United
States


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, 2007OR[   ]
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the transition period from ___________ to _____________Commission
      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  [X] 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 of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  [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, a non-accelerated filer or a smaller reporting
company.  See definitions of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of Securities Exchange
Act.  (Check one):





Large
      accelerated filer [   ]
            Accelerated
      filer                    [X]Non-Acclerated
      filer    [   ]
            Smaller
      reporting
  company  [   ]





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 equity held by
non-affiliates computed by reference to the price of the registrant as of June
30, 2007, the last business day of the registrant’s most recently completed
second fiscal quarter, was $164,098,567.  The number of outstanding
shares of the registrant’s common stock as of March 14, 2008, was
41,750,863.








Documents
Incorporated by Reference: Portions of the Proxy Statement for the 2008 annual
stockholders’ meeting are incorporated by reference into Part III.













CAUTIONARY
STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995






Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, provide a “safe harbor” for forward-looking
statements to encourage companies to provide prospective information about their
companies.  With the exception of historical information, the matters
discussed in this Annual Report of Form 10-K are forward –looking statements and
may be identified by the use of words such as “anticipates,” “believes,”
“estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would”
and similar expressions, although not all forward-looking statements contain
these identifying words.  Such statements reflect our current view
with respect to future events and are subject to certain risks, uncertainties
and assumptions.  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.  Readers should review Item 1A, Risk Factors, of this Annual
Report on Form 10-K for a description of important factors that 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.













TABLE
OF CONTENTS





Item
            
            PagePart
      I1.
            Business
            11A.
            Risk
      Factors
            61B.
            Unresolved
      Staff Comments
            172.
            Properties
            173.
            Legal
      Proceedings
            184.
            Submission
      of Matters to a Vote of Security Holders
            18Part
      II5.
            Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
            196.
            Selected
      Financial Data
            217.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operation
            237A.
            Quantitative
      and Qualitative Disclosures About Market Risk
            418.
            Financial
      Statements and Supplementary Data
            429.
            Changes
      in and Disagreements With Accountants on Accounting and Financial
      Disclosure
            809A.
            Controls
      and Procedures
            809B.
            Other
      Information
            80Part
      III10.
            Directors,
      Executive Officers and Corporate Governance
            8111.
            Executive
      Compensation
            8112.
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholders Matters
            8113.
            Certain
      Relationships and Related Transactions, and Director
      Independence
            8114.
            Principal
      Account Fees and Services
            81Part
      IV15.
            Exhibits,
      Financial Statement Schedules
            82














PART I




Item
1                Business




OurBusiness




I-trax,
Inc. provides integrated workplace medical, pharmacy, wellness, fitness,
and disease management services to enhance the health and productivity of the
employees, dependents, and retirees of our clients.  We deliver these
services at or near the client’s worksite by opening, staffing and managing
health centers, pharmacies and fitness centers dedicated to our clients and
their eligible populations.  We enhance our on-site services with
larger scale disease management and wellness programs through the use of
telephonic and e-health programs and pharmacy care management
programs.  We believe our clinicians deliver excellent care because of
the trusted relationships they establish with their patients at the
worksite.




We
believe our services improve the health status of client populations and
mitigate the upward cost trend experienced by employers, employees, and
government agencies.  By proactively managing the healthcare needs of
our clients’ eligible populations, 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 many of their needs in a
cost-effective and professional manner.




Our
Clients




We were
providing services to 108 clients and operating 243 facilities in the United
States before we acquired Pro Fitness Health Solutions, LLC on December 14,
2007.  Our clients include large financial institutions, consumer
products manufacturers, automotive and automotive parts manufacturers,
diversified industrial companies, and a variety of other
employers.  We added over 50 facilities and 50 clients when we
acquired Pro Fitness Health.




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.




Our
Services




Historically,
our on-site services separated into occupational health, primary care and
corporate health centers, and pharmacies.  We added fitness centers
and services when we acquired Pro Fitness Health in December 2007.




As we
expand and complement our services, we recognize that traditional lines among
the occupational health, primary care and corporate health categories are
blurring as employers seek unique combinations of services to challenge rising
healthcare costs.  Accordingly, although we continue to use categories
to emphasize the primary purpose of a specific facility, we do so with the
recognition that many components of excellent care are uniform across all of our
facilities.






1




On-Site
Healthcare Services and Facilities




We
design, develop, staff and manage all aspects of on-site healthcare
facilities.  Our facilities range in size and scope of services
depending on location, specific workplace requirements, and specific client
considerations.  All of our clinical personnel, however, rely on our
proprietary comprehensive operating and clinical guidelines to deliver
consistent, evidence-based care.




Occupational Health Facilities and
Services.  The primary focus of our occupational health
facilities is workers’ compensation injuries, minor illnesses of an employer’s
workforce, and other occupational health services.  Our programs
operate across the entire array of occupational health regulatory environments
and emphasize work-related injury cost-reduction, treatment, medical
surveillance and testing, disability management, case management, return-to-work
coordination, medical community relations and oversight, on-site physical
therapy and injury prevention, and ergonomic assessment and
intervention.  Our occupational 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.  As we pursue and achieve these goals, we also explore
with our clients opportunities to offer primary care and larger scale wellness
programs, as these are natural extensions of successful occupational health
programs.




Corporate Health Facilities and
Services.Our non-industrial clients, such as financial
services, insurance, advertising and consulting firms, do not experience
significant physical injury rates, but nonetheless maintain large workforces
with general and specialized medical needs.  To address these needs,
our corporate health facilities offer programs that combine preventative care,
occupational health, medical surveillance and testing, travel medicine, health
education, and wellness.  We supplement these programs with pharmacy
concierge delivery services, specialty screenings, pandemic preparedness, and
larger scale wellness initiatives.  We further seek to grow our
relationship with existing clients by emphasizing the benefits of integrating
on-site pharmacies and pharmaceutical benefits management programs.




Primary Care Facilities and
Services.  Our primary care facilities serve the primary care
needs of the eligible population with routine primary care, urgent care,
optometry services, dental care, laboratory and radiology services, and other
specialty services.  We also integrate pharmacy, wellness and disease
management programs as necessary to meet the needs of the
population.  We integrate our on-site centers with the employer’s
existing healthcare plans, which results in a seamless experience for the
patient.  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.




Fitness Facilitiesand Services.  We
added fitness facilities and services when we recently acquired Pro Fitness
Health.  Our fitness centers are staffed and managed by professional
and, as necessary, certified personnel.  Our diverse programs engage
individuals at all ability levels and also include sports training,
conditioning, and recreational activities.  We complement our fitness
services with wellness programs, including health fairs, screenings, and health
risk assessments.  We believe our programs result in high
utilization.






2




Pharmacies and Pharmacy Care Management
Services




We
operate employer-sponsored on-site pharmacies that offer prescription services
exclusively to the client’s eligible population.  Depending on client
needs, we can also add mail order capabilities.  Our pharmacies
integrate with third-party pharmaceutical benefits management
programs.  Other pharmacy care management services we offer
include:




·
            Contracting
      with pharmaceutical manufacturers for formulary products as a captive
      class of trade to provide discounts for our clients.  We also
      transfer to our clients all rebates we receive from pharmaceutical
      manufacturers based upon each client’s utilization of the applicable
      product.  We believe that our rebate rates are competitive
      because of our captive class of
trade.




·
            Managing
      the supply chain to our pharmacies to ensure maximum in-stock inventory
      for best of class customer service.  We also manage and order
      inventory daily, which reduces partially filled
    prescriptions.




·
            Establishing
      and monitoring by our national pharmaceutical and therapeutic committee of
      our drug formulary to promote safe, efficacious and economical
      products.  The committee reviews new and existing drugs for
      appropriate clinical use.  We advise our clients of all
      formulary changes to ensure ample time to integrate the formulary with the
      client’s other plans.




·
            Reviewing
      and designing pharmacy programs to promote certain activities that provide
      economic and wellness benefits for our clients and patients.  We
      design our programs to outperform the retail pharmacy chains in generic
      utilization, preferred drug utilization, pharmacy program savings, and
      cost per therapy day (efficiency), among
others.




Many of
our clients recognize the exceptional benefit of our prescribing clinicians
coordinating care with our pharmacists and combine our dedicated pharmacies with
health centers.  In support, one of our retrospective cohort studies
illustrates that antibiotic prescribing was improved through programmatic
collaboration of physicians and pharmacists at the workplace.  The
study showed that workplace treated patients had much higher rates of first-line
antibiotic use than community-treated patients, resulting in estimated average
savings of nearly $20 per prescription compared to community-treated
patients. See “A Prescription for Appropriate Antibiotics
Usage: Physicians and Pharmacists Collaborate Within a Workplace Health
Center,” Journal of Health and Productivity (March 2007,
2(1):12-19).





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.




Wellness and Disease
Management




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
Internet or programs administered via the telephone.  All
interventions include lifestyle and risk reduction programs that follow
evidence-based clinical guidelines to optimize health, fitness, productivity,
and quality of life.






3




We have
also published a study indicating that a technique we developed has resulted in
a three-fold improvement in enrollment into a corporate-sponsored disease
management program.  The results of the research demonstrated an
encouraging 76 percent enrollment rate, which compares to the typical rate of
about 25 percent using conventional enrollment methods.  See
“Leveraging the Trusted Clinician: Documenting Disease Management Program
Enrollment,” Disease Management (Feb 2007, Vol. 10, No. 1:
16-29).  The result of this study is very encouraging for clients that
seek to implement proactive disease management programs in conjunction with the
trusted clinician at the on-site health center.




Our
Client Contracts




Our
client contracts for on-site health centers and pharmacies typically have
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, although we continue to explore all
options to meet the needs of our clients.  We typically review the
costs of operating our health centers and pharmacies with our clients
annually.




Corporate
History




I-trax
was incorporated in Delaware on September 15, 2000.




On March
19, 2004, I-trax acquired Meridian Occupational Healthcare Associates, Inc.,
which did business as CHD Meridian Healthcare.  The various companies
that comprised CHD Meridian Healthcare have provided on-site healthcare services
for well over 35 years.




Recent
Developments




On
December 14, 2007, I-trax acquired Pro Fitness Health Solutions, LLC, a New York
limited liability company and a provider of employer-sponsored wellness, fitness
and occupational health services in 22 states for more than 50
clients pursuant to a Member Interest Purchase Agreement dated November 27,
2007 (the “Acquisition
Agreement”) by and among I-trax, Pro Fitness, Minute Men, Incorporated, a
Connecticut corporation (“Minute Men”), and Daron
Shepard, the sole manager and Chief Executive Officer of Pro
Fitness.




The total
value of the Pro Fitness acquisition was $8,336,000 subject to certain
adjustments.  I-trax delivered the purchase price as follows:
$6,536,000 in cash (including direct costs); 222,684 shares of I-trax common
stock (valued at $750,000, or $3.368 per share, under the terms on the
Acquisition Agreement) (the “Consideration Shares”); and a promissory note in
the principal amount of $1,050,000 (the “Promissory Note”).  The
Consideration Shares will be released from escrow and the Promissory Note will
be paid if certain performance criteria are met by the Pro Fitness business in
2008.




The
purchase price in the Pro Fitness acquisition is subject to the following
adjustments: Minute Men will receive an additional cash payment if the Pro
Fitness business has gross profit for 2008, derived from its historic business
and pipeline opportunities as of the closing date (the “2008 Gross Profit”), in excess
of $2,450,000 (“Gross Profit Target”).  The additional cash
payment will equal twice the amount by which the 2008 Gross Profit exceeds the
Gross Profit Target.  If the 2008 Gross Profit is less than the Gross
Profit Target, then Minute Men will pay I-trax an amount equal to 3.164
multiplied by the amount by which the Gross Profit Target exceeds the 2008 Gross
Profit.  Minute Men’s obligation to do so, however, is limited to the
value of the Consideration Shares and the Promissory Note.  Further,
if the value of the Consideration Shares when they are released from escrow is
less than the value of the Consideration Shares on the date of the closing,
I-trax will pay Minute Men an amount equal to the difference in
value.




I-trax
funded the cash portion of the purchase price in the Pro Fitness acquisition by
using amounts available under its existing senior secured credit facility and
new term loan with Bank of America.




