      charge of $350,000 associated with the fair value of certain warrants. The
      related charge for the year ended December 31, 2003 was $301,000. These charges
      represent the increase in the fair value of the common stock underlying warrants
      between the date the warrants were granted and the date the registration
      statement covering the resale of such common stock was declared effective by
      the
      SEC. Other expenses for the year ended December 31, 2003 also reflect a charge
      of $200,000 in connection with the termination in January 2003 of agreement
      to
      acquire DxCG, Inc., a Boston-based predictive modeling






25




company. This
      sum
      was paid to DxCG following DxCG’s termination of the merger agreement because
      certain conditions to closing, including third party financing of the cash
      portion of the purchase price, were not satisfied. Finally, other expense also
      includes $500,000 of
      proceeds from a key-person life insurance policy paid out to a third party
      in
      satisfaction of a guarantee.





For
      the
      year ended December 31, 2004, our net loss was $3,937,000, as compared to a
      net
      loss of $8,059,000 for the year ended December 31, 2003. The net loss for the
      year ended December 31, 2004, included non-cash and merger related expenses
      of
      $1,755,000, comprised of: (1) $573,000 in non-cash interest expense attributable
      to the unamortized discount and beneficial conversion value of a previously
      outstanding convertible debenture and certain other promissory notes that were
      converted into common stock in March 2004; (2) $350,000 of non-cash charges
      related to an increase in the fair market value of common stock underlying
      warrants issued in a private placement completed during October 2003; and (3)
      $832,000 of transaction related compensation costs, which were included in
      general and administrative expense.





***Year
      Ended December 31, 2005 (Actual) Compared to Year Ended December 31, 2004 (Pro
      Forma)***





Revenue
      for 2005 increased $16,130,000, or 16.2%, to $115,887,000 for 2005 from
      $99,757,000 for 2004 on a pro forma basis. Revenue growth was generated by
      the
      overall addition of 16 facilities that contributed to revenue $4,274,000 during
      2005 and same-site growth year over year.





Total
      costs and expenses include direct costs of our operations (operating expenses),
      corporate overhead (general and administrative expenses), restructuring-related
      costs (impairment of goodwill and long-lived assets, provision for loss
      contracts, and restructuring expenses), and depreciation and amortization.
      Total
      costs and expenses increased to $129,119,000 for 2005, an increase of
      $28,603,000 from $100,516,000 for pro forma 2004. This increase is attributable
      to restructuring-related costs of $13,916,000 incurred in 2005, as well as
      increased costs associated with revenue growth. Operating expenses as a
      percentage of revenue were 76.3% in 2005, a slight improvement over 76.4% in
      2004 on a pro forma basis.





Total
      other expenses include interest expense, amortization of financing costs, and
      other expenses. Such expenses decreased by $942,000, from $1,635,000 for 2004
      to
      $693,000 for 2005. The decrease results from 2004 interest charges of $573,000
      attributable to the unamortized portion of the discount and beneficial
      conversion value associated with the convertible debenture and certain other
      promissory notes and 2004 charges of $350,000 related to the increase in fair
      market value of common stock underlying warrants.





We
      record
      pass-through pharmaceuticals purchases on a net basis. These purchases were
      $133,127,000 and $93,766,000 for 2005 and pro forma 2004,
      respectively.





***Year
      Ended December 31, 2004 (Pro Forma) Compared to Year Ended December 31, 2003
      (Pro Forma)***





On
      a pro
      forma basis, revenue from our on-site facilities increased by $1,574,000 from
      $98,183,000 for the ended December 31, 2003 to $99,757,000 for the year ended
      December 31, 2004. Revenue from new or existing clients increased by more than
      $7,000,000 during the year ended December 31, 2004; however, part of this
      increase was offset because a major client declared bankruptcy, some clients
      closed facilities and technology license revenue decreased by $1,076,000.






26





Pro
      forma
      total costs and expenses for the year ended December 31, 2004 decreased to
      $100,516,000, a $162,000 decrease, from $100,677,000 for the year ended December
      31, 2003 on a pro forma basis, despite incremental costs and expenses associated
      with new and expanded business. Depreciation and amortization decreased by
      $214,000 on a pro forma basis.





Pro
      forma
      interest expense and financing costs for the year ended December 31, 2004
      decreased from the corresponding expense and costs for the year ended December
      31, 2003 on a pro forma basis. During the years ended December 31, 2004 and
      December 31, 2003, we recorded non-recurring charges to interest expense and
      other expenses in the amounts of $573,000 and $2,007,474, respectively. We
      expect interest expense related to outstanding amounts due under the senior
      secured credit facility to increase in future periods.





We
      record
      pass-through pharmaceuticals purchases on a net basis. These purchases were
      $93,766,000 and $86,254,000 for the year ended December 31, 2004 and 2003,
      respectively.





***Green
      Hills Insurance Company and Risk Matters***





In
      2004,
      we formed Green Hills Insurance Company, a risk retention group, to self-insure
      a portion of our professional and general liability insurance. The risk
      retention group has reduced the insurance costs for our clients while
      maintaining an unchanged or improved risk exposure for the healthcare
      operations. We have retained independent third parties to advise our risk
      retention group, including a captive insurance company manager, an actuarial
      consulting firm, and a national claims manager.





Green
      Hills was capitalized with $2,000,000 of cash and a $1,000,000 letter of credit
      under our senior secured credit facility. At December 31, 2005, Green Hills
      held
      $5,155,000, invested in cash equivalents in accordance with the regulations
      promulgated by the State of Vermont. This amount is also included in cash and
      cash equivalents on our consolidated balance sheet.





Green
      Hills’ loss and loss adjustment reserves are adjusted monthly and represent
      management’s best estimate of the then applicable ultimate net cost of all
      reported and unreported losses. Management’s estimates incorporate the
      determinations presented in an independent actuarial report prepared for Green
      Hills. The report is updated by the actuarial consulting firm as management
      determines is appropriate in its reasonable judgment, but not less frequently
      then annually. During 2005, Green Hills increased its reserves for reported
      claims and incurred but not reported losses and loss adjustment expense by
      $1,175,000 to $1,905,000, which is included in other current liabilities on
      our
      consolidated balance sheet. The increase, in managements estimate, represents
      vigilant management of risk and a natural growth in the company’s overall
      healthcare business.





In
      addition to reserves maintained by Green Hills, at December 31, 2005, we held
      $2,000,000 as a loss reserve for incurred but not reported losses and loss
      adjustment expense for older matters and this amount is included in other long
      term liabilities on the consolidated balance sheet. Also, outside of Green
      Hills, we held a reserve for cost and settlement of reported claims of
      $1,362,000, which is included in other current liabilities on the consolidated
      balance sheet at December 31, 2005.





We
      purchase excess insurance to mitigate risk in excess of Green Hills’ policy
      limits.





Operating
      an insurance subsidiary subjects us to the risks associated with any insurance
      business, which include investment risk relating to the performance of assets
      set aside as reserves for future claims, the uncertainty of making actuarial
      estimates of projected future professional liability losses, and loss adjustment
      expenses. Failure to make an adequate return on our investments, to maintain
      the
      principal of






27




invested
      funds, or to estimate future losses and loss adjustment expenses accurately,
      could cause us to sustain losses. Also, maintaining the insurance subsidiary
      has
      exposed us to substantial additional regulatory requirements, with attendant
      risks if we fail to comply with applicable regulations.





**Selected** **Quarterly** **Operating Results**





The
      following table shows our quarterly unaudited consolidated financial information
      for the eight quarters ended December 31, 2005. We prepared this information
      on
      the same basis as the annual information presented in other sections of this
      report. In management’s opinion, this information reflects all adjustments, all
      of which are of a normal recurring nature, that are necessary for a fair
      presentation of the results for these periods. Please do not rely on the
      operating results for any quarter to predict the results for any subsequent
      period or for the entire fiscal year. Future quarterly results may vary.





Quarter
                ended(in
                thousands)2005
            
            2004Dec.
                31
            
            Sept.
                30
            
            June
                30
            
            March
                31
            
            Dec.
                31
            
            Sept.
                30
            
            June
                30
            
            March
                31Net
                revenue
            
            $
            31,359
            
            $
            28,824
            
            $
            28,239
            
            $
            27,465
            
            $
            26,435
            
            $
            24,136
            
            $
            24,384
            
            $
            1,447Costs
                and expensesOperating
                expenses
            
            
            23,714
            
            
            21,736
            
            
            21,855
            
            
            21,152
            
            
            19,521
            
            
            18,816
            
            
            19,117
            
            
            697Impairment
                of long-lived assets
            
            
            --
            
            
            --
            
            
            12,470
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --Provision
                for loss contracts
            
            
            --
            
            
            (1,453
            )
            
            2,116
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --Restructuring
                expenses
            
            
            --
            
            
            (56
            )
            
            839
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --General
                and administrative expenses
            
            
            5,767
            
            
            5,519
            
            
            6,341
            
            
            5,503
            
            
            5,243
            
            
            4,670
            
            
            4,651
            
            
            2,021Depreciation
                and amortization
            
            
            876
            
            
            772
            
            
            916
            
            
            1,052
            
            
            977
            
            
            1,097
            
            
            1,357
            
            
            435Total
                costs and expenses
            
            
            30,357
            
            
            26,518
            
            
            44,537
            
            
            27,707
            
            
            25,741
            
            
            24,583
            
            
            25,125
            
            
            3,153Operating
                income (loss)
            
            
            1,002
            
            
            2,306
            
            
            (16,298
            )
            
            (242
            )
            
            694
            
            
            (447
            )
            
            (741
            )
            
            (1,706
            )Other
                expensesInterest
                expense
            
            
            55
            
            
            95
            
            
            177
            
            
            127
            
            
            102
            
            
            124
            
            
            163
            
            
            613Amortization
                of financing costs
            
            
            57
            
            
            57
            
            
            80
            
            
            45
            
            
            73
            
            
            13
            
            
            12
            
            
            34Other
                expenses
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            350Total
                other expenses
            
            
            112
            
            
            152
            
            
            257
            
            
            172
            
            
            175
            
            
            137
            
            
            175
            
            
            997Income/(loss)
                before provision for income taxes
            
            
            890
            
            
            2,154
            
            
            (16,555
            )
            
            (414
            )
            
            519
            
            
            (584
            )
            
            (916
            )
            
            (2,703
            )Provision
                for income taxes
            
            
            141
            
            
            (253
            )
            
            252
            
            
            7
            
            
            2
            
            
            251
            
            
            --
            
            
            --Net
                income (loss)
            
            
            749
            
            
            2,407
            
            
            (16,807
            )
            
            (421
            )
            
            517
            
            
            (835
            )
            
            (916
            )
            
            (2,703
            )Less
                preferred stock dividend
            
            
            (489
            )
            
            (518
            )
            
            (518
            )
            
            (524
            )
            
            (596
            )
            
            (605
            )
            
            (598
            )
            
            (79
            )Less
                deemed dividend
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            (15,820
            )Net
                income (loss) attributable to common stockholders
            
            $
            260
            
            $
            1,889
            
            $
            (17,325
            )
            $
            (945
            )
            $
            (79
            )
            $
            (1,440
            )
            $
            (1,514
            )
            $
            (18,602
            )Income
                (loss) per common share, basic
            
            $
            0.01
            
            $
            0.06
            
            $
            (0.57
            )
            $
            (0.04
            )
            $
            0.00
            
            $
            (0.06
            )
            $
            (0.06
            )
            $
            (1.20
            )Income
                (loss) per common share, diluted
            
            $
            0.01
            
            $
            0.05
            
            $
            (0.57
            )
            $
            (0.04
            )
            $
            0.00
            
            $
            (0.06
            )
            $
            (0.06
            )
            $
            (1.20
            )


28





**Liquidity
      and Capital Resources**





***Operating
      Activities***





Cash
      provided by operating activities during the year ended December 31, 2005 was
      $3,760,000. The following factors accounted for our operating cash surplus:





(1)  Our
      operating loss was $14,072,000 and included non-cash charges of $12,782,000
      for
      restructuring-related activities and $3,946,000 of non-cash depreciation,
      amortization, and other non-cash charges.





(2)  Our
      non-cash assets increased by $2,602,000, driven primarily by a $3,874,000
      increase in accounts receivable reflecting growth in clients, pharmaceutical
      purchases and revenue, offset by a reduction of $1,198,000 of income tax
      receivable.





(3)  Our
      liabilities (which include accounts payable, accrued expenses, accrued
      restructuring charges, other current and long term liabilities, and deferred
      tax
      liability) increased by $3,706,000, which includes accruals recorded in relation
      to our restructuring and related activities of $433,000.





Other
      contributing factors to this increase were an increase in pharmaceutical sales,
      driving higher pharmaceutical purchases, and increases in reserves for Green
      Hills.





***Investing
      Activities***





Net
      cash
      used in investing activities was $2,661,000 for the year ended December 31,
      2005, which consists of $822,000 of capitalized software costs, and $1,726,000
      of capital expenditures. The software development costs were impaired during
      2005 in association with our restructuring-related activities. The remaining
      amount of $113,000 relates to additional financing costs associated with
      amending our senior secured credit facility.





***Financing
      Activities***





Net
      cash
      provided by financing activities was $482,000 for the year ended December 31,
      2005, of which $341,000 represents additional draws under our senior secured
      credit facility. We use funding from our credit facility to finance our working
      capital requirements, which increased due to additional revenue, expenses and
      accounts receivable generated from increases in same-site operations as well
      as
      an increase in 2005 of our overall number of facilities by 16, capital
      expenditures and development expenses. We spent $746,000 during 2005 on
      restructuring-related activities.





During
      2005, we amended our credit facility to finance working capital needs associated
      with our business growth and restructuring expenses. The amendment, effective
      June 29, 2005: (1) increased the aggregate amount that could borrowed under
      the
      facility to the lesser of $15,000,000 or the credit facility base calculation,
      in each case less outstanding letters of credit; (2) waived compliance with
      the
      covenant for the ratio of the Funded Indebtedness to Earnings Before Interest,
      Taxes, Depreciation and Amortization (as defined in the credit facility), or
      EBITDA, through December 31, 2006; and (3) added covenants setting minimum
      EBITDA targets for periods ending September 30, 2005 through December 31, 2006.








29





As
      of
      December 31, 2005, the senior secured credit facility base calculation was
      $14,545,000. At that date, we had $8,649,000 of debt outstanding under our
      credit facility, which was classified as long term, and $1,000,000 was
      outstanding under a letter of credit. Consequently, we had $4,896,000 available
      to be borrowed under the credit facility at December 31, 2005. By contrast,
      our
      borrowing availability under the credit facility was $2,692,000 at December
      31,
      2004.





Our
      ratio
      of current assets to current liabilities (excluding dividends payable on Series
      A Convertible Preferred Stock in shares of common stock) was 1.00 at December
      31, 2005, as compared to 1.09 at December 31, 2004. We believe that these ratios
      demonstrate adequate financial liquidity and we believe that availability under
      our credit facility and our cash and cash equivalents of $5,386,000 at December
      31, 2005 (which includes approximately $5,115,000 held at Green Hills) will
      be
      sufficient to meet our anticipated cash needs for the next 12
      months.





The
      minimum EBITDA targets for periods ending September 30, 2005 through December
      31, 2006 are:





Period
            
            Minimum
                EBITDAJuly
                1, 2005 - September 30, 2005
            
            $
            780,000July
                1, 2005 - December 31, 2005
            
            
            1,560,000July
                1, 2005 - March 31, 2006
            
            
            2,560,000Last
                four fiscal quarters ending June 30, 2006
            
            
            3,580,000Last
                four fiscal quarters ending September 30, 2006
            
            
            3,960,000Last
                four fiscal quarters ending December 31, 2006
            
            
            4,450,000





As
      of
      December 31, 2005, we were in compliance with our credit facility covenants.





**Future
      Capital Requirements**





We
      expect
      to use our future cash to fund working capital and to invest in strategic
      systems, sales and marketing programs, and service enhancements. In 2006,
      we anticipate spending $1,500,000 to $2,000,000 on capital expenditures. As
      of
      June 30, 2005, we discontinued funding software development. We funded $822,000
      of software development in 2005 prior to our restructuring.





We
      cannot, however, provide assurances that our actual cash requirements will
      not
      be greater than we currently believe. We will, from time to time, consider
      the
      acquisition of, or investment in, complementary businesses, products, services
      and technologies, which would most likely effect our liquidity requirements
      or
      cause us to issue additional equity or debt securities.





If
      sources of liquidity are not available or if we cannot generate sufficient
      cash
      flow from operations during the next 12 months, we might be required to obtain
      additional sources of funds through additional operating improvements, capital
      market transactions (including the sale of common stock), asset sales or
      financing from third parties, or a combination of these options. We cannot
      provide assurance that these additional sources of funds will be available
      or,
      if available, would have reasonable terms.





**Contractual
      Obligations and Commitments**





We
      have
      various contractual obligations that are recorded as liabilities in our
      condensed consolidated financial statements. Other items, such as operating
      lease contract obligations are not recognized as liabilities in our condensed
      consolidated financial statements but are required to be disclosed.






30









The
      following table summarizes our significant contractual obligations at December
      31, 2005, and the effect such obligations are expected to have on our liquidity
      and cash in future periods:




Payments
                due by periodContractual
                obligations:
            
            Total
            
            Less
                than
              1
                year
            
            1-3
                years
            
            3-5
                years
            
            More
                than
              5
                yearsOperating
                leases
            
            $
            6,504,000
            
            $
            2,315,000
            
            $
            2,648,000
            
            $
            1,540,000
            
            $
            1,000Less:
                Amounts reimbursed by clients
            
            
            1,103,000
            
            
            823,000
            
            
            252,000
            
            
            28,000
            
            
            --$
            5,401,000
            
            $
            1,492,000
            
            $
            2,396,000
            
            $
            1,512,000
            
            $
            1,000





From
      time
      to time, we enter into operating leases for offices and equipment leases on
      behalf of our clients in order to facilitate the delivery of our services at
      client locations. In such cases, our clients agree to reimburse us for the
      expenses incurred related to these operating leases.





**Critical
      Accounting Policies**





Our
      consolidated financial statements and applicable notes are prepared in
      accordance with the generally accepted accounting principles in the United
      States of America. The preparation of these financial statements requires us
      to
      make estimates and judgments that affect the reported amounts of assets and
      liabilities and the reported amounts of revenues and expenses during the covered
      periods. We base our estimates and judgments on our historical experience and
      on
      various other factors that we believe are reasonable under the circumstances.
      We
      evaluate our estimates and judgments, including those related to revenue
      recognition, bad debts, restructuring costs, and goodwill and other intangible
      assets on an ongoing basis. Notwithstanding these efforts, there can be no
      assurance that actual results will not differ from the respective amount of
      those estimates.





***Impairment
      of Goodwill and Intangible Assets***





We
      operate in an industry that is rapidly evolving and extremely competitive.
      It is
      reasonably possible that our accounting estimates with respect to the useful
      life and ultimate recoverability of our carrying basis of goodwill and
      intangible assets could change in the near term and that the effect of such
      changes on the financial statements could be material. During 2005, in
      connection with our restructuring, we recognized impairment charges of
      $12,470,000, of which $8,424,000 related to goodwill recorded prior to the
      CHD
      Meridian Healthcare acquisition in 2004. In accordance with Statement of
      Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,”
we complete a test for impairment of goodwill and certain other intangible
      assets annually and whenever events or circumstances indicate a potential
      impairment.





***Insurance
      Reserves***





Loss
      and
      loss adjustment reserves are adjusted monthly and represent management’s best
      estimate of the then applicable ultimate net cost of all reported and unreported
      losses. Management’s estimates incorporate the determinations presented in an
      independent actuarial report. The report is updated by the actuarial consulting
      firm as management determines is appropriate in its reasonable judgment, but
      not
      less frequently then annually.





We
      do not
      discount loss and loss adjustment expense reserves. The reserves for unpaid
      losses and loss adjustment expenses are estimated using individual case-basis
      valuations and statistical analyses. Those estimates are subject to the effects
      of trends in severity and frequency. Although considerable






31




variability
      is inherent in such estimates, management believes the reserves for losses
      and
      loss adjustment expenses are adequate. The estimates are reviewed and adjusted
      continuously as experience develops or new information becomes known; such
      adjustments are included in current operations. To the extent claims are made
      against the policies in the future, we expect most such claims to be resolved
      within five years of original date of claim.





***Revenue
      Recognition***





***Service
      Revenue - On-site Facilities*** **.** We
      generate revenue from contractual client obligations for occupational health,
      primary care, pharmacy and corporate health services rendered on either a fixed
      fee or a cost-plus arrangement. For fixed fee contracts, revenue is recorded
      on
      a straight-line basis as services are rendered. For cost-plus contracts, revenue
      is recorded as costs are incurred with the management fee component recorded
      as
      earned based on the method of calculation stipulated in the client
      contract.





Revenue
      is recorded at the estimated net amount to be received from clients for services
      rendered. The allowance for doubtful accounts represents management’s estimate
      of potential credit issues associated with amounts due from
      customers.





We
      record
      pass-through pharmaceutical purchases on a net basis in accordance with Emerging
      Issues Task Force, or EITF, Issue No. 99-19, “Reporting Gross Revenue as a
      Principal vs. Net as an Agent.” Under our pharmacy arrangements, we provide
      pharmaceuticals to a client as a component of our pharmacy agreement, which
      typically requires us to staff and operate a pharmacy for the sole benefit
      of
      the client’s employees and, in certain instances, dependents and retirees. The
      substance of our pharmacy agreements in relation to pharmaceutical purchases
      demonstrates an agent-like arrangement and points to net reporting. Our
      agreements stipulate that we must be reimbursed upon purchasing pharmaceuticals,
      and not upon dispensing, thus limiting inventory risk. We also price
      pharmaceuticals on a pass-through basis and mitigate credit risk through
      structured payment terms with our clients. Consequently, we do not have
      unmitigated credit risk.





Cash
      we
      receive prior to the performance of services is reflected as deferred revenue
      on
      the consolidated balance sheet.





***Service
      Revenue - Personalized Health Management Programs*** **.** We
      recognize service revenue as services are rendered. We contract with our
      customers to provide services for a monthly fee based on the number of
      employees, members or covered lives, a per-call charge to our call center,
      or a
      combination thereof.





Upon
      execution of a contract for services, we assess whether the fee associated
      with
      our revenue transactions is fixed and determinable and whether collection is
      reasonably assured. We assess whether the fee is fixed and determinable based
      on
      the payment terms associated with such contract. If a significant portion of
      a
      fee is due after our normal payment terms, which are generally 30 to 90 days
      from invoice date, we account for such fee as services are provided.





From
      time
      to time we enter into risk-sharing contracts. A risk-sharing contract generally
      requires us to manage the health and wellness of a predetermined set of
      individuals for a term of three to five years. A risk-sharing contract may
      also
      provide that we are required to give credits to our client for a portion of
      our
      fees if our program does not save the client a stipulated percentage of the
      client’s healthcare costs. As of December 31, 2005 and 2004, we maintained
      reserves of $0 and $320,000, respectively, against potential future
      credits.








32





**Material
      Equity Transactions**





In
      2004,
      we executed equity transactions with unrelated parties in connection with the
      CHD Meridian Healthcare merger and related financing. We believe that we have
      valued all such transactions pursuant to applicable accounting rules and that
      they ultimately represent the economic substance of each transaction. On
      April
      5, 2005, we also released 3,859,200 shares of our common stock from escrow
      to
      former CHD Meridian Healthcare stockholders because CHD Meridian Healthcare’s
      historic business achieved its EBITDA target. On April 5, 2005, the market
      value
      of our stock was $1.45 per share.





During
      2005 and 2004, 217,244 and 129,717 shares, respectively, of Series A Convertible
      Preferred Stock were converted into 2,172,445 and 1,297,164 shares of common
      stock, respectively. We issued 418,334 and 132,983 additional shares of common
      stock to satisfy dividends accrued on the converted shares of Series A
      Convertible Preferred Stock during 2005 and 2004, respectively.





Effective
      June 2, 2005, our President and Chief Medical Officer purchased from us 120,000
      restricted shares of common stock at a purchase price of $1.25 per
      share.





Finally,
      in 2005 we issued 22,158 shares upon exercise of warrants and in 2004 we issued
      an aggregate of 829,854 shares of common stock in satisfaction of debt and
      upon
      exercise of warrants.





**Item
      7A.**  **Quantitative
      and Qualitative Disclosures About Market Risk**





As
      of
      December 31, 2005, we did not own any derivative instruments, but we were
      exposed to market risks, primarily due to changes in U.S. interest rates. Our
      credit facility bears a variable interest rate, and accordingly, the fair market
      value of the debt is sensitive to changes in interest rates. We have no cash
      flow or earnings exposure due to market interest rate changes for our fixed
      debt
      obligation.








33








**Item
      8.**  **Financial
      Statements and Supplementary Data**




**Report
      of Independent Registered Public Accounting Firm**




To
      the
      Board of Directors and


Stockholders
      of I-trax, Inc.








We
      have
      audited the accompanying consolidated balance sheets of I-trax, Inc. and
      Subsidiaries as of December 31, 2005 and 2004, and the related consolidated
      statements of operations, stockholders’ equity and cash flows for the each of
      the three years in the period ended December 31, 2005. These consolidated
      financial statements are the responsibility of the Company’s management. Our
      responsibility is to express an opinion on these consolidated financial
      statements based on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. An audit includes examining,
      on a
      test basis, evidence supporting the amounts and disclosures in the financial
      statements. An audit also includes assessing the accounting principles used
      and
      significant estimates made by management, as well as 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 I-trax, Inc. and
      Subsidiaries as of December 31, 2005 and 2004 and the results of their
      operations and their cash flows for each of the three years in the period ended
      December 31, 2005 in conformity with United States generally accepted accounting
      principles.

















**GOLDSTEIN
      GOLUB KESSLER LLP**


New
      York,
      New York


February
      3, 2006


34


**I-TRAX,
      INC. AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEET**


***(in
      thousands, except share data)***





**ASSETS****December
                31,****2005**
            
            2004Current
                assetsCash
                and cash equivalents
            
            **$**
            **5,386**
            
            $
            3,805Accounts
                receivable, net
            
            
            **15,490**
            
            
            13,760Deferred
                tax asset
            
            
            **--**
            
            
            1,198Other
                current assets
            
            
            **1,899**
            
            
            1,978Total
                current assets
            
            
            **22,775**
            
            
            20,741Property
                and equipment, net
            
            
            **4,042**
            
            
            6,719Goodwill
            
            
            **51,620**
            
            
            61,390Customer
                list, net
            
            
            **19,641**
            
            
            21,182Other
                intangible assets, net
            
            
            **864**
            
            
            1,860Other
                long term assets
            
            
            **41**
            
            
            61Total
                assets
            
            **$**
            **98,983**
            
            $
            111,953**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Current
                liabilitiesAccounts
                payable
            
            **$**
            **8,069**
            
            $
            6,118Accrued
                payroll and benefits
            
            
            **3,961**
            
            
            3,896Net
                liabilities of discontinued operations
            
            
            **1,299**
            
            
            1,299Accrued
                loss contracts
            
            
            **312**
            
            
            --Current
                portion of accrued restructuring charges
            
            
            **419**
            
            
            --Other
                current liabilities
            
            
            **11,782**
            
            
            9,402Total
                current liabilities
            
            
            **25,842**
            
            
            20,715Note
                payable
            
            
            **8,649**
            
            
            8,308Deferred
                tax liability
            
            
            **--**
            
            
            1,526Accrued
                purchase price
            
            
            **--**
            
            
            7,294Accrued
                restructuring charges, net of current portion
            
            
            **14**
            
            
            --Other
                long term liabilities
            
            
            **2,315**
            
            
            2,347Total
                liabilities
            
            
            **36,820**
            
            
            40,190Stockholders’
                equityPreferred
                stock - $.001 par value, 2,000,000 shares authorized,
              853,039 and 1,070,283 issued and outstanding, respectively;
              Liquidation preference: $21,326,000 and $26,757,000 at
              December 31, 2005 and 2004, respectively
            
            
            **1**
            
            
            1Common
                stock - $.001 par value, 100,000,000 shares authorized
              32,818,955 and 26,226,818 shares issued and outstanding,
              respectively
            
            
            **32**
            
            
            25Additional
                paid in capital
            
            
            **134,864**
            
            
            130,399Accumulated
                deficit
            
            
            **(72,734**
            **)**
            
            (58,662
            )Total
                stockholders’ equity
            
            
            **62,163**
            
            
            71,763Total
                liabilities and stockholders’ equity
            
            **$**
            **98,983**
            
            $
            111,953


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


35


**I-TRAX,
      INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


***(in
      thousands, except share data)***





**Year
                ended December 31,****2005**
            
            2004
            
            2003Net
                revenue
            
            **$**
            **115,887**
            
            $
            76,402
            
            $
            4,189Costs
                and expensesOperating
                expenses
            
            
            **88,457**
            
            
            58,151
            
            
            1,915Impairment
                of intangible and long-lived assets
            
            
            **12,470**
            
            
            --
            
            
            458Provision
                for loss contracts
            
            
            **663**
            
            
            --
            
            
            --Restructuring
                expenses
            
            
            **783**
            
            
            --
            
            
            --General
                and administrative expenses
            
            
            **23,130**
            
            
            16,585
            
            
            5,429Depreciation
                and amortization
            
            
            **3,616**
            
            
            3,866
            
            
            1,702Total
                costs and expenses
            
            
            **129,119**
            
            
            78,602
            
            
            9,504Operating
                loss
            
            
            **(13,232**
            **)**
            
            (2,200
            )
            