Competition
and Opportunity




On-site
health centers and pharmacies dedicated to specific employers, their employees
and dependents, and retirees represent a small segment of the overall United
States healthcare market.  We refer to this segment as on-site
healthcare and we estimate that it consists of as many as 8,000 facilities with
a potential market size that we estimate may exceed $3 billion.  A
large portion of these on-site facilities is operated directly by the
employers.  We therefore believe that our predominant competitors
within on-site healthcare are large, self-insured employers that operate their
own on-site facilities.  Third-party vendors like us populate a
smaller portion of the market.  Among the third-party vendors
operating on-site health-care related facilities, our primary competitors are
regional providers and certain companies competing nationally such as
Comprehensive Health, Concentra, Whole Health, and Medcor.  Among the
third-party vendors operating on-site fitness facilities, our primary
competitors are regional providers and certain companies competing nationally
such as Health Fitness Corporation and MediFit Corporate Services.  We
believe that we are one of the largest providers of on-site healthcare
among third-party vendors.




Notwithstanding
our substantial presence in the on-site healthcare segment, numerous companies
operating in other segments of the healthcare market are currently delivering
one or several services which compete with those we offer.  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 who 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, and Future
Health.  Pharmacy benefit management companies, which also deliver a
component of our services, include Caremark, Drugmax, Express Scripts and
national pharmacy chains, such as CVS and Walgreens.




Our
Vision




Our
vision is to improve the health and productivity of workforces and communities
we serve in ways that:








4




·
            Reduce
      corporate increases in healthcare costs, while improving workforce safety
      and productivity.




·
            Establish
      a trusted relationship with our clients based on: integrity, capability
      and accountability.




·
            Meet
      the health and wellness needs our clients’ workers, retirees, and their
      families “face to face,” telephonically, and via the
    Internet.




·
            Challenge
      and reward our employees to provide the best care and service in a
      stimulating professional workplace
environment.




We seek
to accomplish our vision by:




·
            Allowing
      employers to contract with us for a wide range of healthcare services,
      which may range from a simple health risk assessment to a fully integrated
      ambulatory care center, integrated with a pharmacy and pharmaceutical
      benefits management services.




·
            Delivering
      on our client expectations with clinical excellence, superior clinical
      service experience at our health centers, client and patient satisfaction,
      and reportable value received.




·
            Achieving
      a stimulating workplace environment by having the skilled and motivated
      employees, in the right jobs, working as a clinical community with clear
      expectations.




·
            Continuing
      to penetrate our market segment at a rate faster than our competition,
      organically and through acquisitions, both domestically and
      internationally.




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,
CHDMeridian.com, and MyFamilyMD.com.  Finally, we continue to explore
potential availability of patent protection for our business processes and
innovations and filed one such patent in 2006.




Employees




We
believe our success depends to a significant extent on our ability to attract,
motivate and retain 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.






5




As of
December 31, 2007, we had 1,327 full-time employees, 139 part-time employees,
697 nurses, physicians, pharmacists, and fitness employees employed on an “as
needed” basis, and 25 temporary employees.  Of these totals, the
following were employed by Pro Fitness Health, which we acquired on December 14,
2007: 155 full-time employees, 16 part-time employees, and 320 “as needed”
employees.




Available
Information




Our web
site at www.i-trax.com.  Our electronic filings with the Securities
and Exchange Commission (including all annual reports on Form 10-K, quarterly
reports on Form 10-Q, and current reports on Form 8-K, and any amendments to
these reports), including the exhibits, are available free of charge through our
web site as soon as reasonably practicable after we electronically file them
with or furnish them to the Securities and Exchange Commission.




Item
1A.                      Risk
Factors




Described
below are certain risks that our management believes are applicable to our
business and the industry in which we operate.  There may be
additional risks that are not material or currently known.  You should
carefully consider the following risks and all other information set forth in
this Annual Report on Form 10-K.




If any of
the events described below occur, our business, financial condition, results of
operations, liquidity or access to the capital markets could be materially
adversely affected.  The following risks could cause our actual
results to differ materially from our historical experience and from results
predicted by forward-looking statements made by us or on our behalf related to
conditions or events that we anticipate may occur in the future.  All
forward-looking statements made by us or on our behalf are qualified by the
risks described below.




Risks
Related to Our Company




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




CHD
Meridian Healthcare pioneered the field of employer-sponsored pharmacies and
primary care clinics.  Nonetheless, competition in this segment of the
healthcare industry has intensified.  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 and retail pharmacy chains, are
substantially larger and better capitalized than are we.  We believe
that the potential market for employer-sponsored 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-sponsored 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-sponsored facilities and pharmacies, our business and results
of operations could be negatively affected.




6


In
addition to this increasing head-to-head competition for contracts to establish
and manage employer-sponsored 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.




Loss
of advantageous pharmaceutical pricing could adversely affect the value we
provide to our clients and our competitiveness in the marketplace.




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 and
volume-based incentives from our wholesaler.  We pass on 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 we can provide to our clients and, therefore, make our
services less attractive and put pressure on our margins, which would adversely
affect our business.




Our
business involves exposure to professional liability claims, and a failure to
manage our professional liability risks effectively 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
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.




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 in
future periods.  Availability and cost of such coverage are subject to
market conditions, which can fluctuate significantly.








7




Certain
of our past professional liability insurance policy years were insured by now
defunct insurance companies.  As a result, we are partially uninsured
for those periods.  We have established a reserve in connection with
two claims made in those periods.  In addition, 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 for that period as well and we have established
a reserve in connection with one claim made during that
period.  Although we believe that reserves we established in
connection with matters dating from these periods are reasonable based on our
historic loss experience, there is no assurance that these reserve will be
sufficient to pay all any judgments or settlements (if any) that may result from
such claims.




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 our
captive insurance subsidiary, Green Hills Insurance Company, A Risk Retention
Group, 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.




If we
fail to manage effectively any of the professional liability matters discussed
in this risk factor, we may sustain financial losses.




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, which, in turn, would cause us to
sustain losses, which may have a material impact on our financial
results.  Also, maintaining the insurance subsidiary has exposed us to
substantial additional regulatory requirements, with attendant risks should we
fail to comply with applicable regulations.




8


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 requiring a certain fixed charges coverage ratio and minimum earnings
before interest, taxes, depreciation and amortization (as defined in the credit
agreement), or EBITDA.  Other covenants restrict our ability to incur
certain debt and complete mergers and dispose of assets without our senior
creditor’s consent.




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
our credit facility, our secured creditor could foreclose on all or
substantially all of our assets and the assets of our subsidiaries.




Our
credit facility matures in July 2009.




Our $17
million revolving and $5 million swingline facilities mature on July 1, 2009 and
our $3 million term loan matures on September 30, 2008.  Accordingly,
we have a portion of our indebtedness under the credit facility classified
as a short-term liability.  We cannot assure you that we will generate
sufficient cash flow to repay all amounts under the facility, and we further
cannot assure you that, if the need arises, we will be able to obtain additional
financing or to refinance the facility 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 prior to 2007 and may incur a net loss in
2008.




Although
we recorded a small net loss applicable to common stockholders for 2007 and
expect to be profitable in the future, we may not earn a net profit in 2008 due
to many factors, including our need to:




·
            Invest
      in the further development and enhancement of our workplace health and
      productivity management solutions;




·
            Strengthen
      our position as a respected and preferred provider of integrated health
      and wellness solutions; and








9




·
            Adapt
      to 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 2008.




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
increase 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.




Not
achieving these goals could adversely affect our revenue.




We
may require additional capital to grow.




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 slow our
growth 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.








10




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 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 mishandle information or inappropriately
disclose confidential health information of others.




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, 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, R. Dixon
Thayer, chief executive officer, and Dr. Raymond J. Fabius, president and chief
medical officer.  If any of these individuals leaves our company, we
will lose an employee with considerable operational experience and knowledge of
our business, which may impede our ability to compete and succeed in the
future.




We
maintain employment agreements with Messrs. Martin and Thayer and Dr.
Fabius.  In December 2007, we entered into amended and restated
employment agreements with Messrs. Martin and Thayer, each of which remains
in effect until terminated in accordance with its terms.  In April
2005, we entered into an employment agreement with Dr. Fabius 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 additional personnel in all
operational areas.  We may be unable, however, to attract, assimilate
or retain such highly qualified personnel, 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 long, which complicates our ability to predict our
growth.




The
workplace health and productivity management segment has many providers offering
complex services that are frequently quite different from one
another.  Purchasing such services requires clients to incur
substantial upfront and continuing costs.  Moreover, some clients are
not familiar with our services, and therefore usually take a long time to
evaluate and decide whether to purchase them.  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 may
incur substantial expenses, which will reduce our net income or increase our net
loss in the period that such expenses are incurred.









11






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




Trends in
certain U.S. manufacturing industries are leading to plant closings and layoffs
that could eliminate or reduce the need for some of our employer-sponsored
healthcare facilities.  In addition, trends in certain U.S. financial
sectors are leading to curtailed growth and layoffs in some
circumstances.  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 and financial industries.  Also, if one of our clients
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,
we typically charge our clients for insurance coverage when the contract
terminates for claims that may be made by patients after such
termination.  If a client is insolvent when the contract terminates,
however, we may not be able to recoup the cost of such insurance coverage, which
may adversely impact our financial results if such cost is
significant.




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
software applications we use to operate our on-site facilities and deliver other
services depend on the continuous, reliable and secure operation of data lines,
application servers, Internet servers and related hardware and
software.  Viruses and network outages could cause our applications
not to operate 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 systems 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
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 network services necessary for access to our
servers.  Our clients may experience difficulties with Internet and
other network services due to system failures, including failures unrelated to
our systems.  Any sustained disruption in Internet or network 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.






12






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.




Further,
certain of our contracts contain performance conditions where a portion of
our fees are at risk contingent on our ability to satisfy our contractual
obligations (such as client or patient satisfaction or generic
utilization).  If we fail to meet these obligations, we may be
required to refund a portion of our fees, which may adversely affect our
revenue.




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




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, Comprehensive Health, Whole Health 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, and Future Health.  Pharmacy benefit management
companies, which also deliver a component of our services, include Caremark,
Drugmax, Express Scripts and national pharmacy chains, such as CVS and
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




·
            wider
      arrays 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.








13




As other companies develop
intellectual property identical or similar to ours, we could lose what we
believe to be our competitive advantage and could be subject to claims of
intellectual property
infringement.




Our
intellectual property, such as our processes, procedures and techniques in
delivering our services, is important to our business.  We rely on a
combination of copyright, patent, 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
processes and techniques.  Conversely, we could be subject to
intellectual property infringement claims as the number of our competitors grows
and our 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/or restructure our operations, which will result
in a material adverse effect on our results of operations.




The
loss of a major client would significantly reduce our revenue.




For the
year ended December 31, 2007, we had two clients that accounted for 13% and 12%
of our net 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 clients 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 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 could be 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.






14




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 facilities have custody of
confidential patient records.  The Internet-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.




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).  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 provide care services by telephone,
and the pharmacists and other professionals that staff our on-site pharmacies
and facilities, are subject to individual licensing requirements.  All
of our healthcare professionals and facilities subject to such licensing
requirements are licensed in the state where their worksite is
located.  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, which, if
material, could adversely affect our financial results.  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,
which, if material, could adversely affect our operations.


15


The
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).




We have
not seen meaningful change in our pharmacy business because of Medicare Part
D.  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-sponsored pharmacies of the kinds that we establish and
manage, which would adversely affect our business.




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 January 1, 2007 through December 31, 2007, the closing price of
our stock has fluctuated from a high of $4.69 to a low of $2.31.  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
14, 2008, 41,750,863shares of our common stock were issued and outstanding and the
three-month average daily trading volume of our common stock was approximately
83,000 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
December 31, 2007, 2,171,263 shares of our common stock were reserved for
issuance upon conversion of outstanding shares of Series A Convertible Preferred
Stock and 6,318,078 shares of our common stock were reserved for issuance
upon the exercise of our outstanding warrants and options and vesting of our
outstanding restricted stock.  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, 2007, such
accrued dividends were approximately $1.6 million.  If such dividends
were converted into common stock at $3.55, the closing price of our common stock
on December 31, 2007, we would issue approximately 463,000 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




At March
14, 2008, there were no unresolved comments from the Securities and Exchange
Commission staff regarding our periodic or current reports.




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 annual rate of
$225,000.  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 at a
current base annual rate of $835,000.  The lease will expire when we
relocate to a new facility in Franklin, Tennessee, which is expected to occur in
July 2008.  The property is in good condition.




In August
2007, we entered into an Amended and Restated Office Facility Lease for
approximately 50,000 square feet of office space in Franklin, Tennessee to be
constructed for us to our specifications.  We expect to take
possession of the space in July 2008 and the lease will expire in July
2019.  The initial base annual rate for the space is $530,000, which
reflects free rent during the first four months occupancy and $66,250 per month
for the balance of the first year of occupancy.




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 2012 at a current base annual rate of
$137,000.  The property is in good condition.




Certain
of our executive and administrative offices are located in Shelton, Connecticut,
where we lease approximately 3,260 square feet of office space pursuant to a
lease expiring in December 2008 at a current base annual rate of
$37,000.  The property is in good condition.


17


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.  We believe
the amounts provided in our consolidated financial statements, as prescribed by
accounting principles generally accepted in the United States, are adequate in
light of the probable and estimable liabilities.  In the opinion of
management, the resolution of these matters is not expected to have a material
adverse effect on our results of operations or financial condition.




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, 2007.








18




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 is traded 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.




Sales
      PriceHigh
            
            
            Low2007First
      Quarter
            
            $
            4.33
            
            
            $
            3.02Second
      Quarter
            
            
            4.69
            
            
            
            3.66Third
      Quarter
            
            
            4.35
            
            
            
            2.90Fourth
      Quarter
            
            
            4.24
            
            
            
            2.312006First
      Quarter
            
            $
            3.91
            
            
            $
            2.00Second
      Quarter
            
            
            3.44
            
            
            
            2.70Third
      Quarter
            
            
            3.38
            
            
            
            2.59Fourth
      Quarter
            
            
            3.37
            
            
            
            2.39




Holders




As of
March 10, 2008, there were 347 shareholders of record of our common stock (which
excludes shares held by brokers) and 17 registered holders of our Series A
Convertible Preferred Stock.  On March 10, 2008, the last reported
sales price of our common stock was $3.75.




Dividends




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.






19




Company
Performance






This
graph shows a comparison of cumulative total returns for I-trax, the AMEX Market
Index and the Hemscott Group Index – Specialized Health Services from December
31, 2002 through December 31, 2007.  The graph assumes an initial
investment of $100 and the reinvestment of dividends.





Cumulative
Total Return





12/31/2002
            12/31/2003
            12/31/2004
            12/31/2005
            12/30/2006
            12/31/2007I-trax,
      Inc.
            $100.00
            $163.27
            $  68.73
            $  74.55
            $112.73
            $129.09Hemscott
      Group Index – Specialized Health Services
            100.00
            142.33
            187.77
            254.83
            274.87
            300.91AMEX
      Market Index
            100.00
            136.11
            155.87
            171.89
            192.45
            216.06






20




Recent
Sales of Unregistered Securities




During
October 2007, four investors exercised warrants to purchase an aggregate of
177,806 shares of our common stock at an exercise prices ranging from $1.76 and
of $3.00 per share.  In lieu of paying the exercise price in cash, the
investors used the warrants’ cashless exercise features, such that the investors
received an aggregate of 85,243 shares of our common stock and surrendered to us
for cancellation 92,563 shares of our common stock.  In undertaking
this issuance, we relied on an exemption from registration under Section 4(2) of
the Securities Act of 1933, as amended.




In
December 2007, one stockholder converted 2,000 shares of our Series A
Convertible Preferred Stock into 20,000 shares of common stock.  In
this conversion, we also issued an additional 4,122 shares of our common stock
in payment of accrued dividends on the converted shares of Series A Convertible
Preferred Stock.  The shares issued upon conversion, including the
shares representing payment of the dividends, were exempt from registration
under Section 3(a)(9) of the Securities Act of 1933, as amended.




Purchases
of Equity Securities by the Issuer and Affiliated Purchases




None.




Item
6.                 Selected
Financial Data






The
following table presents our selected financial data.  The table
should be read in conjunction with Item 7, Management’s Discussion and Analysis
of Financial Condition and Results of Operations, and Item 8, Financial Statements and
Supplementary Data, of this Annual Report on Form 10-K.  This
information is derived from our audited financial statements and should be read
in conjunction with those statements, including the related
notes.  These historical results do not include any operations of Pro
Fitness as the companies agreed to combine operations commencing January 1, 2008
and are not necessarily indicative of results to be expected for any future
period.






21






Five-Year
Financial Highlights




$
      in thousands, except per share
amounts




2007
            (1)
            2006
            (2)
            2005
            
            2004
            (3)
            2003Consolidated
      Statements of Earnings DataNet
      Revenue
            $     143,193
            
            $      124,589
            
            $     115,887
            
            $         76,402
            
            $          4,189Restructuring-related
      activities (4)
            --
            
            --
            
            13,916
            
            --
            
            --Operating
      income (loss)
            (62
            )
            1,682
            
            (13,232
            )
            (2,200
            )
            (5,315
            )Net
      income (loss)
            198
            
            1,766
            (5)
            (14,072
            )
            (3,937
            )
            (8,059
            )Per
      Share DataEarnings
      (loss) per common share
            $         (0.01
            )
            $            0.02
            
            $          (0.54
            )
            $            (0.96
            )
            $           (0.74
            )Shares
      outstanding
            41,340,488
            
            36,613,707
            
            32,818,955
            
            26,226,818
            
            13,966,817Weighted
      average shares outstanding, diluted
            40,288,436
            
            37,614,510
            
            29,716,114
            
            22,466,262
            
            10,904,553Anti-dilutive
      securities
            8,489,338
            
            8,605,580
            
            15,441,556
            
            15,850,883
            
            5,469,286Common
      stock price:High
      Closing Price
            $           4.69
            
            $            3.91
            
            $           2.35
            
            $             5.70
            
            $            5.00Low
      Closing Price
            $           2.31
            
            $            2.00
            
            $           1.07
            
            $             1.29
            
            $            1.37Operating
      StatisticsGross
      profit rate
            24.3
            %
            25.2
            %
            23.7
            %
            23.9
            %
            43.4
            %General
      and administrative expense rate
            20.9
            %
            21.2
            %
            20.0
            %
            21.7
            %
            129.6
            %Operating
      income (loss) rate
            0.0
            %
            1.4
            %
            (11.4
            )%
            2.9
            %
            (126.9
            )%Year-End
      DataCurrent
      ratio (6)
            1.38
            
            1.27
            
            1.00
            
            1.09
            
            0.82Total
      assets
            $     121,535
            
            $      103,387
            
            $       98,983
            
            $        111,953
            
            $        13,603Credit
      facility
            $       19,137
            
            $          9,057
            
            $         8,649
            
            $           8,308
            
            $                --Total
      stockholders’ equity
            $       69,005
            
            $        65,691
            
            $       62,163
            
            $         71,763
            
            $          8,385




(1)
            We
      acquired Pro Fitness on December 14, 2007.  The results of
      operations of Pro Fitness will be included in operations commencing
      January 1, 2008.




(2)
            In
      the first quarter of 2006, we adopted the fair value recognition
      provisions of Statement of Financial Accounting Standards (SFAS)
      No. 123 (revised 2004), Share-Based Payment(123R), requiring us to recognize expense related to the fair value
      of our stock-based compensation awards.  We elected the modified
      prospective transition method as permitted by SFAS No. 123R and,
      accordingly, financial results for years prior to 2006 have not been
      restated.  Stock-based compensation expense for 2006 was $1.3
      million.  Stock-based compensation expense recognized in our
      financial results for years prior to 2006 was not
    significant.




(3)
            We
      acquired Meridian Occupational Healthcare Associates, Inc., which did
      business as CHD Meridian Healthcare, on March 19, 2004.  The
      results of operations of CHD Meridian Healthcare are included from April
      1, 2004.




(4)
            Effective
      June 30, 2005, we completed an in-depth analysis of our structure and
      product and development efforts.  Our analysis led to the
      conclusion that certain products and services that we had been offering
      were no longer essential to our business.  We implemented a
      restructuring of certain operations and related activities which resulted
      in impairment charges of $12.5 million, charges associated with loss
      contracts of $0.7 million, and restructuring charges of $0.8
      million.




(5)
            During
      2006, we recognized $1,299 of income as a result of discontinued
      operations.




(6)
            The
      current ratio is calculated by dividing total current assets by total
      current liabilities less dividends payable on Series A Convertible
      Preferred Stock in shares of common
stock.






22






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




We
believe the primary goals of successful financial reporting are transparency and
understandability.  We are committed to providing our stockholders
with informative financial disclosures and presenting an accurate view of our
financial position and operating results.




In
accordance with Section 404 of the Sarbanes-Oxley Act of 2002 and the related
rules promulgated by the SEC, our management, including our Chief Executive
Officer and Chief Financial Officer, conducted an evaluation of our internal
control over financial reporting and concluded that such controls were effective
as of December 31, 2007.  Management’s report on the effectiveness of
our internal control over financial reporting and the related report of our
independent registered public accounting firm are included in Item 8, Financial Statements and
Supplementary Data,of this Annual Report
on Form 10-K.




Please
read the following discussion and analysis together with Item 6, 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 Annual
Report.  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 Item 1A, Risk Factors, and other
sections of this Annual Report.




This
Management’s Discussion and Analysis of Financial Condition and Results of
Operations (“MD&A”),
is designed to provide a reader of our financial statements with a narrative
from the perspective of our management on our financial condition, results of
operations, liquidity and certain other factors that may affect our future
results. Our MD&A is presented in the following sections:




·
            Overview




·
            Results
      of Operations




·
            Liquidity
      and Capital Resources




·
            Critical
      Accounting Estimates




·
            New
      Accounting Standards




·
            Material
      Equity Transactions








23




Overview




I-trax,
Inc. provides integrated workplace medical, pharmacy, wellness, fitness, and
disease management services to enhance the health and productivity of the
employees, dependents, and retirees of our clients.  We deliver these
services at or near the client’s worksite by opening, staffing and managing
health and fitness centers and pharmacies dedicated to our clients and their
eligible populations.  We enhance our on-site services with larger
scale disease management and wellness programs through the use of telephonic and
e-health tools and pharmacy care management programs.  We believe our
clinicians deliver excellent care because of the trusted relationship they
establish with their patients at the worksite.




We
believe our services improve the health status of client populations and
mitigate the upward cost trend experienced by employers, employees, and
government agencies.  By proactively managing the healthcare needs of
our clients’ eligible populations, 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 many of their needs in a
cost-effective and professional manner.




Record
Net Revenue




Net revenue for 2007 increased $18.6
million from 2006 resulting in 2007 new revenue of $143.2 million.




Pro
Fitness Health Acquisition




On
December 14, 2007, we completed our acquisition of Pro Fitness Health, a
provider of employer-sponsored wellness, fitness and occupational health
services in 22 states for over 50 clients.  Operating results of Pro
Fitness Health will be combined with our results commencing January 1,
2008.  Consequently, our accompanying statements of operations do not
include Pro Fitness Health.




Insurance
Commutation




During
2007, our risk management function operated by Green Hills Insurance Company, A
Risk Retention Group, contributed $1.4 million to earnings.  This is
because we obtained new excess coverage for professional liability risk at
favorable rates, commuted an insurance policy with a prior insurer, and received
a refund of previously paid premiums.




On-Site
Facilities




At
December 31, 2007, we were providing services to our clients at 243 on-site
facilities, a net addition of 31 sites since December 31, 2006.  This
does not include the additional client facilities added as a result of the Pro
Fitness Health acquisition.






24






Lease
Accounting




In 2007,
we entered into an office lease for a new 50,000 square foot office building in
Nashville, Tennessee to house our Nashville operations.  We expect to
move to the new space in July 2008.  In anticipation of this move, we
bought out the lease covering our existing space.  The buy-out was
paid on our behalf by our new landlord.  As a result of the
transaction, we recorded a lease termination expense of $780 during the third
quarter of 2007.  This expense is included in our statement of
operations for 2007.




Pharmacy
Arrangement




We
entered into a new vendor agreement with McKesson to supply our
pharmaceuticals.  The agreement will also allow us to leverage
McKesson’s pharmacy clinical technologies and automated systems.  We
anticipate that these technology synergies will result in costs savings and
further enhance patient safety in 2008.




Awards




In 2007,
we received the following notable commendations:




·
            Achieved
      Certified Supplier Status for 2007 for the Eastman Kodak Company for
      excellence in providing clinical services at Kodak’s Rochester, NY
      headquarters; and




·
            Received
      the Disease Management Association of America award for 2007 Outstanding Journal
      Article – Disease Management
Leadership.