            (5,315
            )Other
                expensesInterest
                expense
            
            
            **454**
            
            
            1,002
            
            
            2,405Amortization
                of financing costs
            
            
            **239**
            
            
            132
            
            
            337Other
                expenses
            
            
            **--**
            
            
            350
            
            
            2Total
                other expenses
            
            
            **693**
            
            
            1,484
            
            
            2,744Loss
                before provision for income taxes
            
            
            **(13,925**
            **)**
            
            (3,684
            )
            
            (8,059
            )Provision
                for income taxes
            
            
            **147**
            
            
            253
            
            
            --Net
                loss
            
            
            **(14,072**
            **)**
            
            (3,937
            )
            
            (8,059
            )Less
                preferred stock dividend
            
            
            **(2,049**
            **)**
            
            (1,878
            )
            
            --Less
                deemed dividends applicable to preferred stockholders
            
            
            **--**
            
            
            (15,820
            )
            
            --Net
                loss applicable to common stockholders
            
            $
            **(16,121**
            **)**
            $
            (21,635
            )
            $
            (8,059
            )Loss
                per common share, basic and diluted
            
            $
            **(0.54**
            **)**
            $
            (0.96
            )
            $
            (0.74
            )Weighted
                average number of shares outstanding, basic and diluted
            
            
            **29,716,114**
            
            
            22,466,262
            
            
            10,904,553







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







36





**I-TRAX,
      INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENT OF STOCKHOLDERS’ EQUITY**


***(in
      thousands, except share data)***





Preferred
                Stock
            
            Common
                Stock
            
            Additional
              Paid-in
            
            Accumulated
            
            Total
              Stockholders’Shares
            
            Amount
            
            Shares
            
            Amount
            
            Capital
            
            Deficit
            
            EquityBalances
                at December 31, 2002
            
            
            --
            
            $
            --
            
            
            9,372,727
            
            $
            9
            
            $
            39,236
            
            $
            (30,846
            )
            $
            8,399Issuance
                of compensatory stock options
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            28
            
            
            --
            
            
            28Mark
                to market of warrants granted for investor relations services and
                stock
                options granted to a former employee
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            (4
            )
            
            --
            
            
            (4
            )Fair
                market value of detachable warrants and additional beneficial conversion
                value of re-priced convertible debenture
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            1,008
            
            
            --
            
            
            1,008Issuance
                of common stock for services
            
            
            --
            
            
            --
            
            
            332,760
            
            
            --
            
            
            522
            
            
            --
            
            
            522Contribution
                of common stock by stockholders to vendor for services rendered to
                the
                Company
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            246
            
            
            --
            
            
            246Proceeds
                from sale of common stock and exercise of warrants, net of costs
                and
                common stock warrants liability
            
            
            --
            
            
            --
            
            
            2,675,838
            
            
            3
            
            
            2,549
            
            
            --
            
            
            2,552Issuance
                of warrants for services
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            649
            
            
            --
            
            
            649Fair
                value of detachable warrants issued in connection with convertible
                note
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            268
            
            
            --
            
            
            268Issuance
                of common stock in satisfaction of related party and assigned debt
            
            
            --
            
            
            --
            
            
            668,152
            
            
            1
            
            
            1,169
            
            
            --
            
            
            1,170Issuance
                of common stock in satisfaction of deferred salaries
            
            
            --
            
            
            --
            
            
            69,711
            
            
            --
            
            
            122
            
            
            --
            
            
            122Issuance
                of common stock upon conversion of debenture
            
            
            --
            
            
            --
            
            
            847,629
            
            
            1
            
            
            1,483
            
            
            --
            
            
            1,484Net
                loss for the year ended December 31, 2003
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            (8,059
            )
            
            (8,059
            )Balances
                at December 31, 2003
            
            
            --
            
            $
            --
            
            
            13,966,817
            
            $
            14
            
            $
            47,276
            
            $
            (38,905
            )
            $
            8,385





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


37


**I-TRAX,
      INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENT OF STOCKHOLDERS’ EQUITY**


***(in*** ***thousands*** ***,
      except share data)***





Preferred
                Stock
            
            Common
                Stock
            
            Additional
              Paid-in
            
            Accumulated
            
            Total
              Stockholders’Shares
            
            Amount
            
            Shares
            
            Amount
            
            Capital
            
            Deficit
            
            EquityBalances
                at December 31, 2003
            
            
            --
            
            $
            --
            
            
            13,966,817
            
            $
            14
            
            $
            47,276
            
            $
            (38,905
            )
            $
            8,385Reclassification
                of common stock warrants to paid in capital
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            3,110
            
            
            --
            
            
            3,110Issuance
                of common stock in satisfaction of promissory note and other settlement,
                net of costs
            
            
            --
            
            
            --
            
            
            69,165
            
            
            --
            
            
            71
            
            
            --
            
            
            71Issuance
                of common stock upon conversion of debenture and accrued
                interest
            
            
            --
            
            
            --
            
            
            427,106
            
            
            --
            
            
            747
            
            
            --
            
            
            747Issuance
                of common stock upon exercise of warrants
            
            
            --
            
            
            --
            
            
            333,583
            
            
            --
            
            
            52
            
            
            --
            
            
            52Sale
                of preferred stock, net of costs
            
            
            1,000,000
            
            
            1
            
            
            --
            
            
            --
            
            
            23,509
            
            
            --
            
            
            23,510Issuance
                of preferred stock for acquisition of CHD Meridian
            
            
            400,000
            
            
            --
            
            
            --
            
            
            --
            
            
            10,000
            
            
            --
            
            
            10,000Redemption
                of preferred stock
            
            
            (200,000
            )
            
            --
            
            
            --
            
            
            --
            
            
            (5,000
            )
            
            --
            
            
            (5,000
            )Issuance
                of common stock for acquisition of CHD Meridian
            
            
            --
            
            
            --
            
            
            10,000,000
            
            
            10
            
            
            36,290
            
            
            --
            
            
            36,300Conversion
                of preferred stock and accrued dividends on preferred stock into
                common
                stock
            
            
            (129,717
            )
            
            --
            
            
            1,430,147
            
            
            1
            
            
            (1,686
            )
            
            --
            
            
            (1,685
            )Deemed
                dividends applicable to issuance of preferred stock
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            15,820
            
            
            (15,820
            )
            
            --Issuance
                of common stock warrants in connection with amendment of senior secured
                credit facility
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            210
            
            
            --
            
            
            210Net
                loss for the year ended December 31, 2004
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            (3,937
            )
            
            (3,937
            )Balances
                at December 31, 2004
            
            
            1,070,283
            
            $
            1
            
            
            26,226,818
            
            $
            25
            
            $
            130,399
            
            $
            (58,662
            )
            $
            71,763





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


38


**I-TRAX,
      INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENT OF STOCKHOLDERS’ EQUITY**


***(in*** ***thousands*** ***,
      except share data)***





Preferred
                Stock
            
            Common
                Stock
            
            Additional
              Paid-in
            
            Accumulated
            
            Total
              Stockholders’Shares
            
            Amount
            
            Shares
            
            Amount
            
            Capital
            
            Deficit
            
            Equity**Balances
                at December 31, 2004**
            
            
            **1,070,283**
            
            **$**
            **1**
            
            
            **26,226,818**
            
            **$**
            **25**
            
            **$**
            **130,399**
            
            **$**
            **(58,662**
            **)**
            **$**
            **71,763**Warrant
                exercises
            
            
            --
            
            
            --
            
            
            22,158
            
            
            --
            
            
            --
            
            
            --
            
            
            --Issuance
                of warrants for services
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            31
            
            
            --
            
            
            31Issuance
                of common stock (Note 3)
            
            
            --
            
            
            --
            
            
            3,859,200
            
            
            4
            
            
            5,592
            
            
            --
            
            
            5,596Conversion
                of preferred stock and accrued dividends on preferred stock into
                common
                stock
            
            
            (217,244
            )
            
            --
            
            
            2,590,779
            
            
            3
            
            
            682
            
            
            
            
            
            685Preferred
                sock dividend
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            (2,049
            )
            
            --
            
            
            (2,049
            )Employee
                stock purchase
            
            
            --
            
            
            --
            
            
            120,000
            
            
            --
            
            
            184
            
            
            --
            
            
            184Non-cash
                compensation
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            25
            
            
            --
            
            
            25Net
                loss for the year ended December 31, 2005
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            (14,072
            )
            
            (14,072
            )**Balances
                at December 31, 2005**
            
            
            **853,039**
            
            **$**
            **1**
            
            
            **32,818,955**
            
            **$**
            **32**
            
            **$**
            **134,864**
            
            **$**
            **(72,734**
            **)**
            **$**
            **62,163**







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





39


**I-TRAX,
      INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


***(in
      thousands)***





**Year
                ended December 31****2005**
            
            2004
            
            2003Operating
                activities:Net
                loss
            
            **$**
            **(14,072**
            **)**
            $
            (3,937
            )
            $
            (8,059
            )Adjustments
                to reconcile net loss to net cash provided by/(used in) operating
                activities:Impairment
            
            
            **12,470**
            
            
            --
            
            
            458Accrued
                loss on contracts
            
            
            **312**
            
            
            --
            
            
            --Depreciation
                and amortization
            
            
            **3,616**
            
            
            3,866
            
            
            1,702Employee
                stock purchase
            
            
            **34**
            
            
            --
            
            
            --Options
                issued below market value
            
            
            **25**
            
            
            --
            
            
            --Accretion
                of discount on notes payable charged to interest expense and beneficial
                conversion value of debenture
            
            
            **--**
            
            
            573
            
            
            2,027Issuance
                of securities for services
            
            
            **--**
            
            
            --
            
            
            1,418Issuance
                of warrants for services
            
            
            **31**
            
            
            --
            
            
            --Write-off
                of deposit on canceled acquisition
            
            
            **--**
            
            
            --
            
            
            200Issuance
                of warrants related to senior credit facility
            
            
            **--**
            
            
            210
            
            
            --Other
                non-cash items
            
            
            **--**
            
            
            (46
            )
            
            73Increase
                in fair value of common stock warrants
            
            
            **--**
            
            
            350
            
            
            301Amortization
                of financing costs
            
            
            **240**
            
            
            132
            
            
            337Changes
                in operating assets and liabilities, net of effects of
                acquisition:Accounts
                receivable
            
            
            **(3,874**
            **)**
            
            (600
            )
            
            8Deferred
                tax asset
            
            
            **1,198**
            
            
            (919
            )
            
            --Other
                current assets
            
            
            **54**
            
            
            (793
            )
            
            (90
            )Other
                long term assets
            
            
            **20**
            
            
            --
            
            
            --Accounts
                payable
            
            
            **1,951**
            
            
            (939
            )
            
            (334
            )Accrued
                payroll and benefits
            
            
            **65**
            
            
            (609
            )
            
            (410
            )Accrued
                restructuring charges
            
            
            **433**
            
            
            --
            
            
            --Other
                current liabilities
            
            
            **2,801**
            
            
            761
            
            
            (1,140
            )Deferred
                tax liability
            
            
            **(1,526**
            **)**
            
            1,526
            
            
            --Other
                long term liabilities
            
            
            **(18**
            **)**
            
            (437
            )
            
            --Net
                cash provided by/(used in) operating activities
            
            
            **3,760**
            
            
            (862
            )
            
            (3,509
            )Investing
                activities:Purchases
                of property, plant and equipment
            
            
            **(2,548**
            **)**
            
            (3,070
            )
            
            (1,279
            )Acquisition
                of intangible assets
            
            
            **(113**
            **)**
            
            (185
            )
            
            --Acquisition
                of CHD Meridian, net of acquired cash
            
            
            **--**
            
            
            (18,440
            )
            
            --Proceeds
                from sale of equipment
            
            
            **--**
            
            
            4
            
            
            --Deposit
                on acquisition of perpetual license
            
            
            **--**
            
            
            --
            
            
            (160
            )Increase
                in transaction costs
            
            
            **--**
            
            
            --
            
            
            (85
            )Proceeds
                from release of security deposit
            
            
            **--**
            
            
            --
            
            
            7Net
                cash used in investing activities
            
            
            **(2,661**
            **)**
            
            (21,691
            )
            
            (1,517
            )Financing
                activities:Principal
                payments on capital leases
            
            
            **(9**
            **)**
            
            (38
            )
            
            (71
            )(Repayment
                to)/proceeds from related parties
            
            
            **--**
            
            
            (280
            )
            
            500(Repayment
                of)/proceeds from note payable
            
            
            **--**
            
            
            (618
            )
            
            100Proceeds
                from exercise of warrants
            
            
            **--**
            
            
            52
            
            
            --Proceeds
                from/(repayment of) bank credit facility
            
            
            **341**
            
            
            8,158
            
            
            (300
            )Proceeds
                from sale of stock and exercise of warrants
            
            
            **150**
            
            
            --
            
            
            5,011Proceeds
                from sale of preferred stock, net of issuance costs
            
            
            **--**
            
            
            23,510
            
            
            --Redemption
                of preferred stock
            
            
            **--**
            
            
            (5,000
            )
            
            --Net
                cash provided by financing activities
            
            
            **482**
            
            
            25,784
            
            
            5,240Net
                increase in cash and cash equivalents
            
            
            **1,581**
            
            
            3,231
            
            
            214Cash
                and cash equivalents at beginning of year
            
            
            **3,805**
            
            
            574
            
            
            360Cash
                and cash equivalents at end of year
            
            **$**
            **5,386**
            
            $
            3,805
            
            $
            574





(Continued
      on following page.)


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


40


**I-TRAX,
      INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


***(in
      thousands)***





(Continued
      from previous page.)