Results
of Operations




2007
Summary




Our
2007 net revenue increased by $18.6 million to $143.2 million, or by 14.9%.
 We measure our revenue growth performance in a number of ways, including
same site revenue growth.  The calculation measures the growth trend
in sites operating for a minimum of 24 months by comparing the most recent
trailing 12 month period to the preceding 12 month period.  Our same
site revenue growth demonstrates our ability to increase revenue at existing
sites through increased or enhanced service offerings.  The table
below shows the quarterly data for this indicator in 2007:




Twelve
      months endedMarch
      31, 2007
            
            June
      30, 2007
            
            September
      30, 2007
            
            December
      31, 2007Same
      site revenue growth
            
            2.0%
            
            1.7%
            
            1.7%
            
            3.0%




Our 2007
gross margin (net revenue minus operating expenses) decreased to 24.3% from
25.2% in 2006.  Our 2007 margin was impacted by higher percentage of
start-up costs related to new sites, which carry lower margin, particularly in
the fourth quarter of 2007.  Our margin in 2006 was positively
impacted by reductions in insurance related expenses, including by $0.7 million
in premium refunds from old insurance carriers, which were included as
reductions to operating expenses.  Excluding these insurance-related
savings, our 2006 gross margin would have been 24.6%.






25




We also
measure the relationship between our margins on new business to our existing
business by comparing margins on sites that have been operating for at least 12
months with margins on our other sites that were also operating for the
preceding 12 month period.  The table below shows the ratio of new
site margins to existing site margins for the trailing four quarters ended on
each date.




Quarter
      endedMarch
      31, 2007
            
            June
      30, 2007
            
            September
      30, 2007
            
            December
      31, 2007Ratio
      of new site gross margin to existing site gross margin
            
            1.1
            
            1.1
            
            1.2
            
            1.2




Our
general and administrative expenses (“G&A”) expenses increased
during 2007 by $3.5 million, to $29.9 million.  We measure the growth of
our G&A expenses relative to our revenue.  We also track our
G&A spending excluding certain expense categories that are either
compliance-related (SFAS 123R stock compensation expense) or discretionary in
amount (new product development, sales and marketing).  Overall, our
G&A rate for 2007 decreased by 0.3% of net revenue to 20.9% from
the 2006 G&A rate of 21.2% of net revenue.






26






The
following table breaks out certain G&A expenses as a percent of net revenue
to provide additional insight on what types of G&A costs we
incur:




$inthousands




Year
      Ended
              December
      31, 2007
            
            
            Year
      Ended
              December
      31, 2006Net
      revenue
            
            $
            143,193
            
            
            $
            124,589Total
      G&A expenses
            
            $
            29,860
            
            
            $
            26,401G&A
      as % of revenue
            
            
            20.9
            %
            
            
            21.2
            %G&A
      excluding certain expenses (1)
            
            $
            24,282
            
            
            $
            22,295G&A
      excluding certain expenses as % of revenue
            
            
            17.0
            %
            
            
            17.9
            %




(1)
            Excludes
      SFAS 123R expense, new product development, and sales and
      marketing.




G&A
excluding the specified expenses increased by 8.9% over prior year compared to
net revenue growth of 14.9% over the prior year.




Net loss
applicable to common stockholders for 2007 decreased to $(0.4) million, or
$(0.01) per diluted share, compared with net income applicable to common
stockholders of $0.6 million, or $0.02 per diluted share in
2006.  Unusual items in 2007 include income of $1.4 million related to
commuted insurance policy and a $0.8 lease termination
expense.  Unusual items in 2006 include income of $1.3 million of
discontinued operations and $0.7 million of insurance refunds.  In
2007, conversions of dividends accrued on Series A Convertible Preferred Stock
into common stock reduced the impact of the preferred stock dividend by $0.6
million.  Excluding such items, the increase in net revenue and
associated gross margin was utilized for discretionary investments in sales and
marketing, new product development, and information technology related
expenditures to continue developing a scalable platform for the
future.




We also
use earnings before interest, taxes, depreciation and amortization (“EBITDA”) as a measure of our
financial performance.  To provide comparability with our results in
2006, we have shown EBITDA including and excluding the effects of the 2007
non-cash lease termination expense and the 2006 non-cash $1.3 non-recurring
million gain from discontinued business.




$
in thousands




2007
            
            
            2006Net
      income
            
            $
            198
            
            
            $
            1,766Interest
            
            
            565
            
            
            
            474Taxes
            
            
            519
            
            
            
            511Depreciation
      and amortization
            
            
            4,243
            
            
            
            3,489Reported
      EBITDA
            
            
            5,525
            
            
            
            6,240Lease
      termination expense
            
            
            780
            
            
            
            --Income
      from discontinued operations
            
            
            --
            
            
            
            (1,299
            )EBITDA,
      excluding certain non-cash items
            
            $
            6,305
            
            
            $
            4,941




Reported
EBITDA in 2007 was $5.5 million compared to reported EBITDA of $6.2 million for
2006.  Excluding items noted in the table, 2007 EBITDA was $6.3
million compared to $4.9 million for 2006, an increase of 27.6%.








27




Consolidated
Results




The
following table presents selected consolidated financial data for each of the
past three years:




$
in thousands, except per share amounts




Consolidated Performance Summary
            
            2007
            
            
            2006
            
            
            2005Net
      revenue
            
            $
            143,193
            
            
            $
            124,589
            
            
            $
            115,887Gross
      profit as % of net revenue
            
            
            24.3
            %
            
            
            25.2
            %
            
            
            23.7
            %G&A
      as % of net revenue
            
            
            20.9
            %
            
            
            21.2
            %
            
            
            20.0
            %Operating
      income/(loss)
            
            $
            (62
            )
            
            $
            1,682
            
            
            $
            (13,232
            )(1)Operating
      income as % of net revenue
            
            
            0.0
            %
            
            
            1.4
            %
            
            
            (11.4
            )%Net
      income (loss) applicable to common stockholders
            
            $
            (379
            )
            
            $
            582
            
            
            $
            (16,121
            )Diluted
      earnings (loss) per share
            
            $
            (0.01
            )
            
            $
            0.02
            
            
            $
            (0.54
            )




(1)
            Effective
      June 30, 2005, we completed an in-depth analysis of our structure and
      product and development efforts.  Our analysis led to the
      conclusion that certain products and services that we had been offering
      were no longer essential to our business.  We implemented a
      restructuring of certain operations and related activities resulting in
      the impairment charges of $12.5 million, charges associated with loss
      contracts of $0.7 million, and restructuring charges of $0.8
      million.




Year
Ended December 31, 2007 Compared to Year Ended December 31, 2006




Net
revenue for the year ended December 31, 2007 was $143.2 million, an increase of
$18.6 million or 14.9% from $124.6 million for the year ended December 31,
2006.  The substantial increase results from the overall addition of
31 facilities, and year over year growth in existing site revenue.  Of
the 31 net new facilities, 18 facilities were added in the second half of the
year.




Operating
expenses, which represent our direct costs associated with the operation of our
on-site and health management services, amounted to $108.4 million for the year
ended December 31, 2007, an increase of $15.2 million from $93.2 million for the
year ended December 31, 2006.  The increase is a result of a greater
number of facilities under management and the growth of services provided to
existing clients.  Operating expenses as a percent of revenue were
75.7% for 2007, a slight increase from 74.8% for 2006.  This increase
was principally the result of $0.7 million of insurance-related refunds in
2006.




General
and administrative expenses, which represent our corporate costs, increased to
$29.9 million for the year ended December 31, 2007 from $26.4 million for the
year ended December 31, 2006.  As a percentage of net revenue, general
and administrative expenses improved to 20.9% for 2007 from 21.2% in
2006.  We have been investing in enhanced technology infrastructure
and we are beginning to leverage our G&A base as we expand our services to
both new and existing sites.  See additional general and
administrative expenses discussion in the 2007 Summary above.




Lease
termination expense in the third quarter of 2007 relates to an early termination
penalty under the lease for our current Nashville, Tennessee corporate
operations facility.  An early termination penalty of $1.0 million,
offset by a reduction in deferred rent on our current facility of $0.2 million,
resulted in a net charge of $0.8 million.  We signed a new lease for
more space at less cost per square foot, which management believes will better
accommodate our anticipated growth.  The early termination penalty was
paid on our behalf by our new landlord and will be repaid over the term of our
new lease.








28




Depreciation
and amortization expenses were $4.2 million for the year ended December 31,
2007, an increase of $0.9 million as compared to $3.3 million for the year ended
December 31, 2006.  The increase is attributable to large investments
in information technology-related fixed assets.  During 2007, we
invested approximately $3.6 million in software licenses and other
equipment.




Interest
expense was $0.6 million for the year ended December 31, 2007 and $0.5 million
for the year ended December 31, 2006.  Interest expense is primarily
attributable to our senior secured credit facility.  The slight
increase is due to increased working capital demands brought on by additional
site openings.




Amortization
of financing costs decreased to $0.1 million for the year ended December 31,
2007 from $0.2 million for the year ended December 31, 2006.  The
decrease is attributable to debt issuance costs related to our credit facility
being fully amortized for a portion of 2007.




The
provision for income taxes for the years ended December 31, 2007 and 2006 was
$0.5 million.




For the
year ended December 31, 2007, our net income was $0.2 million, as compared to
net income of $1.8 million for the year ended December 31, 2006.  The
decrease is due to higher gross profit generated by expanded and new site and
client relationships offset by continued discretionary investments to
generate interest in our services as well operate our facilities both
effectively and efficiently.  As discussed below, income from
discontinued operations in 2006 is attributable to the reversal of $1.3 million
of reserves related to two government contracts that were terminated in
2001.




Year
Ended December 31, 2006 Compared to Year Ended December 31, 2005




Net
revenue for the year ended December 31, 2006 was $124.6 million, an increase of
$8.7 million or 7.5% from $115.9 million for the year ended December 31,
2005.  The substantial increase results from the overall addition of
19 facilities, and year over year growth in existing site revenue.  Of
the 19 net new facilities, 10 facilities were added late in the third quarter
and did not make a substantial contribution to revenue until the fourth
quarter.




Operating
expenses, which represent our direct costs associated with the operation of our
on-site and health management services, amounted to $93.2 for the year ended
December 31, 2006, an increase of $4.7 million from $88.5 million for the year
ended December 31, 2005.  The increase is a result of a greater number
of facilities under management and the growth of services provided to existing
clients.  Operating expenses as a percent of revenue were 74.8% for
2006, a slight improvement over 76.3% for 2005.  This improvement was
principally the result of $1.3 million of insurance-related expense
reductions.






29






During
2005, we completed an in-depth analysis of our structure and product development
efforts, which led to the conclusion that certain products and services that we
had been offering were no longer essential to our business.  We
therefore implemented a restructuring of our operations and related activities
including:




·
            An
      impairment of $12.5 million for long-lived assets consisting of (1) $3.6
      million associated with proprietary software products we no longer
      develop, sell or support, (2) $8.4 million associated with goodwill from a
      previous acquisition, and (3) $0.5 million associated with miscellaneous
      long-lived assets;




·
            A
      provision for loss contracts of $0.7 million for certain customer
      contracts that were likely to continue to be unprofitable, notwithstanding
      implemented reductions in our operating expenses;
  and




·
            Restructuring
      expenses of $0.8 million including one-time termination benefits, contract
      termination costs, and other associated restructuring
    costs.




General
and administrative expenses, which represent our corporate costs, increased to
$26.4 million for the year ended December 31, 2006 from $23.1 million for the
year ended December 31, 2005.  Of the $3.3 million increase, $1.3
million is attributable to the implementation of SFAS 123R and $0.6 million was
spent on compliance efforts under Section 404 of the Sarbanes–Oxley Act of
2002.  The remaining increase was due to expenditures on new product
development and sales and marketing activities as well as general costs
associated with the overall growth of the business.




Depreciation
and amortization expenses were $3.3 million for the year ended December 31,
2006, a decrease of $0.3 million as compared to $3.6 million for the year ended
December 31, 2005.  The decrease is attributable to certain intangible
and long-lived assets being fully depreciated during 2005.




Interest
expense was $0.5 million for each of the years ended December 31, 2006 and 2005.
 Interest expense is primarily attributable to our senior secured credit
facility.  Our average balance outstanding under our credit facility
has decreased slightly from 2005 despite our working capital needs having
increased due to our additional facilities.




Amortization
of financing costs for each of the years ended December 31, 2006 and 2005 was
$0.2 million.




The
provision for income taxes for the year ended December 31, 2006 was $0.5
million, representing an increase of $0.4 million from $0.1 million for the year
ended December 31, 2005.  This increase is related to certain state
taxes for CHD Meridian Healthcare operations.