**Year
                ended December 31****2005**
            
            2004
            
            2003Supplemental
                disclosure of cash flow information:Cash
                paid during the period for:Interest
            
            **$**
            **649**
            
            $
            543
            
            $
            84Income
                taxes
            
            **$**
            **312**
            
            $
            285
            
            $
            --Schedule
                of non-cash investing and financing activities:Issuance
                of warrants for services
            
            **$**
            **31**
            
            $
            --
            
            $
            --Reclassification
                of common stock warrants to paid in capital
            
            **$**
            **--**
            
            $
            3,110
            
            $
            --Issuance
                of common stock in connection with conversion of promissory note
                and other
                settlement
            
            **$**
            **--**
            
            $
            71
            
            $
            1,169Issuance
                of common stock in connection with conversion of debenture
                payable
            
            **$**
            **--**
            
            $
            747
            
            $
            1,483Deemed
                dividends applicable to issuance of preferred stock
            
            **$**
            **--**
            
            $
            15,820
            
            $
            --Fair
                market value of detachable warrants and beneficial conversion value
                in
                connection with re-pricing
            
            **$**
            **--**
            
            $
            --
            
            $
            1,008Proceeds
                from life insurance company in connection with the death of executive
                officer
            
            **$**
            **--**
            
            $
            --
            
            $
            500Accrued
                interest expense on debenture payable and promissory notes
            
            **$**
            **--**
            
            $
            --
            
            $
            395Repayments
                to related parties from pledged life insurance proceeds
            
            **$**
            **--**
            
            $
            --
            
            $
            500Fair
                market value of warrants granted in connection with convertible
                note
            
            **$**
            **--**
            
            $
            --
            
            $
            268Issuance
                of common and preferred stock in connection with the acquisition
                of CHD
                Meridian
            
            **$**
            --
            
            $
            46,300
            
            $
            --Accrued
                purchase price (see Note 3)
            
            **$**
            **1,346**
            
            $
            7,294
            
            $
            --Preferred
                stock dividend
            
            **$**
            **2,049**
            
            $
            1,878
            
            $
            --Conversion
                of accrued dividends to common stock
            
            **$**
            **685**
            
            $
            195
            
            $
            --Issuance
                of common stock in connection with the conversion of deferred
                salaries
            
            **$**
            **--**
            
            $
            --
            
            $
            122Purchase
                of all capital stock of CHD Meridian and assumption of liabilities
                in the
                acquisition as follows:Fair
                value of non-cash tangible assets acquired
            
            **$**
            **--**
            
            $
            17,256
            
            $
            --Goodwill
            
            
            **--**
            
            
            52,966
            
            
            --Customer
                list
            
            
            **--**
            
            
            22,235
            
            
            --Other
                intangibles
            
            
            **--**
            
            
            1,167
            
            
            --Cash
                paid, net of cash acquired (includes $85 of transaction costs incurred
                in
                a prior period)
            
            
            **--**
            
            
            (18,525
            )
            
            --Accrued
                purchase price (see Note 3)
            
            
            **--**
            
            
            (7,294
            )
            
            --Common
                stock issued
            
            
            **--**
            
            
            (36,300
            )
            
            --Preferred
                stock issued
            
            
            **--**
            
            
            (10,000
            )
            
            --Liabilities
                assumed
            
            **$**
            --
            
            $
            21,505
            
            $
            --













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





41


**I-TRAX,
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**








**1.
      Organization**





I-trax,
      Inc. (the **“Company”** )
      was
      incorporated in the State of Delaware on September 15, 2000. On March 19, 2004,
      the Company consummated a merger with Meridian Occupational Healthcare
      Associates, Inc., a private company, which did business as CHD Meridian
      Healthcare ( **“CHD
      Meridian”** ).
      (See
      Note 3.)





The
      Company offers health-related services such as on-site health centers that
      deliver primary care, acute care corporate health, occupational health, and
      pharmacy care management services, as well as integrated disease management,
      wellness and disability management programs.





The
      Company conducts its on-site services through CHD Meridian Healthcare, LLC,
      a
      Delaware limited liability company ( **“CHD
      Meridian LLC”** ),
      and
      its subsidiary companies, and its integrated disease management and wellness
      programs through I-trax Health Management Solutions, LLC, a Delaware limited
      liability company, and I-trax Health Management Solutions, Inc., a Delaware
      corporation.





Physician
      services at the Company’s on-site locations are provided under management
      agreements with affiliated physician associations, which are organized
      professional corporations that hire licensed physicians who provide medical
      services (the **“Physician
      Groups”** ).
      The
      Physician Groups provide all medical aspects of the Company’s on-site services,
      including the development of professional standards, policies, and procedures.
      The Company provides a wide array of business services to the Physician Groups,
      including administrative services, support personnel, facilities, marketing,
      and
      non-medical services.








**2.
      Summary of Significant Accounting Policies**





***Principles
      of Consolidation***





The
      accompanying consolidated financial statements include the
      accounts of the Company and its direct and indirect subsidiaries, which
      include CHD Meridian LLC, Green Hills Insurance Company (see Note 16 -
      Professional Liability and Related Reserves), and the Physician Groups. All
      material intercompany accounts and transactions have been eliminated. The
      financial statements of the Physician Groups are consolidated with CHD Meridian
      LLC in accordance with the nominee shareholder model of Emerging Issues Task
      Force ( **“EITF”** )
      Issue
      No. 97-2, “Application of FASB Statement No. 94 and APB Opinion No. 16 to
      Physician Practice Management Entities and Certain Other Entities with
      Contractual Management Arrangements.” CHD Meridian LLC has unilateral control
      over the assets and operations of the Physician Groups.





Consolidation
      of the Physician Groups with CHD Meridian LLC, and consequently, the Company,
      is
      necessary to present fairly the financial position and results of operations
      of
      the Company. Control of the Physician Groups is perpetual and other than
      temporary because of the nominee shareholder model and the management agreements
      between the entities. The net tangible assets of the Physician Groups were
      not
      material at December 31, 2005 and 2004.


42
 **I-TRAX,
          INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**








**2.
      Summary of Significant Accounting Policies (continued)**





The
      results of operations for the year ended December 31, 2004 do not include the
      operations of CHD Meridian from January 1, 2004 through March 31, 2004, even
      though the merger was consummated on March 19, 2004, because the Company and
      CHD
      Meridian agreed for accounting purposes to consolidate results of operations
      effective as of April 1, 2004.




***Accounts
      Receivable***





The
      Company utilizes the allowance method for determining the collectibility of
      its
      accounts receivable. The allowance method recognizes bad debt expense following
      a review of the individual accounts outstanding in light of the surrounding
      facts. Accounts receivable are reported at their outstanding unpaid principal
      balances reduced by an allowance for doubtful accounts based on historical
      bad
      debts, factors related to specific customers’ ability to pay and economic
      trends. The Company writes off accounts receivable against the allowance when
      a
      balance is determined to be uncollectible. Accounts receivable on the
      consolidated balance sheet were stated net of allowance for doubtful accounts.
      The following table shows the activity in the Company’s allowance for doubtful
      accounts during 2005 and 2004:





December
                31, 2003
            
            $
            40,000Reserve
                acquired through CHD Meridian merger (see Note 3)
            
            
            601,000Charged
                to expense
            
            
            9,000Deductions
            
            
            (52,000
            )December
                31, 2004
            
            
            598,000Charged
                to expense
            
            
            21,000Deductions
            
            
            (14,000
            )December
                31, 2005
            
            $
            605,000





***Property
      and Equipment***





The
      Company records property and equipment at cost less accumulated depreciation
      and
      amortization, which is provided for on the straight line basis over the
      estimated useful lives of the assets of between five and seven years.
      Improvements to leased premises are amortized using the straight-line method
      over the term of the lease or the useful life of the improvements, whichever
      is
      shorter. The Company expenses maintenance and repair costs as incurred.





In
      accordance with the provisions of AICPA Statement of Position No. 98-1,
“Accounting for the Costs of Computer Software Developed or Obtained for
      Internal Use,” the Company capitalizes all application development costs and
      expenses all preliminary project and post-implementation costs in the
      consolidated statements of operations. In connection with the Company’s
      restructuring during 2005 (see Note 4), the Company impaired $3,563,000 of
      software development costs associated with products that the Company will not
      sell or support in the future or with proprietary systems that the Company
      in no
      longer developing.





43
 **I-TRAX,
          INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**








**2.
      Summary of Significant Accounting Policies (continued)**





In
      accordance with the Financial Accounting Standards Board’s ( **“FASB”** )
      Statement of Financial Accounting Standards ( **“SFAS”** )
      No.
      144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, whenever
      events or changes in circumstances indicate that the carrying values of certain
      long-lived assets may be impaired, the Company projects the undiscounted cash
      flows expected to be generated by these assets. If the projections indicate
      that
      the reported amounts are not expected to be recovered, such amounts are reduced
      to their estimated fair value based on a quoted market price, if available,
      or
      an estimate based on valuation techniques available in the circumstances.





***Goodwill
      and Other Intangibles***





Goodwill
      is the excess of the purchase price over the fair value of identifiable net
      assets acquired in business combinations accounted for as purchases. Under
      SFAS
      No. 142, “Goodwill and Other Intangible Assets,” goodwill and other intangible
      assets with indefinite useful lives are not amortized but are tested for
      impairment annually and whenever events or circumstances occur indicating that
      these intangibles may be impaired. SFAS No. 142 also requires that intangible
      assets with estimable useful lives be amortized over their respective estimated
      useful lives and reviewed for impairment in accordance with SFAS No. 144,
“Accounting for Impairment or Disposal of Long-Lived Assets.”





The
      Company performs its review of goodwill for impairment by comparing the carrying
      value of the applicable reporting unit to the fair value of the reporting unit.
      No indicators of impairment were identified as a result of its annual impairment
      test performed December 31, 2005.





Intangible
      assets with finite lives are amortized over their estimated useful lives. The
      Company does not have any indefinite lived intangible assets.





***Debt
      Issuance Costs***





The
      Company carries costs of issuing and amending its debt instruments as debt
      issuance costs and amortizes them over the term of the facility. Amortization
      of
      debt issuance costs resulted in charges of $239,000, $132,000 and $337,000
      during 2005, 2004 and 2003, respectively.





***Income
      Taxes***





The
      Company accounts for income taxes in accordance with SFAS No. 109, “Accounting
      for Income Taxes,” which requires an asset and liability approach for financial
      accounting and reporting of income taxes. Accordingly, deferred tax liabilities
      and assets are determined based on the difference between the financial
      statement and tax basis of assets and liabilities, using enacted tax rates
      in
      effect for the year in which the differences are expected to reverse. Current
      income taxes are based on the respective periods’ taxable income for federal and
      state income tax reporting purposes. See Note 11 for additional information
      related to the provision for income taxes.





44
 **I-TRAX,
          INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**








**2.
      Summary of Significant Accounting Policies (continued)**





***Use
      of Estimates***





In
      preparing the financial statements in conformity with generally accepted
      accounting principles, management is required to make estimates and assumptions
      that affect the reported amounts of assets and liabilities and the disclosure
      of
      contingent assets and liabilities at the date of the financial statements and
      revenue and expenses during the reporting period. Actual results could differ
      from those estimates.





***Fair
      Value of Financial Instruments***





The
      carrying value of cash, accounts receivable, accounts payable, accrued expenses,
      and other current liabilities are reasonable estimates of the fair values
      because of their short-term maturity. The fair value of the Company’s note
      payable as of December 31, 2005 approximates its principal amount of
      $8,649,000.





***Revenue
      Recognition***





Revenue
      is recognized when persuasive evidence of an arrangement exists, services have
      been provided, price is fixed and determinable, and collection of the resulting
      receivable is reasonably assured.





***Service
      Revenue - On-site Facilities*** **.** The
      Company’s revenue from contractual client obligations for occupational health,
      primary care, pharmacy and corporate health services are performed on a fixed
      fee or a cost-plus basis. For fixed fee contracts, revenue is recorded on a
      straight-line basis as services are rendered. For cost-plus contracts, revenue
      is recorded as costs are incurred, with the management fee component recorded
      as
      earned based upon the method of calculation stipulated in the client contracts.
      Revenue is recorded at estimated net amounts to be received from clients for
      services rendered. Cash received prior to the performance of services is
      reflected as deferred revenue on the consolidated balance sheets.





***Service
      Revenue - Health Management Programs*** **.** Service
      revenue is recognized as services are rendered. The Company contracts with
      clients to provide services at a monthly fee based on the number of employees,
      members or covered lives, a per-call charge to the Company’s call center, or
      some combination thereof. If a significant portion of a fee is due after normal
      payment terms, which are generally 30 to 90 days from invoice date, the Company
      accounts for such fee as services are provided.


45
 **I-TRAX,
          INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**








**2.
      Summary of Significant Accounting Policies (continued)**




***Pharmaceuticals***





Pharmaceutical
      purchases are recorded on a net basis in accordance with EITF Issue No. 99-19,
      “Reporting Gross Revenue as a Principal vs. Net as an Agent.” Under pharmacy
      arrangements, the Company provides pharmaceuticals to clients as a component
      of
      the pharmacy agreement, which typically requires the Company to staff and
      operate a pharmacy for the sole benefit of the client’s employees and, in
      certain instances, dependents and retirees. The Company believes the substance
      of these agreements in relation to pharmaceutical purchases demonstrates an
      agent-like arrangement and points to net reporting. The agreements stipulate
      that the Company is to be reimbursed upon purchasing pharmaceuticals, and not
      upon dispensing, thus limiting inventory risk. Furthermore, pharmaceuticals
      are
      priced on a pass-through basis, thus mitigating credit risk through structured
      payment terms. As such, the Company records pass-through pharmaceutical
      purchases on a net basis.





Pass
      through pharmaceutical purchases for the years ended December 31, 2005, 2004
      and
      2003, were approximately $133,127,000, $72,235,000 and $0, respectively.
      Purchases commenced on April 1, 2004, upon our consummation of the CHD Meridian
      merger.





***Stock-Based
      Compensation Plans***





The
      Company accounts for its employee stock option plans using the intrinsic value
      method in accordance with the recognition and measurement principles of
      Accounting Principles Board ( **“APB”** )
      Opinion
      No. 25, “Accounting for Stock Issued to Employees,” as permitted by SFAS No.
      123, “Accounting for Stock-Based Compensation.” Under APB Opinion No. 25, no
      compensation cost related to stock options has been recognized because all
      options are issued with exercise prices equal to the fair market value at the
      date of grant. See Note 13 for further discussion.





Had
      the
      compensation cost under the Company’s stock option plans been determined based
      on the fair value at the grant date (derived through use of the Black-Scholes
      methodology) for awards under the plans consistent with the method prescribed
      by
      SFAS No. 123, the Company’s pro forma net loss and net loss per share in 2005,
      2004 and 2003 would have been as follows:





2005
            
            2004
            
            2003Net
                loss as reported
            
            $
            (14,072,000
            )
            $
            (3,937,000
            )
            $
            (8,059,000
            )Add
                back intrinsic value of the options issued to employee
              and charged to operations
            
            
            25,000
            
            
            --
            
            
            28,000Deduct
                total stock-based employee compensation expense
              determined
                under fair value based methods for all awards
            
            
            (1,261,000
            )
            
            (741,000
            )
            
            (2,953,000
            )Pro
                forma net loss
            
            $
            (15,308,000
            )
            $
            (4,678,000
            )
            $
            (10,984,000
            )Net
                loss per share as reported, basic and diluted
            
            $
            (0.54
            )
            $
            (0.96
            )
            $
            (0.74
            )Pro
                forma net loss per share, basic and diluted
            
            $
            (0.58
            )
            $
            (1.00
            )
            $
            (1.01
            )


46
 **I-TRAX,
          INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**








**2.
      Summary of Significant Accounting Policies (continued)**





The
      fair
      market value of each option grant has been estimated at the date of grant using
      the Black-Scholes valuation model with the following weighted-average
      assumptions:





2005
            
            2004
            
            2003Dividend
                yield
            
            
            0.00%
            
            
            0.00%
            
            
            0.00%Expected
                volatility
            
            
            77-85%
            
            
            112%
            
            
            112%Risk-free
                interest rate
            
            
            3-4%
            
            
            4%
            
            
            4%Expected
                life
            
            
            5
                years
            
            
            5
                years
            
            
            5
                years





The
      above
      pro forma disclosure may not be representative of the effects on reported net
      operations for future years as options vest over several years and the Company
      may continue to grant options to employees.





***Net
      Loss Per Share***





The
      Company presents both basic and diluted loss per share on the face of the
      consolidated statement of operations. As provided by SFAS No. 128, “Earnings per
      Share,” basic loss per share is calculated as income available to common
      stockholders divided by the weighted average number of shares outstanding during
      the period. Diluted
      loss per share reflects the potential dilution that could occur from common
      shares issuable through stock options, warrants and convertible preferred stock.
      As of December 31, 2005, 2004 and 2003, 15,441,555, 15,850,886 and 5,469,286
      shares, respectively, issuable upon exercise of options, warrants, and
      convertible securities were excluded from the diluted loss per share computation
      because their effect would be anti-dilutive.





***Reclassifications***





For
      comparability, certain prior year amounts have been reclassified and combined,
      where appropriate, to conform to the financial statement presentation used
      in
      2005.





***New
      Accounting Pronouncements***





In
      December 2004, the FASB issued a revision of SFAS No. 123, “Accounting for
      Stock-Based Compensation.” This statement supersedes APB Opinion No. 25,
“Accounting for Stock Issued to Employees,” and its related implementation
      guidance. The revised statement requires entities to recognize the cost of
      employee services received in share-based payment transactions, thereby
      reflecting the economic consequences of those transactions in the financial
      statements. The cost must be recognized over the period during which an employee
      is required to provide service in exchange for the award, typically the vesting
      period. The statement applies to all awards granted after the required effective
      date and to awards modified, repurchased, or cancelled after that date.


47
 **I-TRAX,
          INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**








**2.
      Summary of Significant Accounting Policies (continued)**





This
      statement becomes effective for public companies as of the first interim or
      annual reporting period that begins after December 15, 2005. Upon adoption,
      the
      Company will use a modified prospective application, which will affect new
      awards and awards modified, repurchased, or canceled after the required
      effective date. Additionally, compensation cost for the portion of awards for
      which the requisite service has not been rendered that are outstanding as of
      the
      required effective date must be recognized as the requisite service is rendered
      on or after the required effective date. Upon adoption of SFAS No. 123 on
      January 1, 2006, the Company estimates the non-cash compensation charge for
      options granted through December 31, 2005 to be in the range of $1,000,000
      to
      $1,500,000 for 2006.





Management
      does not believe that any other recently issued, but not yet effective,
      accounting pronouncements will have a material impact on the Company’s financial
      position or results of operations. ****








**3.
      Business Combination**





On
      March
      19, 2004, the Company merged with CHD Meridian, a privately held company and
      a
      major provider of outsourced, employer-sponsored healthcare services.





Pursuant
      to the merger agreement, the Company (1) issued 10,000,000 shares of common
      stock, (2) issued 400,000 shares of convertible preferred stock (with each
      share
      convertible into 10 shares of common stock) at $25.00 per share or $10,000,000
      in the aggregate, and (3) paid approximately $25,508,000 in cash to the CHD
      Meridian stockholders. Immediately following the closing of the merger, the
      Company also redeemed from former CHD Meridian stockholders that participated
      in
      the merger, pro rata, an aggregate of 200,000 shares of convertible preferred
      stock at its original issue price of $25.00 per share or $5,000,000. The total
      value of the merger consideration was  $80,578,000,
      made up of common stock valued at $36,300,000, preferred stock valued at
      $10,000,000, cash of $25,508,000, transaction expenses of $1,476,000, and the
      value attributable to accrued purchase price per the merger agreement of
      $7,294,000.





The
      Company funded the cash portion of the merger consideration by (1) selling
      1,000,000 shares of Series A Convertible Preferred Stock at $25.00 per share
      for
      gross proceeds of $25,000,000, and (2) drawing $12,000,000 under a new senior
      secured credit facility with a national lender. (See Note 9.)





In
      connection with the sale and issuance of Series A Convertible Preferred Stock,
      the Company reported $15,820,000 as a deemed dividend to preferred stockholders
      representing the beneficial conversion value of the underlying common stock.
      The
      beneficial conversion value is treated as a dividend on the convertible
      preferred stock solely for the purpose of computing earnings per share. The
      dividend is computed by multiplying (1) the difference between the value of
      the
      underlying common stock calculated using the average closing price for the
      three
      days prior and three days after the announcement of the merger ($3.63 per share)
      and the conversion price ($2.50 per share) by (2) the number of shares of common
      stock into which the Series A Convertible Preferred Stock outstanding at the
      merger’s effective time was convertible (14,000,000 shares).


48
 **I-TRAX,
          INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**








**3.
      Business Combination (continued)**





The
      acquisition was accounted for using the purchase method of accounting. The
      Company incurred acquisition costs of $1,476,000 that were included in the
      purchase price. In addition, $832,000 of transaction related bonuses and
      termination pay were included in general and administrative expenses on the
      consolidated statements of operations. The goodwill was allocated entirely
      to
      the CHD Meridian reporting unit.





The
      aggregate purchase price of $80,578,000 for this transaction was allocated
      as
      follows:





Fair
                value of tangible assets acquired (includes cash of
                $8,444,000)
            
            $
            25,715,000Liabilities
                assumed
            
            
            (21,505,000
            )Goodwill
            
            
            52,966,000Customer
                list
            
            
            22,235,000Other
                intangibles
            
            
            1,167,000$
            80,578,000





On
      April
      5, 2005, the Company released to former CHD Meridian stockholders from escrow
      3,859,200 shares of common stock because CHD Meridian LLC achieved in 2004
      an
      agreed upon milestone for earnings before interest, taxes, depreciation and
      amortization ( **“EBITDA”** ).
      The
      shares were valued at $1.89 per share, or $7,294,000, at December 31, 2004
      based
      on the market value at that date. The market value of the Company’s common stock
      on April 5, 2005 was $1.45. Consequently, the Company reduced its liability
      for
      the issuance of these shares by $1,698,000, which was recorded as a reduction
      of
      goodwill.





During
      2005, the Company established an additional liability for a cash bonus plan
      for
      certain non-executive employees of CHD Meridian. The cash bonus plan was payable
      when CHD Meridian LLC met the EBITDA targets referenced above. The total
      liability of the cash bonus plan was estimated at $352,000, which was recorded
      as an increase to goodwill pursuant to the merger agreement. The Company paid
      the amounts due under the cash bonus plan during 2005.





The
      following are the Company’s 2005 actual and 2004 and 2003 unaudited pro forma
      results of operations giving effect to the acquisition of CHD Meridian as though
      the transaction occurred on January 1, 2004 and 2003, respectively. The 2004
      unaudited pro forma results exclude transaction costs of $1,938,000 and
      transaction related bonuses and termination pay of $832,000 included in the
      statements of operations of CHD Meridian and the Company, respectively. The
      2004
      and 2003 unaudited pro forma results also include adjustments to amortization
      expense associated with the intangibles acquired and interest expense related
      to
      the senior secured credit facility.


49
 **I-TRAX,
          INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**








**3.
      Business Combination (continued)**





2005
              (actual)
            
            2004
              (pro
                forma, unaudited)
            
            2003
              (pro
                forma, unaudited)Net
                revenue
            
            $
            115,887,000
            
            $
            99,757,000
            
            $
            98,183,000Operating
                loss
            
            
            (13,232,000
            )
            
            (759,000
            )
            
            (2,494,000
            )Net
                loss
            
            $
            (14,072,000
            )
            $
            (2,647,000
            )
            $
            (6,210,000
            )Loss
                per share, basic and diluted
            
            $
            (0.47
            )
            $
            (0.11
            )
            $
            (0.30
            )








**4.
      Restructuring and Related Activities**





During
      2005, the Company completed an in-depth analysis of its structure and product
      development efforts. This analysis led to the conclusion that certain products
      and services that the Company had been offering were no longer essential to
      its
      integrated business model. The Company then implemented a restructuring of
      its
      operations and related activities, which was substantially completed as of
      June
      30, 2005.





In
      accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” and SFAS
      No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the
      Company impaired goodwill and long-lived assets by $12,470,000. Of this amount,
      the Company wrote-off software development costs of $3,563,000 associated with
      products that the Company will not sell or support in the future or with
      proprietary systems that the Company is no longer developing. The Company also
      impaired goodwill by $8,424,000, most of which was related to the acquisitions
      of iSummit Partners, LLC and WellComm Group, Inc., and miscellaneous long-lived
      assets by $483,000.





A
      summary
      of the activity and balances of the restructuring and provision for loss
      contract reserve accounts is outlined as follows:





Balance
                at
              December
                31, 2004
            
            Accrual
            
            Cash
              Payments
            
            Accrual
              Reversal
            
            Balance
                at
              December
                31, 2005RestructuringOne-time
                termination benefits
            
            $
            --
            
            
            542,000
            
            
            (357,000
            )
            
            --
            
            $
            185,000Contract
                termination costs
            
            
            --
            
            
            228,000
            
            
            (76,000
            )
            
            (11,000
            )
            
            141,000Other
                associated costs
            
            
            --
            
            
            69,000
            
            
            (69,000
            )
            
            
            
            
            --Restructuring
                total
            
            
            --
            
            
            839,000
            
            
            (502,000
            )
            
            (11,000
            )
            
            326,000Provision
                for loss contracts
            
            $
            --
            
            
            2,116,000
            
            
            (244,000
            )
            
            (1,453,000
            )
            $
            419,000





50
 **I-TRAX,
          INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**








**4.
      Restructuring and Related Activities (continued)**





The
      Company initially recorded $2,116,000 as a provision for loss contracts related
      to customer contracts that the Company determined would continue to be
      unprofitable, notwithstanding the reductions in operating expenses implemented
      in the restructuring. Subsequently, the Company reached agreements with
      customers to terminate or phase out these contracts by July 2006. These
      negotiations reduced management’s estimate of future losses to be incurred,
      resulting in the reversal of $1,453,000 of the provision.





In
      addition, the contract termination costs accrual included a transfer of $45,000
      of capital lease liability that was previously included in other long term
      liabilities.





During
      2005, the Company recorded restructuring expenses of $783,000 and expenses
      related to loss contracts of $663,000.








**5.
      Property and Equipment**





Property
      and equipment consists of the following at December 31:





Estimated
                Useful Life
            
            2005
            
            2004Furniture,
                fixtures and equipment
            
            
            1-7
                years
            
            $
            10,698,000
            
            $
            9,552,000Leasehold
                improvements
            
            
            5-7
                years
            
            
            701,000
            
            
            344,000Buildings
                and improvements
            
            
            Varies
            
            
            108,000
            
            
            108,000Software
                development costs
            
            
            3-5
                years
            
            
            --
            
            
            2,988,00011,507,000
            
            
            12,992,000Accumulated
                depreciation
            
            
            
            
            
            (7,465,000
            )
            
            (6,273,000
            )$
            4,042,000
            
            $
            6,719,000





Depreciation
      and amortization expense was $1,538,000, $1,183,000 and $177,000 in 2005, 2004
      and 2003, respectively.








**6.
      Goodwill and Intangible Assets**





The
      following table summarizes activity related to the Company’s unamortized
      intangible asset:





GoodwillBalance
                at December 31, 2003
            
            $
            8,424,000Acquisition
                of CHD Meridian (see Note 3)
            
            
            52,966,000Balance
                at December 31, 2004
            
            
            61,390,000Impairment
                (see Note 4)
            
            
            (8,424,000
            )Reduction
                in value of shares held in escrow (see Note 3)
            
            
            (1,698,000
            )Cash
                bonus plan (see Note 3)
            
            
            352,000Balance
                at December 31, 2005
            
            $
            51,620,000





51
 **I-TRAX,
          INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**








**6.
      Goodwill and Intangible Assets (continued)**





The
      components of identifiable intangible assets, which are included in the
      consolidated balance sheet as of December 31, 2005 and 2004, are as
      follows:





Gross
              Carrying
              Amount
            
            Accumulated
              Amortization
            
            Net
              Carrying
              AmountAmortized
                intangible assets:Customer
                lists
            
            $
            26,736,000
            
            
            7,095,000
            
            $
            19,641,000Other
                intangibles
            
            
            2,551,000
            
            
            1,687,000
            
            
            864,000Total
            
            $
            29,287,000
            
            
            8,782,000
            
            $
            20,505,000





Customer
      lists are amortized on a straight-line basis over the expected periods to be
      benefited, generally 12 to 15 years. Other intangible assets represent
      technology and deferred marketing costs, which are amortized on a straight-line
      basis over the expected periods to be benefited, generally 3 to 5 years. In
      accordance with SFAS No. 142, the Company completes a test for impairment of
      goodwill and certain other intangible assets annually. Amortization of
      intangible assets for the years ended December 31, 2005, 2004 and 2003 amounted
      to $2,317,000, $2,815,000 and $1,525,000, respectively.





Estimated
      amortization expense for the next five years is as follows:





2006
            
            $
            1,968,0002007
            
            
            1,797,0002008
            
            
            1,547,0002009
            
            
            1,482,0002010
            
            $
            1,482,000








**7.
      Discontinued Operations**





In
      2001,
      prior to the merger discussed in Note 3, CHD Meridian was notified of the
      cancellation of two government contracts that met the requisite requirements
      to
      be accounted for as discontinued operations under Statement 144. At December
      31,
      2005 and 2004, the remaining net liabilities of discontinued operations
      consisted of contract staffing accruals of $1,299,000 representing management’s
      estimate of the Company’s maximum obligations related to the government’s right
      to audit the contract terms and conditions.