Income
from discontinued operations in 2006 is attributable to the reversal of $1.3
million of reserves related to two government contracts that were terminated in
2001.  During 2006, we determined that the likelihood of loss related to
these contracts was remote based primarily on the running of the statute of
limitations and other judgmental factors.  Accordingly, we released
this reserve during the quarter ended December 31, 2006.






30




For the
year ended December 31, 2006, our net income was $1.8 million, as compared to a
net loss of $14.1 million for the year ended December 31, 2005.  The
net loss for 2005 included restructuring related charges of $13.9 million as
discussed above.




Green
Hills Insurance Company and Risk Matters




In 2004,
we formed Green Hills Insurance Company, A Risk Retention Group (“GHIC”), to self-insure a
portion of our professional and general liability insurance.  The risk
retention group has stabilized insurance costs for our clients while maintaining
an unchanged or improved risk exposure for our 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.




GHIC’s
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
GHIC.  The report is updated by the actuarial consulting firm as
management determines is appropriate in its reasonable judgment, but not less
frequently than annually.




We
purchase excess insurance to mitigate risk in excess of GHIC’s policy
limits.




During
2007, we obtained new excess limits coverage for professional liability and
commuted our old policy with a prior insurer.  This commutation
allowed us to receive a substantial refund of previously paid
premiums.  The $1.4 million that was received in 2007 was recorded in
other income on our consolidated statement of operations.




During
2006, we received $0.7 million from two insurance carriers from whom we had
purchased insurance policies prior to the formation of GHIC.  These
recoveries were recorded as reductions to operating expenses in
2006.




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 (Green Hills cash at December 31, 2007,
is $8.7 million and is invested in a low-risk money market account), 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 us to sustain losses.  Also, maintaining the insurance
subsidiary exposes us to substantial additional regulatory requirements, with
attendant risks if we fail to comply with applicable regulations.






31




Selected
Quarterly Operating Results




The
following table shows our quarterly unaudited consolidated financial information
for the eight quarters ended December 31, 2007.  We prepared this
information on the same basis as the annual information presented in other
sections of this Annual 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
year.  Future quarterly results may vary.






32




$
in thousands, except per share amounts




(Unaudited)Quarter
      ended2007
            
            2006Dec.
      31
            
            Sept.
      30
            
            June
      30
            
            March
      31
            
            Dec.
      31
            
            Sept.
      30
            
            June
      30
            
            March
      31Net
      revenue
            $    39,958
            
            $    35,148
            
            $    34,537
            
            $    33,550
            
            $    33,527
            
            $    30,495
            
            $    30,042
            
            $    30,525Costs
      and expensesOperating expenses
            30,168
            
            26,618
            
            26,264
            
            25,399
            
            24,397
            
            22,622
            
            22,785
            
            23,433Lease termination
      expense
            --
            
            780
            
            --
            
            --
            
            --
            
            --
            
            --
            
            --General and administrative
      expenses
            8,067
            
            7,118
            
            7,611
            
            7,064
            
            8,046
            
            6,437
            
            5,926
            
            5,992Depreciation and
      amortization
            1,163
            
            1,155
            
            1,039
            
            809
            
            746
            
            826
            
            828
            
            859Total
      costs and expenses
            39,398
            
            35,671
            
            34,914
            
            33,272
            
            33,189
            
            29,885
            
            29,539
            
            30,294Operating
      income (loss)
            560
            
            (523
            )
            (377
            )
            278
            
            338
            
            610
            
            503
            
            231Other
      (income) expensesInterest expense
            141
            
            116
            
            163
            
            145
            
            132
            
            113
            
            115
            
            114Other income
            --
            
            (2
            )
            (1,419
            )
            --
            
            --
            
            --
            
            --
            
            --Amortization of financing
      costs
            4
            
            14
            
            --
            
            59
            
            58
            
            59
            
            57
            
            56Total
      other (income) expenses
            145
            
            128
            
            (1,256
            )
            204
            
            190
            
            172
            
            172
            
            170Income/(loss)
      before provision for income taxes
            415
            
            (651
            )
            879
            
            74
            
            148
            
            438
            
            331
            
            61Provision
      for income taxes
            91
            
            149
            
            197
            
            82
            
            97
            
            234
            
            90
            
            90Income
      (loss) from continuing operations
            324
            
            (800
            )
            682
            
            (8
            )
            51
            
            204
            
            241
            
            (29
            )Income
      from discontinued operations
            --
            
            --
            
            --
            
            --
            
            1,299
            
            --
            
            --
            
            --Net
      income (loss)
            324
            
            (800
            )
            682
            
            (8
            )
            1,350
            
            204
            
            241
            
            (29
            )Less
      preferred stock dividend
            110
            
            121
            
            137
            
            209
            
            282
            
            282
            
            283
            
            337Net
      income (loss) attributable to common stockholders
            $         214
            
            $        (921
            )
            $         545
            
            $        (217
            )
            $      1,068
            
            $          (78
            )
            $          (42
            )
            $        (366
            )Income
      (loss) per common share, basicFrom continuing
      operations
            $        0.01
            
            $       (0.02
            )
            $       0.01
            
            $       (0.01
            )
            $       (0.01
            )
            $       (0.00
            )
            $       (0.00
            )
            $       (0.01
            )From discontinued
      operations
            $            --
            
            $             --
            
            $             --
            
            $             --
            
            $        0.04
            
            $             --
            
            $             --
            
            $             --Net earnings (loss) per common
      share
            $        0.01
            
            $       (0.02
            )
            $       0.01
            
            $       (0.01
            )
            $        0.03
            
            $       (0.00
            )
            $       (0.00
            )
            $       (0.01
            )Income
      (loss) per common share, dilutedFrom continuing
      operations
            $        0.00
            
            $      (0.02
            )
            $      0.01
            
            $      (0.01
            )
            $      (0.01
            )
            $      (0.00
            )
            $      (0.00
            )
            $      (0.01
            )From discontinued
      operations
            $            --
            
            $            --
            
            $            --
            
            $            --
            
            $       0.03
            
            $            --
            
            $            --
            
            $            --Net earnings (loss) per common
      share
            $        0.00
            
            $      (0.02
            )
            $      0.01
            
            $      (0.01
            )
            $       0.03
            
            $      (0.00
            )
            $      (0.00
            )
            $      (0.01
            )








33




Liquidity
and Capital Resources




Summary




Cash
recorded on our consolidated balance sheet consists primarily of cash held by
GHIC, our insurance subsidiary.  We utilize a revolving senior secured
credit facility to manage our working capital needs during the
year.  Our accounts payable and cash outlays are driven primarily by
pass-through pharmaceutical purchases and weekly payroll-related
disbursements.  We ended 2007 with $10.1 million of cash and cash
equivalents, an increase of $3.5 million from the end of 2006.  This
increase is attributable to increased cash reserves held at our insurance
subsidiary.  At December 31, 2007, cash reserves at GHIC were $8.7
million.  Working capital, the ratio of current assets to current
liabilities excluding dividends payable on Series A Convertible Preferred Stock
in shares of common stock, was 1.38 at December 31, 2007, as compared to 1.27 at
December 31, 2006.  This improvement is partially attributable to the
reversal of $1.3 million of reserves associated with a terminated contract,
which were classified as net liabilities of discontinued operations in current
liabilities at December 31, 2005.  Nonetheless, we believe that these
ratios demonstrate adequate financial liquidity.  We also believe that
availability under our credit facility and our cash and cash equivalents will be
sufficient to meet our anticipated cash needs for the next 12
months.




Cash
Flows




The
following table summarizes our cash flows from operating, investing and
financing activities for each of the past three years:




$
in thousands




2007
            
            
            2006
            
            
            2005Total
      cash provided by (used in):Operating
      activities
            
            $
            1,400
            
            
            $
            1,889
            
            
            $
            3,760Investing
      activities
            
            
            (8,351
            )
            
            
            (1,531
            )
            
            
            (2,661
            )Financing
      activities
            
            
            10,468
            
            
            
            814
            
            
            
            482Increase
      in cash and cash equivalents
            
            $
            3,517
            
            
            $
            1,172
            
            
            $
            1,581




Operating
Activities




Cash
provided by operating activities was $1.4 million for 2007, compared with $1.9
million for 2006 and $3.8 million for 2005.  The decline in operating
cash flows for 2007, compared with 2006, was due primarily to a large increase
in accounts receivable related to our increase in revenue from expanding
services and increased site operations and a decrease in accounts
payable.  These changes were offset by non-cash expenses.






34






Investing
Activities




Cash used
in investing activities was $8.4 million for 2007, compared with $1.5 million
for 2006 and $2.7 million for 2005.  Investing activities in 2007
included $5.8 million related to the acquisition of Pro Fitness
Health.  The remaining increase in cash used in investing activities
for 2007 was due primarily to the enhancement of information and service
systems.  The primary purpose of this cash investment activity was to
support our clinicians at site locations, improve our operational efficiency and
create scalability for future service offerings.




Financing
Activities




Cash
provided by financing activities was $10.5 million for 2007, compared with $0.8
million and $0.5 million for 2006 and 2005, respectively.  Of the
increase in cash provided by financing activities for 2007, $6.5 million was due
directly to the acquisition of Pro Fitness Health.  We amended our
credit facility during the year in connection with the acquisition of Pro
Fitness Health.  The remaining increase is primarily due to additional
draws under our credit facility in order to meet working capital demands of
serving additional clients and sites.  Cash requirements resulting in
the use of the revolving credit facility will vary from time to time depending
upon the timing of cash receipts and various payment requirements.




Sources
of Liquidity




Funds
generated by operating activities and available cash and cash equivalents
continue to be our most significant sources of liquidity.  We believe
funds generated from these sources will be sufficient to finance continuing
operations and strategic initiatives for the next year.  In addition,
our revolving senior secured credit facility is available for additional working
capital needs or investment opportunities.  There can be no assurance,
however, that we will continue to generate cash flows at or above current levels
or that we will be able to maintain our ability to borrow under our credit
facility.




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 securities), 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.




We have a
revolving credit facility of $17,000 and a swingline loan of $5,000 under our
senior credit facility that is secured by substantially all of our tangible
assets.  The facility expires on July 1, 2009.  We also have
a $3,000 term loan under our senior credit facility which matures through
September 30, 2008.  Borrowings under our credit facility bear
interest at rates specified in the credit agreement.  We also pay
certain facility and agent fees.  Amounts outstanding under letters of
credit of $1.7 million at December 31, 2007, reduce amounts available under the
credit facility.  Outstanding letters of credit were reduced by $1.0
million on January 14, 2008.  As of December 31, 2006 and December 31,
2005, $4.9 million was available under the facility.  At December 31,
2007, borrowings under the revolving credit facility were $11,137, borrowings
under the swingline loan were $5,000, and borrowings under the term loan were
$3,000.  At December 31, 2006, we had $9.1 million outstanding under
our revolving credit facility.






35




Our
ability to access our credit facility is subject to our compliance with the
terms and conditions of the credit facility, including financial covenants that
require us to maintain certain financial ratios.  At December 31,
2007, we were in compliance with all such covenants.




Capital
Expenditures




A
component of our long-term strategy is our capital expenditure
program.  This program includes, among other things, investments in
sales and marketing, service improvements, and information technology
enhancements.  During 2007, we invested $3.6 million (of which $1.2
million was acquired under a capital lease) in property and equipment, most of
which involved upgrading our information technology systems to provide future
leverage in both operating and general and administrative expense
ratios.  Capital expenditures are primarily funded through cash
provided by operating activities, as well as available cash and cash
equivalents.  In 2008, we anticipate investing $3.5 million to $4.0
million on capital expenditures.




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.




The
following table summarizes our known contractual obligations at December 31,
2007, and the effect such obligations are expected to have on our liquidity and
cash in future periods:




$
in thousands, except per share amounts




Payments
      due by periodContractual
      obligations
            
            Total
            
            
            <
      1 Year
            
            
            1
      – 3 Years
            
            
            3
      – 5 Years
            
            
            >
      5 YearsOperating
      leases
            
            $
            15,135
            
            
            $
            2,284
            
            
            $
            3,849
            
            
            $
            2,196
            
            
            $
            6,806Less:
      Amounts reimbursed by clients (1)
            
            
            (4,473
            )
            
            
            (1,226
            )
            
            
            (1,763
            )
            
            
            (502
            )
            
            
            (982
            )$
            10,662
            
            
            $
            1,058
            
            
            $
            2,086
            
            
            $
            1,694
            
            
            $
            5,824




(1)
            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.