52
 **I-TRAX,
          INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**








**8.
      Other Current Liabilities**





At
      December 31, 2005 and 2004, the following amounts were included in other current
      liabilities in the consolidated balance sheets:





2005
            
            2004Dividends
                payable
            
            $
            3,048,000
            
            $
            1,683,000Reserve
                for unpaid losses
            
            
            1,905,000
            
            
            729,000Accrued
                health insurance incurred but not reported
            
            
            800,000
            
            
            1,175,000Accrued
                insurance deductible
            
            
            1,362,000
            
            
            1,611,000Deferred
                revenue
            
            
            526,000
            
            
            1,434,000Other
                (none in excess of 5% of current liabilities)
            
            
            4,141,000
            
            
            2,770,000Total
            
            $
            11,782,000
            
            $
            9,402,000








**9.
      Long Term Debt**





In
      June
      2005, the Company amended and restated its senior credit facility with Bank
      of
      America, N.A., which is secured by substantially all of the Company’s tangible
      assets, to provide financing up to $15,000,000 through a revolving credit line.
      Up to $1,000,000 of the senior credit facility is available for the issuance
      of
      standby letters of credit. The amendment also waived
      compliance with the covenant for the ratio of the Funded Indebtedness to
      Earnings Before Interest, Taxes, Depreciation and Amortization (as defined
      in
      the credit facility), or EBITDA, through December 31, 2006 and added covenants
      setting minimum EBITDA targets for periods ending September 30, 2005 through
      December 31, 2006. The minimum EBITDA targets for periods ending September
      30,
      2005 through December 31, 2006 are:





Period
            
            Minimum
                EBITDAJuly
                1, 2005 - September 30, 2005
            
            $
            780,000July
                1, 2005 - December 31, 2005
            
            
            1,560,000July
                1, 2005 - March 31, 2006
            
            
            2,560,000Last
                four fiscal quarters ending June 30, 2006
            
            
            3,580,000Last
                four fiscal quarters ending September 30, 2006
            
            
            3,960,000Last
                four fiscal quarters ending December 31, 2006
            
            
            4,450,000





The
      senior credit facility terminates and is due and payable on April 1, 2007.
      At
      December 31, 2005 and 2004, the Company had $8,649,000 and $8,308,000,
      respectively, of debt outstanding under the senior credit facility. At the
      Company’s option, borrowings may be either base rate or Eurodollar rate loans.
      Base rate loans bear interest at the prime rate as published from time to time,
      plus up to 0.75% per annum depending on the Company’s debt service coverage
      ratios. Eurodollar rate loans bear interest at the Eurodollar rate, plus up
      to
      3.0% per annum likewise depending on the Company’s debt service coverage ratios.
      At December 31, 2005, the interest rate on the Senior Credit Facility was 7.22%.
      The Company uses proceeds from the senior credit facility to finance operations,
      which includes the purchase of pharmaceuticals on a pass through basis for
      the
      benefit of the Company’s pharmacy client.


53
 **I-TRAX,
          INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**








**9.
      Long Term Debt (continued)**





As
      of
      December 31, 2005, the Company was in compliance with its senior credit facility
      covenants and had $4,896,000 available under the revolving line of credit.








**10.
      Convertible Debenture**





In
      2002,
      the Company funded the acquisition of WellComm Group, Inc. by selling to
      Palladin Opportunity Fund LLC a 6% convertible debenture in the principal amount
      of $2,000,000 and a warrant to purchase up to 307,692 shares of common stock.
      The conversion price of the debenture was $5.00 per share, and was reset to
      $3.03 in February 2003 and to $1.75 in June 2003. The exercise price of the
      warrant was reset in June 2003 from $5.50 to $1.75.





When
      issued, the warrant was valued at $890,272 that was recorded as a discount
      to
      the debenture to be accreted to interest expense over the term of the debenture.
      During 2003, the Company accreted to interest expense $343,782, recorded an
      additional charge of $203,077 when the exercise price of the warrant was reset,
      and accelerated a charge of $165,682 when Palladin converted a significant
      portion of the debenture into common stock.





When
      the
      Company sold the debenture, the Company also recorded a beneficial conversion
      value of $948,651, the difference between the fair market value of the
      underlying common stock on the date the debenture was sold and the agreed upon
      conversion price. The beneficial conversion value was increased by $682,528
      when
      the conversion price was reset in June 2003.





During
      2003, the Company recorded $802,576 of interest expense for the amortization
      of
      the beneficial conversion value of the debenture and $365,709 of accelerated
      interest expense when Palladin converted a significant portion of the debenture
      into common stock. Interest accrued on the debenture in 2003 was $224,350.
      In
      2003, Palladin converted $1,483,351 outstanding under the debenture into 847,629
      shares of common stock. At December 31, 2003, the carrying value and the face
      value of the debenture were $379,061 and $740,999, respectively.





During
      December 2003, the maturity date of the debenture was extended for a warrant
      to
      acquire 50,000 shares of common stock at $1.75 per share. The warrant was valued
      at approximately $200,000, which was recorded as a discount to the debenture
      to
      be accreted to interest expense over the extension term. During November and
      December 2003, Palladin exercised all warrants, acquiring 357,692 shares for
      $625,961.





The
      Company recorded $416,610 of debt issuance costs related to the debenture
      consisting of cash and stock granted to a placement agent. When the conversion
      price of the debenture was reset in June 2003, debt issuance costs increased
      by
      $122,228. For the year ended December 31, 2003, the amortization of these debt
      issuance costs amounted to $336,783.





Palladin
      converted the remaining debenture and outstanding interest in the amount of
      $747,000 into common stock in the first quarter of 2004 for 427,106 shares
      of
      common stock.





54
 **I-TRAX,
          INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**








**10.
      Convertible Debenture (continued)**





In
      2004,
      interest expense associated with the debenture was $368,000, which included
      $362,000 of accelerated accretion to interest expense for the discount of the
      value assigned to the warrants issued to Palladin and the remaining beneficial
      conversion value of the debenture.








**11.
      Provision For Income Taxes**





Income
      tax expense is comprised of the following for the year ended December 31,
      2005:





Current:Federal
            
            $
            --State
            
            
            475,000Deferred:
            
            
            (328,000
            )Income
                tax expense
            
            $
            147,000





At
      December 31, 2005 and 2004, the Company had a cumulative net operating loss
      ( **“NOL”** )
      carryforward for federal income tax purposes of $37,500,000 and $33,000,000,
      respectively, which expires between 2011 and 2024. At December 31, 2005 and
      2004, the Company had a cumulative NOL carryforward for state income tax
      purposes of $25,000,000 and $17,200,000, respectively, which expires between
      2006 and 2025. For financial reporting purposes, a valuation allowance of
      $8,494,000 was recorded against these carryforwards and other deferred tax
      assets. During 2005, the valuation allowance increased by approximately
      $1,500,000. Approximately $838,000 of the increase is attributable to the
      actualization of net operating losses acquired from CHD Meridian, which, upon
      the future reversal of such valuation allowance, will be recorded as a reduction
      to goodwill.





Deferred
      income taxes reflect the net tax effects of temporary differences between the
      carrying amounts of assets and liabilities for financial reporting purposes
      and
      the amounts used for income tax purposes. Significant components of the
      Company’s deferred tax assets and liabilities are as follows:





2005
            
            2004Deferred
                tax assets:Net
                operating loss carryforwards
            
            $
            14,013,000
            
            $
            12,159,000Allowance
                for doubtful accounts
            
            
            236,000
            
            
            233,000Accrued
                expenses
            
            
            1,958,000
            
            
            2,434,000Other
            
            
            18,000
            
            
            87,000Total
                gross deferred tax assets
            
            
            16,225,000
            
            
            14,913,000Less:
                Valuation allowance
            
            
            (8,494,000
            )
            
            (6,966,000
            )Total
                deferred tax assets
            
            
            7,731,000
            
            
            7,947,000Deferred
                tax liabilities:Depreciation
            
            
            (706,000
            )
            
            (665,000
            )Amortization
            
            
            (7,025,000
            )
            
            (7,610,000
            )Net
                deferred tax asset (liability)
            
            
            (7,731,000
            )
            
            (8,275,000
            )Total
                deferred tax liability
            
            $
            --
            
            $
            (328,000
            )


55
 **I-TRAX,
          INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**








**11.
      Provision For Income Taxes (continued)**





In
      2005,
      the Company did not record a deferred tax asset or liability related to the
      difference in carrying values of assets and liabilities for financial reporting
      purposes and tax purposes.





The
      provision for income taxes for the years ended December 31, 2005 and 2004
      differs from the amount computed by applying the statutory rate of 34% due
      to
      the following:





2005
            
            2004Tax
                at federal statutory rate
            
            
            (34.0
            )%
            
            (34.0
            )%State
                income taxes
            
            
            0.38
            
            
            6.9Nondeductible
                amortization
            
            
            30.45
            
            
            21.7Stock
                compensation
            
            
            0.0
            
            
            81.5Other
            
            
            (0.73
            )
            
            1.2Change
                in valuation allowance
            
            
            4.96
            
            
            (70.4
            )Income tax provision (benefit)
            
            
            1.06
            %
            
            6.9
            %








**12.
      Stockholders’ Equity**





***Preferred
      Stock and Related Warrants***





The
      Company has 2,000,000 authorized shares of preferred stock. As of December
      31,
      2005 and 2004, the Company had issued and outstanding 853,039 and 1,070,283
      shares, respectively, of Series A Convertible Preferred Stock. Each share of
      Series A Convertible Preferred Stock is convertible, at any time, into 10 shares
      of common stock, has a liquidation preference of $25.00 per share, the original
      purchase price, and accrues dividends on that amount at a rate of 8% per year.
      Dividends are payable, at the Company’s option, in cash or common stock, and
      only upon the Company’s liquidation or conversion of the Series A
      Convertible Preferred Stock into common stock. The Company had recorded
      approximately $3,048,000 and $1,683,000 in accrued dividends at December 31,
      2005 and 2004, respectively, which is included in other current liabilities
      on
      the consolidated balance sheets.





During
      2005 and 2004, 217,244 and 129,717 shares, respectively, of Series A Convertible
      Preferred Stock were converted into 2,172,445 and 1,297,164 shares of common
      stock, and 418,334 and 132,983 shares of common stock, respectively, were issued
      to satisfy the dividends accrued on the converted shares.





The
      Company issued warrants to acquire 492,000 shares of common stock exercisable
      at
      $2.50 per share to the placement agents that assisted the Company in the sale
      of
      Series A Convertible Preferred Stock. Such warrants were valued at $1,506,000
      utilizing the Black-Scholes valuation model, which amount was classified as
      a
      cost of equity in the consolidated statement of stockholders’ equity.





56
 **I-TRAX,
          INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**








**12.
      Stockholders’ Equity (continued)**





***Common
      Stock and Warrants***





In
      May
      2003, the Company issued 332,760 shares of common stock as consideration for
      investor relations services. The common stock was valued at the market price
      of
      $522,708 and charged to 2003 operations. During May 2003, certain stockholders
      of the Company contributed loans and 163,073 shares of common stock to an
      investor relations firm retained by the Company as compensation for services.
      The assigned loans were then converted into 148,485 shares, valued at the market
      price of $259,849. The Company received a benefit of $246,240 at the common
      stock’s market price from these contributions.





In
      June
      2003, the Company: (1) sold 613,986 shares of common stock at $1.75 per share
      for net proceeds of $1,004,186, less direct costs that included 40,167 shares
      of
      common stock, (2) issued 519,667 shares of common stock, valued $909,421 at
      market price, for conversion of related party debt and accrued interest, and
      (3)
      issued 69,711 shares of common stock, valued $121,997 at market price, to pay
      deferred salaries.





In
      an
      offering closed at October 31, 2003, the Company sold 1,400,000 shares of common
      stock, at $2.50 per share, and granted warrants to purchase 700,000 additional
      shares, exercisable at $3.00 per share, for net proceeds of $3,037,894 after
      expenses as of December 31, 2003. In accordance with EITF No. 00-19, “Accounting
      for Derivative Financial Instruments Indexed To, and Potentially Settled in
      a
      Company’s Own Stock,” the fair value of the warrants using the Black-Scholes
      valuation model amounted to $2,458,800 on date of grant. Upon issuance and
      until
      registration for resale under the Securities Act of 1933, the warrants were
      accounted for as a liability, with an offsetting reduction to additional paid-in
      capital. The fair value of the warrants at December 31, 2003 was approximately
      $2,760,000, which reflected an increase in fair value of $301,305 from the
      time
      the warrants were granted. This amount was charged to operations as increase
      in
      common stock warrants. The fair value of the warrants increased by an additional
      $350,000 from January 1, 2004 to February 17, 2004, the effective date of the
      registration statement, which was likewise charged to operations. The warrant
      liability was reclassified to equity at February 17, 2004.





During
      2003, the Company granted warrants to purchase 375,000 shares of common stock,
      exercisable at $1.50 and $1.76 and valued at $649,448 utilizing the
      Black-Scholes model, for investor relations services pursuant to various
      consulting agreements expiring in May and June 2004.





During
      May 2003, with board of directors’ approval, the Company granted warrants to
      purchase 450,000 shares of common stock at $1.80 per share (representing a
      premium over market price on the date of grant) to the Company’s Chairman and
      former Chief Operating Officer for their agreement to support the Company
      through January 2004. The grant did not result in any charges to operations.





As
      consideration for a $100,000 loan in April 2003, the Company granted a
      stockholder a warrant to acquire 100,000 shares of common stock at an exercise
      price of $1.50 per share. The Black-Scholes value of the warrant, $68,000,
      was
      recorded as a discount to the promissory note.





During
      the fourth quarter of 2003, the Company received an aggregate of $968,769 (net
      of financing costs) from the exercise of warrants from various holders.


57
 **I-TRAX,
          INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**








**12.
      Stockholders’ Equity (continued)**





Please
      also refer to Note 10 for a further discussion of warrants granted to Palladin
      in 2002 and 2003.





On
      October 27, 2004, in connection with the amendment of the Company’s senior
      credit facility (see Note 9), the Company issued a warrant to purchase 100,000
      shares of the Company’s common stock at an exercise price of $.01 per share to
      its senior secured creditor. The warrant was valued at $210,000 and recorded
      as
      debt issuance costs.





On
      September 12, 2005, the Company issued a warrant to purchase 55,000 shares
      of
      the Company’s common stock at an exercise price of $1.26 per share to a
      consultant. The warrant vests over six months and expires on September 12,
      2008.
      The warrant was valued at $41,000. The Company has included $31,000 as general
      and administrative expense in the accompanying consolidated statements of
      operations as of December 31, 2005.





The
      following table summarizes the Company’s activity as it relates to
      warrants:





Shares
                Underlying WarrantsBalance
                outstanding at December 31, 2002
            
            
            2,132,953Granted
            
            
            1,939,285Exercised
            
            
            (720,866
            )Balance
                outstanding at December 31, 2003
            
            
            3,351,372Granted
            
            
            592,000Exercised
            
            
            (548,478
            )Balance
                outstanding at December 31, 2004
            
            
            3,394,894Granted
            
            
            55,000Exercised
            
            
            (40,380
            )Expired
            
            
            (340,000
            )Balance
                outstanding at December 31, 2005
            
            
            3,069,514





At
      December 31, 2005, all outstanding warrants were exercisable at a weighted
      average exercise price of $2.81 per share.








**13.
      Stock Options**





The
      Company has two equity compensation plans, which were adopted in 2000 and 2001.
      The purpose of the plans is to provide the opportunity for grants of incentive
      stock options, nonqualified stock options and restricted stock to employees
      of
      the Company and its subsidiaries, certain consultants and advisors who perform
      services for the Company or its subsidiaries and non-employee members of the
      Company’s Board of Directors. As of December 31, 2005, there are 600,000 and
      3,900,000 shares of common stock authorized for issuance under the 2000 and
      2001
      plans, respectively. The number of shares authorized for issuance under the
      2001
      plan increases automatically on the first day of each year by 300,000
      shares.