36






Critical
Accounting Estimates




Our
consolidated financial statements and applicable notes are prepared in
accordance with the generally accepted accounting principles (“GAAP”) 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,
liabilities, revenue, expenses and the related disclosures.  We base
our estimates and judgments on our historical experience, current trends and on
various other factors that we believe are reasonable under the
circumstances.  On a regular basis, management reviews the accounting
policies, assumptions, estimates and judgments to ensure that our financial
statements are presented fairly and in accordance with
GAAP.  Notwithstanding these efforts, there can be no assurance that
actual results will not differ from the respective amount of those
estimates.




Our
significant accounting policies are discussed in Note 1, Significant Accounting
Policies, of the Notes to Consolidated Financial Statements, included in
Item 8, Financial Statements
and Supplementary Data, of this Annual Report on Form
10-K.  Management believes that the following accounting estimates are
the most critical to aid in fully understanding and evaluating our reported
financial results, and they require management’s most difficult, subjective or
complex judgments, resulting from the need to make estimates about the effect of
matters that are inherently uncertain.  Management has reviewed these
critical accounting estimates and related disclosures with the Audit Committee
of our Board.






37







Description
            Judgments
      and Uncertainties
            Effect
      if Actual Results Differ
              From
      AssumptionsProfessional
      Liability 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.
            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 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.
            We
      have not made any material changes in our professional liability reserves
      methodology during the past three years.
              
              Although
      considerable variability is inherent in our estimates, management believes
      the reserves for losses and loss adjustment expenses are adequate.
       However, if our future claims history were larger in either
      frequency or severity or a combination of two, we may be exposed to losses
      that could be material.Goodwill
      and Intangible Assets
              
              We
      evaluate goodwill for impairment annually and whenever events or changes
      in circumstances indicate the carrying value of the goodwill may not be
      recoverable.  We complete our impairment evaluation by performing
      internal valuation analyses and considering other publicly available
      market information.
              
              In
      the fourth quarter of 2007, we completed our annual impairment testing of
      goodwill using the methodology described here, and determined there was no
      impairment.
              
              The
      carrying value of goodwill as of December 31, 2007 was $58.9
      million.
            We
      determine fair value using widely accepted valuation techniques, including
      discounted cash flow and market multiple analyses.  These types of
      analyses contain uncertainties because they require management to make
      assumptions and to apply judgment to estimate industry economic factors
      and the profitability of future business strategies.  Our policy is
      to conduct impairment testing based on our current business strategy in
      light of present industry and economic conditions, as well as future
      expectations.
            We
      have not made any material changes in our impairment loss assessment
      methodology during the year.
              
              We
      do not believe there is a reasonable likelihood that there will be a
      material change in the future estimates or assumptions we use to test for
      goodwill impairment losses.  However, if actual results are not
      consistent with our estimates and assumptions, we may be exposed to an
      impairment charge that could be material.






38





Description
            Judgments
      and Uncertainties
            Effect
      if Actual Results Differ
              From
      AssumptionsTax
      Contingencies
              
              Our
      income tax returns, like those of most companies, are periodically audited
      by domestic tax authorities.  These audits include questions
      regarding our tax filing positions, including the timing and amount of
      deductions and the allocation of income among various tax jurisdictions.
       At any one time, multiple tax years are subject to audit by the
      various tax authorities.  In evaluating the exposures associated with
      our various tax filing positions, we record reserves for probable
      exposures.  A number of years may elapse before a particular matter
      for which we have established a reserve is audited and fully resolved or
      clarified.  We adjust our tax contingencies reserve and income tax
      provision in the period in which actual results of a settlement with tax
      authorities differs from our established reserve, the statute of
      limitations expires for the relevant taxing authority to examine the tax
      position or when more information becomes available.
            Our
      tax contingencies reserve contains uncertainties because management is
      required to make assumptions and to apply judgment to estimate the
      exposures associated with our various filing positions.
              
              Our
      effective income tax rate is also affected by changes in tax law, the tax
      jurisdiction of new sites or business ventures, the level of earnings and
      the results of tax audits.
            Although
      management believes that the judgments and estimates discussed here are
      reasonable, actual results could differ, and we may be exposed to losses
      or gains that could be material.
              
              To
      the extent we prevail in matters for which reserves have been established
      or are required to pay amounts in excess of our reserves, our effective
      income tax rate in a given financial statement period could be materially
      affected.  An unfavorable tax settlement would require use of our
      cash and result in an increase in our effective income tax rate in the
      period of resolution.  A favorable tax settlement would be recognized
      as a reduction in our effective income tax rate in the period of
      resolution.






39






Description
            Judgments
      and Uncertainties
            Effect
      if Actual Results Differ
              From
      AssumptionsRevenue
      Recognition
              
              See
      Note 1, Significant
      Accounting Policies, to the Notes to Consolidated Financial
      Statements, included in Item 8, Financial Statements and
      Supplementary Data, of this Annual Report on Form 10-K, for a
      complete discussion of our revenue recognition policies.
              
              We
      generate revenue from contractual client obligations for on-site
      healthcare and pharmacy services in 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 applicable 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
      follow Staff Accounting Bulletin No. 104, Revenue Recognition, in
      determining when to recognize revenue.  Certain contracts
      contain performance conditions where a portion of our fees are contingent
      on our ability to satisfy our contractual obligations (such as client or
      patient satisfaction or generic utilization).  In these
      instances, we use judgment to conclude on whether we will ultimately
      satisfy the required contractual obligations.
            Although
      we believe our judgments are reasonable, it is possible that we may not
      satisfy all of our contractual obligations which could materially affect
      the amount of revenue recognized in our financial
    statements.Stock-Based
      Compensation
              
              We
      have stock-based compensation plans, which include stock options and
      restricted share awards.  See Note 1, SignificantAccounting Policies, and
      Note 11, Share Based
      Compensation, to the Notes to the Consolidated Financial
      Statements, included in Item 8, Financial Statements and
      Supplementary Data, of this Annual Report on Form 10-K, for a
      complete discussion of our stock-based compensation programs.
              
              We
      determine fair value of our stock option awards at the date of grant using
      a Black-Scholes model.
              
              We
      determine the fair value of our restricted share awards at the date of
      grant using generally accepted valuation techniques and a trailing ten day
      average closing market price of our stock.
            Black-Scholes
      option-pricing models and generally accepted valuation techniques require
      management to make assumptions and to apply judgment to determine the fair
      value of our awards.  These assumptions and judgments include
      estimating the volatility of our stock price, expected dividend yield, and
      employee forfeiture behaviors.  Changes in these assumptions can
      materially affect the fair value estimate.
            We
      do not believe there is a reasonable likelihood that there will be a
      material change in future estimates or assumptions we use to determine
      stock-based compensation expense.  However, if actual results
      are not consistent with our estimates or assumptions, we may be exposed to
      changes in stock-based compensation expense that could be
      material.
              
              If
      actual results are not consistent with the assumptions used, the
      stock-based compensation expense reported in our financial statements may
      not be representative of the actual economic cost of the stock-based
      compensation.




Pass-Through
Pharmaceutical Purchases




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.






40




New
Accounting Standards




In
December 2007, the FASB issued SFAS No. 141 (revised 2007) (“SFAS 141R”), “Business
Combinations” and SFAS No. 160 (“SFAS 160”), Noncontrolling Interests in
Consolidated Financial Statements, an amendment of Accounting Research Bulletin
No. 51.  SFAS 141R will change how business acquisitions
are accounted for and will impact financial statements both on the acquisition
date and in subsequent periods.  SFAS 160 will change the accounting
and reporting for minority interests, which will be recharacterized as
noncontrolling interests and classified as a component of equity.
 SFAS 141R and SFAS 160 are effective for us beginning in the
first quarter of fiscal 2010.  Early adoption is not permitted.  We
are currently evaluating the impact that SFAS 141R and SFAS 160 will
have on our consolidated financial statements.




In
February 2007, the FASB issued SFAS No. 159 (“SFAS 159”), The Fair Value Option for Financial
Assets and Financial Liabilities.  Under SFAS 159,
companies may elect to measure certain financial instruments and certain other
items at fair value.  The standard requires that unrealized gains and
losses on items for which the fair value option has been elected be reported in
earnings. SFAS 159 is effective for us beginning in the first quarter of
fiscal 2008.




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




Material
Equity Transactions




The
following table describes activity related to our Series A
Convertible Preferred Stock:




2007
            
            2006
            
            2005Series
      A Convertible Preferred Stock converted
            
            341,975
            
            293,938
            
            217,244Common
      shares issued upon conversion
            
            3,419,747
            
            2,939,375
            
            2,172,445Common
      shares issued in satisfaction of dividends accrued
            
            549,573
            
            417,016
            
            418,334Total
      common shares issued upon Series A Convertible Preferred Stock
      conversions
            
            3,969,320
            
            3,356,391
            
            2,590,779




Item
7A.                      Quantitative
and Qualitative Disclosures About Market Risk




Our
senior credit facility is not subject to material interest-rate volatility
risk.  The rates on the credit facility during 2007 ranged from 6.4%
to 8.4%.  If the rates on the debt were to increase to 9.5%, the
resulting financial impact would not be material to our financial
statements.  We do not manage our debt interest-rate volatility risk
through the use of derivative instruments.




Overall,
there have been no material changes in our primary risk exposures or management
of market risks since the prior year.  We do not expect any material
changes in our primary risk exposures or management of market risks for the
foreseeable future.






41




Item
8.                 Financial
Statements and Supplementary Data




Our
management is responsible for the preparation, integrity and objectivity of the
accompanying consolidated financial statements and the related financial
information.  The financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America and necessarily include certain amounts that are based on estimates and
informed judgments.  Our management also prepared the related
financial information included in this Annual Report on Form 10-K and is
responsible for its accuracy and consistency with the financial
statements.




The
consolidated financial statements have been audited by McGladrey & Pullen,
LLP for the year ended December 31, 2007 and Goldstein Golub Kessler LLP for the
years ended December 31, 2006 and 2005.  Both firms are independent
registered public accounting firms that conducted their audits in accordance
with the standards of the Public Company Accounting Oversight Board (United
States).  The responsibility of independent registered public
accounting firms is to express an opinion as to the fairness with which such
financial statements present our financial position, results of operations and
cash flows in accordance with accounting principles generally accepted in the
United States.






42




MANAGEMENT’S
ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING




Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rule 13a-15(f) promulgated
under the Securities Exchange Act of 1934.  Our internal control over
financial reporting is designed under the supervision of our principal executive
officer and principal financial and accounting officer, and effected by our
Board of Directors, management and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with accounting
principles generally accepted in the United States and include those policies
and procedures that:




(1)           Pertain
to the maintenance of records that in reasonable detail accurately and fairly
reflect our transactions and the dispositions of our assets;




(2)           Provide
reasonable assurance that our transactions are recorded as necessary to permit
preparation of financial statements in accordance with accounting principles
generally accepted in the United States, and that our receipts and expenditures
are being made only in accordance with authorizations of our management and
Board of Directors; and




(3)           Provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect
on our financial statements.




Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Therefore, even those systems determined to be
effective can provide only reasonable assurance with respect to financial
statement preparation and presentation.




Under the
supervision and with the participation of our management, including our
principal executive officer and principal financial and accounting officer, we
assessed the effectiveness of our internal control over financial reporting as
of December 31, 2007, using the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated
Framework.  Based on its assessment, management has concluded
that our internal control over financial reporting was effective as of December
31, 2007.  During its assessment, management did not identify any
material weaknesses in our internal control over financial
reporting.






/s/ R. Dixon
      Thayer
              /s/ Bradley S.
      WearR.
      Dixon Thayer
              Bradley
      S. WearChief
      Executive Officer
              Senior
      Vice President(Principal
      Executive Officer)
              and
      Chief Financial Officer(Principal
      Financial and Accounting
Officer)






43




REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the
Board of Directors and Stockholders


I-Trax,
Inc.





We have
audited I-Trax, Inc. and subsidiaries internal control over financial reporting
as of December 31, 2007, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).  I-Trax, Inc.’s management is responsible
for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting
included in Management’s Annual Report on Internal Control over Financial
Reporting.  Our responsibility is to express an opinion on the
Company's internal control over financial reporting based on our
audit.





We
conducted our audit 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 effective internal control over financial reporting was maintained in
all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk.  Our audit also included
performing such other procedures as we considered necessary in the
circumstances.  We believe that our audit provides a reasonable basis
for our opinion.





A
company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles.  A company's internal
control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial
statements.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.





In our
opinion, I-Trax, Inc. and subsidiaries maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2007,
based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).





We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the December 31, 2007 consolidated financial
statements of I-Trax, Inc. and subsidiaries and our report dated March 17, 2008
expressed an unqualified opinion.





MCGLADREY
& PULLEN, LLP


New York,
NY


March 17,
2008







44




Report
of Independent Registered Public Accounting Firm





To the
Board of Directors and Stockholders


I-Trax,
Inc.





We have
audited the consolidated balance sheet of I-Trax, Inc. and subsidiaries as of
December 31, 2007, and the related consolidated statements of operations,
stockholders’ equity and cash flows for the year then ended.  These
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 audit.





We
conducted our audit 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 audit provides 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, 2007, and the results of their operations and
their cash flows for the year then ended in conformity with U.S. generally
accepted accounting principles.





We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), I-Trax, Inc. and subsidiaries' internal control
over financial reporting as of December 31, 2007, based on criteria established
in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) and our report dated March 17, 2008,expressed an unqualified
opinion on the effectiveness of I-Trax, Inc. and subsidiaries’ internal control
over financial reporting.








MCGLADREY
& PULLEN, LLP


New York,
New York


March 17,
2008






45




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, 2006 and the related consolidated
statements of operations, stockholders’ equity and cash flows for each of the
two years in the period ended December 31, 2006.  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, 2006, and the results of their operations
and their cash flows for each of the two years in the period ended December 31,
2006 in conformity with United States generally accepted accounting
principles.





As
discussed in Note 1 to the consolidated financial statements, the Company
changed the manner in which it accounts for stock-based compensation in
2006.














GOLDSTEIN
GOLUB KESSLER LLP


New York,
New York


March 10,
2007
   46


I-TRAX,
INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEET


(in
thousands, except share data)





ASSETSDecember
      31,2007
            
            
            2006Current
      assetsCash and cash
      equivalents
            
            $
            10,075
            
            
            $
            6,558Accounts receivable,
      net
            
            
            29,450
            
            
            
            21,704Other current
      assets
            
            
            943
            
            
            
            1,526Total current
      assets
            
            
            40,468
            
            
            
            29,788Property
      and equipment, net
            
            
            4,735
            
            
            
            3,377Goodwill
            
            
            58,891
            
            
            
            51,620Customer
      list, net
            
            
            17,216
            
            
            
            18,159Other
      intangible assets, net
            
            
            189
            
            
            
            402Other
      long term assets
            
            
            36
            
            
            
            41Total assets
            
            $
            121,535
            
            
            $
            103,387LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilitiesAccounts
payable
            
            $
            9,895
            
            
            $
            10,376Accrued payroll and
      benefits
            
            
            5,373
            
            
            
            4,444Current portion of accrued
      restructuring charges
            
            
            --
            
            
            
            118Other current
      liabilities
            
            
            15,655
            
            
            
            11,627Total current
      liabilities
            
            
            30,923
            
            
            
            26,565Senior
      secured credit facility
            
            
            15,198
            
            
            
            9,057Notes
      payable
            
            
            1,904
            
            
            
            129Other
      long term liabilities
            
            
            4,505
            
            
            
            1,945Total
    liabilities
            
            
            52,530
            
            
            
            37,696Commitments
      and contingenciesStockholders’
      equityPreferred stock - $.001 par
      value, 2,000,000 shares authorized, 217,126
              and
      559,101 issued and outstanding, respectively; Liquidation
              preference:
      $5,428,000 and $13,978,000 at December 31, 2007 and
              2006,
      respectively
            
            
            --
            
            
            
            1Common stock - $.001 par value,
      100,000,000 shares authorized
              41,340,488 and
      36,613,707 shares issued and outstanding, respectively
            
            
            41
            
            
            
            35Additional paid in
      capital
            
            
            140,496
            
            
            
            136,623Accumulated
    deficit
            
            
            (71,532
            )
            
            
            (70,968
            )Total stockholders’
      equity
            
            
            69,005
            
            
            
            65,691Total
      liabilities and stockholders’ equity
            
            $
            121,535
            
            
            $
            103,387




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




47




I-TRAX,
INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF OPERATIONS


(in
thousands, except share data)





Year
      ended December 31,2007
            
            
            2006
            
            
            2005Net
      revenue
            
            $
            143,193
            
            
            $
            124,589
            
            
            $
            115,887Costs
      and expensesOperating
    expenses
            
            
            108,449
            
            
            
            93,247
            
            
            
            88,457Lease termination
      expense
            
            
            780
            
            
            
            --
            
            
            
            --Impairment of intangible and
      long-lived assets
            
            
            --
            
            
            
            --
            
            
            
            12,470Provision for loss
      contracts
            
            
            --
            
            
            
            --
            
            
            
            663Restructuring
      expenses
            
            
            --
            
            
            
            --
            
            
            
            783General and administrative
      expenses
            
            
            29,860
            
            
            
            26,401
            
            
            
            23,130Depreciation and
      amortization
            
            
            4,166
            
            
            
            3,259
            
            
            
            3,616Total
      costs and expenses
            
            
            143,255
            
            
            
            122,907
            
            
            
            129,119Operating
      income (loss)
            
            
            (62
            )
            
            
            1,682
            
            
            
            (13,232
            )Other
      (income) expensesInterest
expense
            
            
            565
            
            
            
            474
            
            
            
            454Amortization of financing
      costs
            
            
            77
            
            
            
            230
            
            
            
            239Other (income)
      expenses
            
            
            (1,421
            )
            
            
            --
            
            
            
            --Total
      other (income) expenses
            
            
            (779
            )
            
            
            704
            
            
            
            693Income
      (loss) before provision for income taxes
            
            
            717
            
            
            
            978
            
            
            
            (13,925
            )Provision
      for income taxes
            
            
            519
            
            
            
            511
            
            
            
            147Income
      (loss) from continuing operations
            
            
            198
            
            
            
            467
            
            
            
            (14,072
            )Income
      from discontinued operations (Note 4)
            
            
            --
            
            
            
            1,299
            
            
            
            --Net
      income (loss)
            
            
            198
            
            
            
            1,766
            
            
            
            (14,072
            )Less
      preferred stock dividend
            
            
            577
            
            
            
            1,184
            
            
            
            2,049Net
      income (loss) applicable to common stockholders
            
            $
            (379
            )
            
            $
            582
            
            
            $
            (16,121
            )Earnings
      (loss) per common share:BasicFrom continuing
      operations
            
            $
            (0.01
            )
            
            $
            (0.02
            )
            
            $
            (0.54
            )From discontinued
      operations
            
            $
            --
            
            
            $
            0.04
            
            
            $
            --Net earnings (loss) per common
      share
            
            $
            (0.01
            )
            
            $
            0.02
            
            
            $
            (0.54
            )DilutedFrom continuing
      operations
            
            $
            (0.01
            )
            
            $
            (0.02
            )
            
            $
            (0.54
            )From discontinued
      operations
            
            $
            --
            
            
            $
            0.03
            
            
            $
            --Net earnings (loss) per common
      share
            
            $
            (0.01
            )
            
            $
            0.02
            
            
            $
            (0.54
            )Weighted
      average number of shares outstanding, basic
            
            
            40,288,436
            
            
            
            36,039,650
            
            
            
            29,716,114Weighted
      average number of shares outstanding, diluted
            
            
            40,288,436
            
            
            
            37,614,510
            
            
            
            29,716,114




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




48




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, 2004
            
            
            1,070,283
            
            
            $
            1
            
            
            
            26,226,818
            
            
            $
            25
            
            
            $
            130,399
            
            
            $
            (58,662
            )
            
            $
            71,763Warrant
      exercises
            
            
            --
            
            
            
            --
            
            
            
            22,158
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Issuance
      of warrants for services
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            31
            
            
            
            --
            
            
            
            31Issuance
      of common stock (Note 2)
            
            
            --
            
            
            
            --
            
            
            
            3,859,200
            
            
            
            4
            
            
            
            5,592
            
            
            
            --
            
            
            
            5,596Conversion
      of preferred stock and accrueddividends
      on preferred stock into common stock
            
            
            (217,244
            )
            
            
            --
            
            
            
            2,590,779
            
            
            
            3
            
            
            
            682
            
            
            
            --
            
            
            
            685Preferred
      stock 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











(Continued
on following page.)


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








49





I-TRAX,
INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY


(in
thousands, except share data)





(Continued
from previous page.)





Preferred
      Stock
            
            
            Common
      Stock
            
            
            Additional
              Paid-in
            
            
            Accumulated
            
            
            Total
              Stockholders’Shares
            
            
            Amount
            
            
            Shares
            
            
            Amount
            
            
            Capital
            
            
            Deficit
            
            
            EquityBalances
      at December 31, 2005
            
            
            853,039
            
            
            $
            1
            
            
            
            32,818,955
            
            
            $
            32
            
            
            $
            134,864
            
            
            $
            (72,734
            )
            
            $
            62,163Warrant
      exercises
            
            
            --
            
            
            
            --
            
            
            
            210,176
            
            
            
            --
            
            
            
            21
            
            
            
            --
            
            
            
            21Issuance
      of warrants for services
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            100
            
            
            
            --
            
            
            
            100Conversion
      of preferred stock and accrued dividends on preferred stock into common
      stock
            
            
            (293,938
            )
            
            
            --
            
            
            
            3,356,391
            
            
            
            3
            
            
            
            1,112
            
            
            
            --
            
            
            
            1,115Preferred
      stock dividend
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            (1,184
            )
            
            
            --
            
            
            
            (1,184
            )Private
      placement of common stock
            
            
            --
            
            
            
            --
            
            
            
            70,833
            
            
            
            --
            
            
            
            237
            
            
            
            --
            
            
            
            237Exercise
      of options
            
            
            --
            
            
            
            --
            
            
            
            157,352
            
            
            
            --
            
            
            
            148
            
            
            
            --
            
            
            
            148Modification
      of warrant
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            57
            
            
            
            --
            
            
            
            57Stock
      based compensation
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            1,268
            
            
            
            --
            
            
            
            1,268Net
      income for the year ended December 31, 2006
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            1,766
            
            
            
            1,766Balances
      at December 31, 2006
            
            
            559,101
            
            
            $
            1
            
            
            
            36,613,707
            
            
            $
            35
            
            
            $
            136,623
            
            
            $
            (70,968
            )
            
            $
            65,691

















(Continued
on following page.)


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






50





I-TRAX,
INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY


(in
thousands, except share data)





(Continued
from previous page.)