58
 **I-TRAX,
          INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**








**13.
      Stock Options (continued)**





***2000
      Plan Grants***





As
      of
      December 31, 2005, an aggregate of 361,200 options were outstanding under the
      2000 plan. Exercise prices of these options range from $1.57 to $10.00 per
      share
      (depending, among other factors, on the fair market value of the stock on the
      date of grant).





***2001
      Plan Grants***





As
      of
      December 31, 2005, an aggregate of 3,261,452 options were outstanding under
      the
      2001 plan. Exercise prices of these options range from $1.40 to $10.00
      (depending, among other factors, on fair market value of the stock on the date
      of grant).





***Non-Plan
      Stock Option Grants***





As
      of
      December 31, 2005, the Company had outstanding an aggregate of 219,000 options
      outside of any stock option plan with exercise prices ranging from $.005 to
      $10.00 per share (depending, among other factors, on fair market value of the
      stock on the date of grant).





Option
      activity for the three years ended December 31, 2005 was as
      follows:





Number
                of Shares
            
            Weighted
                Average Exercise Price
            
            Options
                Exercisable
            
            Weighted
                Average Exercise PriceDecember
                31, 2002
            
            
            1,711,802
            
            $
            4.62
            
            
            942,281
            
            $
            4.49Granted
            
            
            928,000
            
            $
            1.96Forfeited/Expired
            
            
            (511,888
            )
            $
            6.91December
                31, 2003
            
            
            2,127,914
            
            $
            2.91
            
            
            1,060,697
            
            $
            3.68Granted
            
            
            70,921
            
            $
            4.42Forfeited/Expired
            
            
            (445,676
            )
            $
            3.25December
                31, 2004
            
            
            1,753,159
            
            $
            2.88
            
            
            1,408,258
            
            $
            2.92Granted
            
            
            3,231,000
            
            $
            1.44Forfeited/Expired
            
            
            (1,142,507
            )
            $
            2.47December
                31, 2005
            
            
            3,841,652
            
            $
            1.79
            
            
            1,382,185
            
            $
            2.33





59
 **I-TRAX,
          INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**








**13.
      Stock Options (continued)**





At
      December 31, 2005, options to purchase 877,348 shares of common stock were
      available for grant under the 2000 and 2001 equity compensation
      plans.





Information
      regarding options outstanding at December 31, 2005 was as follows:





Options
                Outstanding
            
            Options
                ExercisableRange
                of
              Exercise
                Price
            
            Number
              Outstanding
            
            Weighted
              Average
                Remaining
              Contractual
                Life
            
            Weighted
              Average
              Exercise
                Price
            
            Number
              Exercisable
            
            Weighted
              Average
              Exercise
                Price$.01
            
            
            112,000
            
            
            6.10
            
            $
            .01
            
            
            112,000
            
            $
            .01$1.40-$1.77
            
            
            3,121,999
            
            
            9.04
            
            $
            1.45
            
            
            716,643
            
            $
            1.47$2.60-$3.00
            
            
            331,955
            
            
            5.52
            
            $
            2.76
            
            
            311,454
            
            $
            2.76$3.10-$5.00
            
            
            174,398
            
            
            7.27
            
            $
            3.72
            
            
            140,788
            
            $
            3.72$5.50-$7.50
            
            
            59,100
            
            
            6.03
            
            $
            6.00
            
            
            59,100
            
            $
            6.00$10.00
            
            
            42,200
            
            
            4.48
            
            $
            10.00
            
            
            42,200
            
            $
            10.003,841,652
            
            
            8.47
            
            $
            1.79
            
            
            1,382,185
            
            $
            2.33





The
      weighted average fair value of options granted were $0.96, $3.58, and $1.57
      for
      2005, 2004, and 2003, respectively.





**14.
      Commitments and Contingencies**





***Employment
      Agreements***





The
      Company is a party to employment agreements with executive officers and certain
      employees. Initial terms of these agreements are one to three years with annual
      salaries ranging $79,000 to $300,000.





***Litigation***





The
      Company is involved in legal disputes on a variety of matters related to the
      ordinary course of the Company’s business. After reasonable diligence, the
      Company’s management expects these matters will be resolved without a material
      adverse effect on the Company’s consolidated financial position or results of
      operations. Further, after reasonable diligence, the Company’s management
      believes that the estimated losses of the Company from such matters have been
      adequately provided in other current and other long term liabilities to the
      extent probable and reasonably estimable. Nonetheless, it is possible that
      the
      Company’s future results of operations for any particular quarterly or annual
      period may be materially affected by changes in such matters. (See also Note
      16.)





60
 **I-TRAX,
          INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**








**14.
      Commitments and Contingencies (continued)**





***Compliance
      with Healthcare Regulations***





Because
      the Company operates in the healthcare industry, it is subject to numerous
      laws
      and regulations of Federal, state, and local governments. These laws and
      regulations include, but are not limited to, matters regarding licensure,
      accreditation, government healthcare program participation requirements,
      reimbursement for patient services, and Medicare and Medicaid fraud and abuse.
      Government activity has stayed high with respect to investigations and
      allegations concerning possible violations of fraud and abuse laws and
      regulations by healthcare providers. Violations of these laws and regulations
      could result in, among other things, expulsion from government healthcare
      programs, fines, penalties, and restitution for billed services.





The
      Company’s management believes that the Company is in compliance with laws and
      regulations applicable to the Company’s business. Further, compliance with such
      laws and regulations is subject to future government review and interpretation
      as well as regulatory actions unknown or unasserted at this time.





***Significant
      Customers***





As
      of
      December 31, 2005, two customers represented 13% and 12% of the Company’s
      accounts receivable as reflected on the consolidated balance sheet. As of
      December 31, 2004, two customers represented 14% and 10% of the total accounts
      receivable.





During
      2005, one customer accounted for 13% of the Company’s revenue as reflected on
      the consolidated statements of operations. For the year ended December 31,
      2004,
      two customers accounted for 13% and 10% of the Company’s revenue. For the year
      ended December 31, 2003, three customers accounted for 29%, 13%, and 14% of
      revenue.





***Risk-Sharing
      Contracts***





From
      time
      to time the Company enters into risk-sharing contracts. A risk-sharing contract
      provides that the Company is required to refund to its client a percentage
      of
      the Company’s fees if its program does not save the client an agreed upon
      percentage of the client’s healthcare costs or other benchmarks. The Company
      estimates $320,000 of revenue was at risk at December 31, 2004. At risk revenue
      is classified as deferred revenue in other current liabilities on the
      consolidated balance sheet and is not included in revenue on the consolidated
      statements of operations.





During
      2005, the Company deferred additional at risk fees of $301,000. As a result
      of
      the restructuring discussed in Note 4, the Company satisfied contractual
      obligations related to risk sharing contracts allowing the recognition of
      $621,000 of at risk fees. There are no at risk fees at December 31,
      2005.





61
 **I-TRAX,
          INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**








**14.
      Commitments and Contingencies (continued)**





***Operating
      Leases***





Future
      minimum cash lease commitments under all non-cancelable leases in effect at
      December 31, 2005 were as follows:





Cash
                Lease
              Commitments
            
            Client
              Reimbursements
            
            Total2006
            
            $
            2,315,000
            
            $
            (823,000
            )
            $
            1,492,0002007
            
            
            1,476,000
            
            
            (188,000
            )
            
            1,288,0002008
            
            
            1,162,000
            
            
            (64,000
            )
            
            1,108,0002009
            
            
            1,120,000
            
            
            (26,000
            )
            
            1,094,0002010
            
            
            420,000
            
            
            (2,000
            )
            
            418,000Thereafter
            
            
            1,000
            
            
            --
            
            
            1,000Total
            
            $
            6,504,000
            
            $
            (1,103,000
            )
            $
            5,401,000





From
      time
      to time, the Company enters into operating leases for offices and equipment
      leases on behalf of our clients in order to facilitate the delivery of our
      services at client locations. In such cases, our clients agree to reimburse
      us
      for the expenses incurred related to these operating leases. Rental expense
      for
      operating leases was $2,977,000, $2,284,000 and $245,000 for 2005, 2004, and
      2003, respectively.








**15.
      Related Party Transactions**





During
      the fiscal year ended December 31, 2003 and through March 19, 2004, a
      significant portion of the Company’s operating expenses where funded by loans
      from the Company’s chairman, former directors, executive officers, and friends
      and family of these individuals. Related party loans accrued interest of up
      to
      8% per year and were, generally of short duration. Certain loans were repaid
      with interest on March 19, 2004. Other loans with interest were converted into
      common stock in 2003.





In
      June
      2003 certain investors, which included the Company Chairman and other parties
      related to the Company identified above, converted $909,421 in loans with
      interest into 519,667 shares of common stock at $1.75 per share, the deemed
      market price of the common stock. Other executives converted accrued salary
      of
      $122,000 into 69,711 shares of common stock. And certain of the same related
      parties assigned additional loans with interest of $260,000 to a third-party
      investor relations consultant as compensation for services. The consultant
      converted such loans into 148,485 shares of common stock at $1.75 per share.
      Finally, in May 2003, certain stockholders of the Company delivered 163,073
      shares of the Company’s common stock, valued at $246,000, to the same
      third-party investor relations consultant as compensation for services. The
      Company charged this amount to operations.





In
      2003,
      a senior executive of the Company died. The proceeds from the key-person life
      insurance policy of $500,000 maintained by the Company on the life of such
      officer were pledged as collateral for related party loans and disbursed
      directly to such parties in partial satisfaction of such loans.





As
      of
      December 31, 2005 and 2004, there were no amounts outstanding to officers or
      related parties.





62
 **I-TRAX,
          INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**








**16.
      Professional Liability and Related Reserves**





Since
      2004, the Company has secured medical malpractice and general liability
      insurance for certain of its direct and indirect subsidiaries through Green
      Hills Insurance Company, a Risk Retention Group ( **“GHIC”** ),
      incorporated as a subsidiary of CHD Meridian LLC under the laws of the State
      of
      Vermont. In years prior to 2004, the Company secured such insurance in the
      commercial market.





On
      an
      annual basis, the Company uses independent actuaries to estimate its exposures
      for claims obligations (for both asserted and unasserted claims) related to
      deductibles and exposures in excess of coverage limits. The Company maintains
      reserves for these obligations. Loss and loss adjustment expense reserves are
      recorded monthly and represent management’s best estimate of the ultimate net
      cost of all reported and unreported losses incurred. The reserves for unpaid
      losses and loss adjustment expenses are estimated using individual case-basis
      valuations and statistical analyses. Those estimates are subject to the effects
      of trends in claim severity and frequency. Although considerable variability
      is
      inherent in such estimates, management believes the reserves for losses and
      loss
      adjustment expenses are adequate. The estimates are reviewed and adjusted
      continuously as experience develops or new information becomes known; such
      adjustments are included in current operations.





At
      December 31, 2005 and 2004, the Company’s estimated loss reserve for incurred
      but not reported losses and loss adjustment expense predating GHIC was
      $2,000,000, which is included in other long term liabilities on the consolidated
      balance sheet. The Company also maintains a reserve for cost and settlement
      of
      reported claims predating GHIC, which is included in other current liabilities
      on the consolidated balance sheet. During 2005, the Company paid $249,000
      related to reported claims, reducing the balance of reserve for cost and
      settlement of reported claims at December 31, 2005 to $1,362,000.





During
      2005, GHIC increased its reserves for reported claims and incurred but not
      reported losses and loss adjustment expense by $1,175,000 to $1,905,000, which
      is included in other current liabilities on the consolidated balance sheet.








63
 **I-TRAX,
          INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**








**17.
      Profit Sharing and 401(k) Plans**





Prior
      to
      the CHD Meridian merger on March 19, 2004, the Company maintained a 401(k)
      profit sharing plan (the **“Company
      Plan”** )
      covering qualified employees. The Company Plan allowed participants to make
      pretax contributions and the Company to match certain percentage of employee
      contributions depending on a number of factors, including the participant’s
      length of service. The profit sharing portion of the Company Plan was
      discretionary and noncontributory. All amounts contributed to the Company Plan
      were deposited into a trust fund administered by an independent trustee. The
      Company made no contributions to the Company Plan during 2004 and
      2003.





Prior
      to
      the merger on March 19, 2004, CHD Meridian maintained a defined contribution
      benefit plan (the **“CHD
      Meridian Plan”** ),
      which
      provided retirement and other benefits to CHD Meridian’s employees. Employees
      became eligible for participation at age 21 and upon completion of 90
      consecutive days of employment. CHD Meridian matched (in cash) 50% of the
      employee’s elective contributions up to 2% of the employee’s compensation, plus
      25% of the employee’s elective contributions from 3% to 4% of the employee’s
      compensation. CHD Meridian’s contributions vested over four years. Contributions
      to the CHD Meridian Plan during 2004 and 2003 were approximately $566,000 and
      $0, respectively.





Effective
      January 1, 2005, the Company made the CHD Meridian Plan available to all
      post-merger eligible employees of the Company, its direct and indirect
      subsidiaries, and the Physician Groups, and froze the Company Plan. Effective
      December 12, 2005, the Company Plan merged into the CHD Meridian Plan. The
      Company contributed $613,000 to the CHD Meridian Plan during 2005.











64





**Item
                9.**
            **Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure**





There
      are
      no changes in or disagreements with accountants on accounting or financial
      disclosure.





**Item
                9A.**
            **Controls
                and Procedures**





Our
      management, under the supervision and with the participation of the principal
      executive officer and principal financial officer, has evaluated the
      effectiveness of our controls and procedures related to our reporting and
      disclosure obligations as of December 31, 2005, which is the end of the period
      covered by this Annual Report on Form 10-K. Based on that evaluation, the
      principal executive officer and principal financial officer have concluded
      that
      our disclosure controls and procedures are effective.





There
      were no changes that occurred during the fiscal quarter ended December 31,
      2005
      that have materially affected, or are reasonably likely to materially affect,
      our internal controls over financial reporting.





**Item
                9B.**
            **Other
                Information**





None.





**PART
      III**





**Item
                10.**
            **Directors
                and Executive Officers of the
                Registrant**





See
      the
      information set forth in the section entitled “Proposal No. 1 Election of
      Directors” in I-trax’s Proxy Statement for the 2006 Annual Meeting of
      Stockholders to be filed with the Securities and Exchange Commission within
      120
      days after the end of our fiscal year ended December 31, 2005, or 2006 Proxy
      Statement, which is incorporated herein by reference.





**Item
                11.**
            **Executive
                Compensation**





See
      the
      information set forth in the section entitled “Executive Compensation” in the
      2006 Proxy Statement, which is incorporated herein by reference.





**Item
                12.**
            **Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters**





See
      the
      information set forth in the section entitled “Security Ownership of Certain
      Beneficial Owners and Management and Related Stockholder Matters” in the 2006
      Proxy Statement, which is incorporated herein by reference.





**Item
                13.**
            **Certain
                Relationships and Related
                Transactions**





See
      the
      information set forth in the section entitled “Certain Relationships and Related
      Transactions” in the 2006 Proxy Statement, which is incorporated herein by
      reference.








65





**Item
                14.**
            **Principal
                Accounting Fees and Services**





See
      the
      information set forth in the section entitled “Proposal No. 2 Ratification of
      Independent Auditors” in the 2006 Proxy Statement, which is incorporated herein
      by reference.





**PART
      IV**





**Item
      15.**  **Exhibits
      and Financial Statement Schedules**





**Exhibit
                Number**
            **Description**
            
            **Incorporated
                by Reference to:**2.1
            Merger
                Agreement, dated as of December 26, 2003, by and among I-trax, Inc.
                Meridian Occupational Healthcare Associates, Inc., doing business
                as CHD
                Meridian Healthcare, DCG Acquisition, Inc., and CHD Meridian Healthcare,
                LLC.
            
            Exhibit
                2.1 to I-trax, Inc.’s Current Report on Form 8-K, filed on December 29,
                2003.2.2
            Amendment
                to Merger Agreement, dated February 4, 2004, by and among I-trax,
                Inc.
                Meridian Occupational Healthcare Associates, Inc., doing business
                as CHD
                Meridian Healthcare, DCG Acquisition, Inc., and CHD Meridian Healthcare,
                LLC.
            
            Appendix
                A to I-trax, Inc.’s Proxy Statement dated, and filed on, February 6,
                2004.3.1
            Certificate
                of Incorporation of I-trax, Inc. filed on September 15, 2000.
            
            Exhibit
                3.1 to I-trax, Inc.’s Registration Statement on Form S-4, Registration No.
                333-48862, filed on October 27, 2000.3.2
            Certificate
                of Amendment to Certificate of Incorporation of I-trax, Inc. filed
                on June
                4, 2001.
            
            Exhibit
                3.2 to I-trax, Inc.’s Annual Report on Form 10-KSB for the fiscal year
                ended December 31, 2001, filed on April 4, 2002.3.3
            Certificate
                of Amendment to Certificate of Incorporation of I-trax, Inc. filed
                on
                January 2, 2003.
            
            Exhibit
                3.3 to I-trax, Inc.’s Annual Report on Form 10-KSB for the fiscal year
                ended December 31, 2002, filed on April 15, 2003.3.4
            Amended
                and Restated Bylaws of I-trax, Inc.
            
            Exhibit
                3.4 to I-trax, Inc.’s Annual Report on Form 10-KSB for the fiscal year
                ended December 31, 2004, filed on March 30, 2005.4.1
            Form
                of Common Stock certificate of I-trax, Inc.’s Common
                Stock.
            
            Exhibit
                4.1 to I-trax, Inc.’s Annual Report on Form 10-KSB for the fiscal year
                ended December 31, 2001, filed on April 4,
                2002.








66




4.2
            Certificate
                of Designations, Preferences and Rights of the Series A Convertible
                Preferred Stock of I-trax, Inc. filed on March 19, 2004.
            
            Exhibit
                4.2 to I-trax, Inc.’s Annual Report on Form 10-KSB for the year ended
                December 31, 2003, filed on April 8, 2004.4.3
            Form
                of warrant certificate of I-trax, Inc. issued to private placement
                participants in private placement closed on October 31, 2003.
            
            Exhibit
                4.1 to I-trax, Inc.’s Registration Statement on Form S-3, Registration No.
                333-110891, filed on December 3, 2003.4.4
            Financial
                Advisor’s Warrant Agreement between Westminster Securities Corporation and
                I-trax, Inc. dated as of May 23, 2003, with a form of warrant attached.
            
            Exhibit
                4.2 to I-trax, Inc.’s Registration Statement on Form S-3, Registration No.
                333-110891, filed on December 3, 2003.4.5
            Financial
                Advisor’s Warrant Agreement between Westminster Securities Corporation and
                I-trax, Inc. dated as of October 31, 2003, with a form of warrant
                attached.
            
            Exhibit
                4.3 to I-trax, Inc.’s Registration Statement on Form S-3, Registration No.
                333-110891, filed on December 3, 2003.4.6
            Financial
                Advisor’s Warrant Agreement between Westminster Securities Corporation and
                I-trax, Inc. dated as of December 11, 2003, with a form of warrant
                attached.
            
            Exhibit
                4.4 to I-trax, Inc.’s Registration Statement on Form S-3, Amendment No. 1,
                Registration No. 333-110891, filed on February 2, 2004.4.7
            Form
                of warrant certificate of I-trax, Inc. issued as of March 19, 2004
                to
                placement agents of Series A Convertible Preferred Stock.
            
            Exhibit
                4.7 to I-trax, Inc.’s Annual Report on Form 10-KSB for the year ended
                December 31, 2003, filed on April 8, 2004.4.8
            Form
                of Common Stock Warrant Certificate of I-trax, Inc. issued effective
                November 1, 2004 to Bank of America, N.A.
            
            Exhibit
                10.1 to I-trax, Inc.’s Current Report on Form 8-K filed on October 29,
                2004.4.9
            Form
                of 2000 and 2001 Plan Stock Option Agreement - Employee.
            
            Exhibit
                4.3 to I-trax, Inc.’s Registration Statement on Form S-8, Registration No.333-125685,
                filed on June 10, 2005.4.10
            Form
                of 2000 and 2001 Plan Stock Option Agreement - Director.
            
            Exhibit
                4.4 to I-trax, Inc.’s Registration Statement on Form S-8, Registration No.333-125685,
                filed on June 10, 2005.4.11
            Form
                of Nonqualified Stock Option Agreement with schedule of option holders
                subject to such Nonqualified Stock Option Agreement.
            
            Exhibit
                4.8 to I-trax, Inc.’s Registration Statement on Form S-8, Registration No.333-125685,
                filed on June 10, 2005.10.1
            Lease
                Agreement dated May 28, 2002, between I-trax, Inc. and F & J
                Enterprises, Inc. dba Bedford Plaza.
            
            Exhibit
                10.23 to I-trax, Inc.’s Registration Statement on Form SB-2, Amendment No.
                1, Registration No. 333-87134, filed on July 11,
                2002.






67






10.2
            Lease
                Agreement dated January 2002, between Burton Hills IV Partnership
                and
                Meridian Occupational Healthcare Associates, Inc., d/b/a CHD Meridian
                Healthcare.
            
            Exhibit
                10.1 to I-trax, Inc.’s Quarterly Report Form 10-QSB for the quarter ended
                March 30, 2004, filed on May 14, 2004.10.3
            First
                Amendment to Lease Agreement dated May 17, 2005 between Burton Hills
                IV
                Partners and CHD Meridian Healthcare, LLC.
            
            Exhibit
                10.4 to I-trax, Inc.’s Quarterly Report Form 10-Q for the quarter ended
                June 30, 2005, filed on August 15, 2005.10.4
            Lease
                Agreement made as on August 12, 2004, by and between Henderson Birmingham
                Associates and I-trax Health Management Solutions, Inc.
            
            Exhibit
                10.1 to I-trax, Inc.’s Quarterly Report Form 10-QSB for the quarter ended
                September 30, 2004, filed on November 15, 2004.10.5
            Guarantee
                and Suretyship Agreement made as on August 12, 2004, by I-trax, Inc.
                for
                the benefit of Henderson Birmingham Associates.
            
            Exhibit
                10.2 to I-trax, Inc.’s Quarterly Report Form 10-QSB for the quarter ended
                September 30, 2004, filed on November 15, 2004.10.6
            I-trax,
                Inc. 2000 Equity Compensation Plan.
            
            Exhibit
                10.16 to I-Trax.com, Inc.’s Registration Statement on Form 10-SB, files on
                April 10, 2000.10.7
            I-trax,
                Inc. Amended and Restated 2001 Equity Compensation Plan.
            
            Exhibit
                I to I-trax, Inc.’s 2005 Proxy Statement filed on April 15, 2005.10.8
            Employment
                Agreement effective as of December 29, 2000, between I-trax Health
                Management Solutions, Inc. (f/k/a I-Trax.com, Inc.) and Frank A.
                Martin.
            
            Exhibit
                10.17 to I-Trax.com, Inc.’s Annual Report on Form 10-KSB for the fiscal
                year ended December 31, 2000, filed on April 2, 2001.10.9
            Employment
                Agreement dated November 17, 2004, between I-trax, Inc. and David
                R. Bock.
            
            Exhibit
                10.1 to I-trax, Inc.’s Current Report on Form 8-K, filed on November 22,
                2004.10.10
            Employment
                Agreement dated November 17, 2004, between I-trax, Inc. and Yuri
                Rozenfeld.
            
            Exhibit
                10.2 to I-trax, Inc.’s Current Report on Form 8-K, filed on November 22,
                2004.10.11
            Amendment
                to Employment Agreement effective as of July 5, 2005, between and
                I-trax,
                Inc. and Yuri Rozenfeld.
            
            Exhibit
                10.3 to I-trax, Inc.’s Quarterly Report Form 10-Q for the quarter ended
                June 30, 2005, filed on August 15, 2005.10.12
            Employment
                Agreement dated March 14, 2005, between I-trax, Inc. and R. Dixon
                Thayer.
            
            Exhibit
                10.13 to I-trax, Inc.’s Annual Report on Form 10-KSB for the fiscal year
                ended December 31, 2004, filed on March 30, 2005.10.13
            Employment
                Agreement entered into on April 15, 2005, between I-trax, Inc. and
                Raymond
                J. Fabius.
            
            Exhibit
                10.1 to I-trax, Inc.’s Quarterly Report on Form 10-Q filed on May 16,
                2005.






68




10.14
            Credit
                Agreement dated as of March 19, 2004, by and among I-trax, Inc.,
                all
                subsidiaries of I-trax, Inc. that are parties to the Credit Agreement,
                and
                Bank of America, N.A.
            
            Exhibit
                10.11 to I-trax, Inc.’s Annual Report on Report Form 10-KSB for the year
                ended December 31, 2003, filed on April 8, 2004.10.15
            First
                Amendment to Credit Agreement dated as of June 1, 2004, by and among
                I-trax, Inc., all subsidiaries of I-trax, Inc. that are parties to
                the
                Credit Agreement, and Bank of America, N.A.
            
            Exhibit
                10.1 to I-trax, Inc.’s Quarterly Report Form 10-QSB for the quarter ended
                June 30, 2004, filed on August 18, 2004.10.16
            Second
                Amendment to Credit Agreement dated as of July 1, 2004, by and among
                I-trax, Inc., all subsidiaries of I-trax, Inc. that are parties to
                the
                Credit Agreement, and Bank of America, N.A.
            
            Exhibit
                10.2 to I-trax, Inc.’s Quarterly Report Form 10-QSB for the quarter ended
                June 30, 2004, filed on August 18, 2004.10.17
            Third
                Amendment to Credit Agreement dated as of August 12, 2004, by and
                among
                I-trax, Inc., all subsidiaries of I-trax that are parties to the
                Credit
                Agreement, and Bank of America, N.A.
            
            Exhibit
                10.3 to I-trax, Inc.’s Quarterly Report Form 10-QSB for the quarter ended
                June 30, 2004, filed on August 18, 2004.10.18
            Fourth
                Amendment to Credit Agreement, dated October 27, 2004, by and among
                I-trax, Inc., all subsidiaries of I-trax, Inc. that are parties to
                the
                Credit Agreement and Bank of America, N.A.
            
            Exhibit
                10.1 to I-trax, Inc.’s Current Report on Form 8-K filed on October 29,
                2004.10.19
            Fifth
                Amendment to Credit Agreement, effective March 31, 2005 by and among
                I-trax, Inc., all subsidiaries of I-trax, Inc. that are parties to
                the
                Credit Agreement and Bank of America, N.A.
            
            Exhibit
                10.2 to I-trax, Inc.’s Quarterly Report on Form 10-Q filed on May 16,
                2005.10.20
            Sixth
                Amendment to Credit Agreement and Limited Waiver dated June 29, 2005
                by
                and among I-trax, Inc., all subsidiaries of I-trax, Inc. that are
                parties
                to the Credit Agreement and Bank of America, N.A.
            
            Exhibit
                10.1 to I-trax, Inc.’s Current Report on Form 8-K filed on August 3,
                2005.10.21
            2005-2006
                Non-Employee Directors Compensation Policy.
            
            Exhibit
                10.1 to I-trax, Inc.’s Current Report on Form 8-K filed on May 23,
                2005.21
            Subsidiaries
                of I-trax, Inc.23
            Consent
                of Goldstein Golub Kessler LLP.31.1
            Certification
                Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
                302 of
                the Sarbanes-Oxley Act of 2002.31.2
            Certification
                Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
                302 of
                the Sarbanes-Oxley Act of 2002.






69






32.1
            Certification
                Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002.32.2
            Certification
                Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002.





70


**SIGNATURES**
 
 Pursuant
        to the requirements of Section 13 or 15(d) of the Securities Exchange Act
        of
        1934, the registrant has duly caused this report to be signed on its behalf
        by
        the undersigned, thereunto duly authorized as of March 20, 2006.
 
 I-TRAX,
                  INC.By:/s/
                  R. Dixon ThayerR.
                  Dixon Thayer, Chief Executive OfficerBy:/s/
                  David R. BockDavid
                  R. Bock, Executive Vice President and Chief Financial Officer(Principal
                  Financial and Accounting Officer)
 
 Pursuant
        to the requirements of the Securities Exchange Act of 1934, this report has
        been
        signed below by the following persons on behalf of the registrant and in
        the
        capacities and on the dates indicated.
 
 Signature
              Title
              Date/s/
                  Haywood D. Cochrane, Jr.
                Haywood
                  D. Cochrane, Jr.
              Vice-Chairman
                  and Director
              March
                  20, 2006/s/
                  Philip D. Green
                Philip
                  D. Green
              Director
              March
                  20, 2006/s/
                  Gail F. Lieberman
                Gail
                  F. Lieberman
              Director
              March
                  20, 2006/s/
                  Frank A. Martin
                Frank
                  A. Martin
              Chairman
                  and Director
              March
                  16, 2006/s/
                  Gerald D. Mintz
                Gerald
                  D. Mintz
              Director
              March
                  20, 2006/s/
                  Dr. David Nash
                Dr.
                  David Nash
              Director
              March
                  20, 2006/s/
                  Jack A. Smith
                Jack
                  A. Smith
              Director
              March
                  20, 2006/s/
                  R. Dixon Thayer
                R.
                  Dixon Thayer
              Chief
                  Executive Officer and Director
              March
                  20, 2006
   71