Preferred
      Stock
            
            
            Common
      Stock
            
            
            Additional
              Paid-in
            
            
            Accumulated
            
            
            Total
              Stockholders’Shares
            
            
            Amount
            
            
            Shares
            
            
            Amount
            
            
            Capital
            
            
            Deficit
            
            
            EquityBalances
      at December 31, 2006
            
            
            559,101
            
            
            $
            1
            
            
            
            36,613,707
            
            
            $
            35
            
            
            $
            136,623
            
            
            $
            (70,968
            )
            
            $
            65,691Cumulative
      effect of adoption
              of FIN
      48
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            (762
            )
            
            
            (762
            )Warrant
      exercises
            
            
            --
            
            
            
            --
            
            
            
            360,711
            
            
            
            1
            
            
            
            --
            
            
            
            --
            
            
            
            1Issuance
      of warrants for services
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            47
            
            
            
            --
            
            
            
            47Conversion
      of preferred stock and accrued dividends on preferred stock into common
      stock
            
            
            (341,975
            )
            
            
            (1
            )
            
            
            3,969,320
            
            
            
            4
            
            
            
            2,045
            
            
            
            --
            
            
            
            2,048Preferred
      stock dividend
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            (577
            )
            
            
            --
            
            
            
            (577
            )Shares
      issued to executives
            
            
            --
            
            
            
            --
            
            
            
            33,500
            
            
            
            --
            
            
            
            133
            
            
            
            --
            
            
            
            133Exercise
      of options
            
            
            --
            
            
            
            --
            
            
            
            331,087
            
            
            
            1
            
            
            
            534
            
            
            
            --
            
            
            
            535Vesting
      of restricted stock
            
            
            --
            
            
            
            --
            
            
            
            32,163
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Stock
      based compensation
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            1,691
            
            
            
            --
            
            
            
            1,691Net
      income for the year ended December 31, 2007
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            198
            
            
            
            198Balances
      at December 31, 2007
            
            
            217,126
            
            
            $
            --
            
            
            
            41,340,488
            
            
            $
            41
            
            
            $
            140,496
            
            
            $
            (71,532
            )
            
            $
            69,005














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






51




I-TRAX,
INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(in
thousands)





Year
      ended December 312007
            
            
            2006
            
            
            2005Operating
      activities:Net income
    (loss)
            
            $
            198
            
            
            $
            1,766
            
            
            $
            (14,072
            )Adjustments to reconcile net
      income (loss) to net cash provided by operating
activities:Discontinued
      operations
            
            
            --
            
            
            
            (1,299
            )
            
            
            --Impairment
            
            
            --
            
            
            
            --
            
            
            
            12,470Modification of
      warrants
            
            
            --
            
            
            
            57
            
            
            
            --Issuance of stock below market
      value
            
            
            31
            
            
            
            130
            
            
            
            --Stock based
      compensation
            
            
            1,691
            
            
            
            1,268
            
            
            
            --Loss on disposal of
      assets
            
            
            28
            
            
            
            651
            
            
            
            --Accrued restructuring
      charges
            
            
            --
            
            
            
            --
            
            
            
            828Accrued loss on
      contracts
            
            
            --
            
            
            
            --
            
            
            
            663Depreciation and
      amortization
            
            
            4,166
            
            
            
            3,259
            
            
            
            3,616Employee stock
      purchase
            
            
            --
            
            
            
            --
            
            
            
            34Options issued below market
      value
            
            
            --
            
            
            
            --
            
            
            
            25Issuance of warrants for
      services
            
            
            47
            
            
            
            100
            
            
            
            31Effect of adoption of FIN
      48
            
            
            145
            
            
            
            --
            
            
            
            --Amortization of financing
      costs
            
            
            77
            
            
            
            230
            
            
            
            240Changes in operating assets and
      liabilities, net of effects of acquisition:Accounts
    receivable
            
            
            (6,333
            )
            
            
            (6,214
            )
            
            
            (3,874
            )Deferred tax
    asset
            
            
            --
            
            
            
            --
            
            
            
            1,198Other current
      assets
            
            
            644
            
            
            
            373
            
            
            
            54Other long term
      assets
            
            
            5
            
            
            
            --
            
            
            
            20Accounts
payable
            
            
            (1,169
            )
            
            
            2,306
            
            
            
            1,951Accrued payroll and
      benefits
            
            
            544
            
            
            
            483
            
            
            
            65Accrued loss
      contracts
            
            
            --
            
            
            
            (419
            )
            
            
            (244
            )Accrued restructuring
      charges
            
            
            (118
            )
            
            
            (209
            )
            
            
            (502
            )Other current
      liabilities
            
            
            540
            
            
            
            (223
            )
            
            
            2,801Deferred tax
      liability
            
            
            --
            
            
            
            --
            
            
            
            (1,526
            )Other long term
      liabilities
            
            
            904
            
            
            
            (370
            )
            
            
            (18
            )Net
      cash provided by operating activities
            
            
            1,400
            
            
            
            1,889
            
            
            
            3,760Investing
      activities:Purchases of property and
      equipment
            
            
            (2,417
            )
            
            
            (1,506
            )
            
            
            (2,548
            )Acquisition of intangible
      assets
            
            
            (120
            )
            
            
            (25
            )
            
            
            (113
            )Acquisition of Pro Fitness, net
      of acquired cash
            
            
            (5,814
            )
            
            
            --
            
            
            
            --Net
      cash used in investing activities
            
            
            (8,351
            )
            
            
            (1,531
            )
            
            
            (2,661
            )Financing
      activities:Principal payments on capital
      leases
            
            
            --
            
            
            
            --
            
            
            
            (9
            )Proceeds from option
      exercises
            
            
            536
            
            
            
            148
            
            
            
            --Proceeds from private placement
      of common stock
            
            
            --
            
            
            
            107
            
            
            
            --Proceeds from warrant
      exercises
            
            
            --
            
            
            
            22
            
            
            
            --Repayment of notes
      payable
            
            
            (148
            )
            
            
            (55
            )
            
            
            --Proceeds from bank credit
      facility
            
            
            10,080
            
            
            
            592
            
            
            
            341Proceeds from sale of stock and
      exercise of warrants
            
            
            --
            
            
            
            --
            
            
            
            150Net
      cash provided by financing activities
            
            
            10,468
            
            
            
            814
            
            
            
            482Net
      increase in cash and cash equivalents
            
            
            3,517
            
            
            
            1,172
            
            
            
            1,581Cash
      and cash equivalents at beginning of year
            
            
            6,558
            
            
            
            5,386
            
            
            
            3,805Cash
      and cash equivalents at end of year
            
            $
            10,075
            
            
            $
            6,558
            
            
            $
            5,386





(Continued
on following page.)


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






52




I-TRAX,
INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(in
thousands)





(Continued
from previous page.)





Year
      ended December 31,2007
            
            
            2006
            
            
            2005Supplemental
      disclosure of cash flow information:Cash paid during the year
      for:Interest
            
            $
            841
            
            
            $
            673
            
            
            $
            649Income taxes
            
            $
            466
            
            
            $
            650
            
            
            $
            312Schedule
      of non-cash investing and financing activities:Issuance of warrants for
      services
            
            $
            47
            
            
            $
            100
            
            
            $
            31Software acquired under a capital
      lease
            
            $
            1,219
            
            
            $
            --
            
            
            $
            --Accrued purchase
      price
            
            $
            --
            
            
            $
            --
            
            
            $
            1,346Preferred stock
      dividend
            
            $
            577
            
            
            $
            1,184
            
            
            $
            2,049Conversion of accrued dividends
      to common stock
            
            $
            2,048
            
            
            $
            1,115
            
            
            $
            685Purchase of Pro Fitness (Note 2)
      and assumption of liabilities in the acquisition as
    follows:Fair value of non-cash tangible
      assets acquired
            
            $
            1,650
            
            
            $
            --
            
            
            $
            --Goodwill
            
            
            7,271
            
            
            
            --
            
            
            
            --Customer list
            
            
            540
            
            
            
            --
            
            
            
            --Other
intangibles
            
            
            2
            
            
            
            --
            
            
            
            --Cash paid, net of cash
      acquired
            
            
            (5,814
            )
            
            
            --
            
            
            
            --Note payable
            
            
            (1,050
            )
            
            
            --
            
            
            
            --Accrued purchase
      price
            
            
            (899
            )
            
            
            --
            
            
            
            --Liabilities
    assumed
            
            $
            1,700
            
            
            $
            --
            
            
            $
            --





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







53




I-TRAX,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (in thousands,
except per share data)




1.  Significant
Accounting Policies




Operations




I-trax,
Inc. offers integrated workplace health and productivity management
solutions.  We operate on-site health centers which deliver primary
care, pharmacy care management, acute care corporate health, and occupational
health services as well as disease, wellness and lifestyle management
programs.  We enhance the services we offer at our on-site centers
with larger scale disease management and wellness programs that utilize
telephonic and e-health tools and which benefit from the trusted relationship
established by our clinicians at the worksite.  We are focused on
helping companies achieve employer-of-choice status, making the workplace safe,
and improving the quality of care and productivity of the workforce while
mitigating healthcare costs.




We
conduct on-site services through CHD Meridian Healthcare, LLC, a Delaware
limited liability company (“CHD
Meridian LLC”), and its subsidiary companies, and our 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 our 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
our on-site services, including the development of professional standards,
policies, and procedures.  We provide a wide array of business
services to the Physician Groups, including administrative services, support
personnel, facilities, marketing, insurance, and other non-medical
services.




Basis
of Presentation




The
accompanying consolidated financial statements include the accounts of I-trax,
Inc. and its direct and indirect subsidiaries, which include CHD Meridian LLC,
Green Hills Insurance Company, A Risk Retention Group (Note 14, 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, I-trax, is
necessary to present fairly our financial position and results of
operations.  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, 2007 and 2006.








54


I-TRAX,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (in thousands,
except per share data)




Use
of Estimates




In
preparing the financial statements in conformity with accounting principles
generally accepted in the United States (GAAP), we are 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 materially from our
estimates.




Accounts
Receivable




We
maintain an allowance for doubtful accounts which reflects our best estimate of
potentially uncollectible trade receivables.  We regularly review our
trade receivables allowances by considering such factors as historical
experience, credit-worthiness, the age of the trade receivable balances, and
current economic conditions that may affect a customer’s ability to
pay.  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.  Accounts receivable on the consolidated balance
sheet is stated net of our allowance for doubtful accounts.  The
following table shows activity in our allowance for doubtful
accounts:




Beginning
      Balance
            
            Due
      to Acquisition
            
            Charged/
      (Credited) to Operating Expenses
            
            Deductions(1)
            
            Ending
      BalanceAllowance
      for doubtful accounts:Year
      Ended:December
      31, 2007
            $                  601
            
            --
            
            --
            
            (28
            )
            $                  573December
      31, 2006
            $                  605
            
            --
            
            --
            
            (4
            )
            $                  601December
      31, 2005
            $                  598
            
            --
            
            21
            
            (14
            )
            $                  605




(1)
            Deductions
      related to the allowance for doubtful accounts represent amounts written
      off against the allowance, less
recoveries.




Property
and Equipment




We record
property and equipment at cost less accumulated depreciation and
amortization.  Depreciation is calculated using the straight-line
method over the estimated useful lives of the assets ranging from 1 to 7
years.  Leasehold improvements are amortized using the straight-line
method over the lesser of the remaining respective lease term or useful
lives.  Accelerated depreciation methods are generally used for income
tax purposes.  Repairs and maintenance costs are charged directly to
expense as incurred.






55


I-TRAX,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (in thousands,
except per share data)




In
accordance with the provisions of American Institute of Certified Public
Accountant’s Statement of Position No. 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use, costs associated with
the acquisition or development of software for internal use are capitalized and
amortized over the expected useful life of the software, from 1 to 3
years.




We
account for the impairment or disposal of long-lived assets in accordance with
Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, which requires long-lived assets, such as
property and equipment, to be evaluated for impairment whenever events or
changes in circumstances indicate the carrying value of an asset may not be
recoverable.  Factors considered important that could result in an
impairment review include, but are not limited to, significant underperformance
relative to historical or planned operating results, significant changes in the
manner of use of the assets or significant changes in our business
strategies.  An impairment loss is recognized when the estimated
undiscounted cash flows expected to result from the use of the asset plus net
proceeds expected from disposition of the asset (if any) are less than the
carrying value of the asset.  When an impairment loss is recognized,
the carrying amount of the asset is reduced to its estimated fair value based on
quoted market prices or other valuation techniques.




In
connection with our restructuring during 2005 (Note 3, Restructuring and Related
Activities), we impaired $3,563 of software development costs associated
with (1) products that we will not sell or support in the future, or (2)
proprietary systems that we were no longer developing.




Goodwill
and Purchased and Other Intangibles




In
accordance with SFAS No. 142, Goodwill and Other Intangible
Assets,we review our goodwill for impairment annually, or more
frequently, if facts and circumstances warrant a review.  We completed
our annual impairment test in the fourth quarter of 2007 and determined that
there was no impairment charge.  We evaluate goodwill for impairment
by determining fair values utilizing widely accepted valuation techniques,
including discounted cash flows and market multiple analyses.  Our
assumptions consider historical and forecasted revenue, operating costs and
other relevant factors.




Our
customer list represents the value attributable to contracts acquired through
the acquisitions of CHD Meridian and Pro Fitness using a third-party valuation
based on guidance prescribed in SFAS No. 141, Business
Combinations.  The customer lists are amortized on a
straight-line basis over 15 to 20 years.  We evaluated the customer
list and other intangible assets for impairment during the fourth quarter of
2007 using widely accepted valuation techniques and determined there was no
impairment. Generally, amortization is based on the pattern in which the
economic benefits of the intangible asset will be consumed.






56


I-TRAX,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (in thousands,
except per share data)




Debt
Issuance Costs






We carry
costs of issuing and amending our senior secured credit facility as debt
issuance costs and amortize them over the term of the
facility.  Amortization of debt issuance costs resulted in charges of
$77, $230 and $239 during 2007, 2006, and 2005, respectively.




Income
Taxes




We use
the asset and liability method of accounting for income taxes. Under this
method, income tax expense is recognized for the amount of taxes payable or
refundable for the current year. In addition, deferred tax assets and
liabilities are recognized for expected future tax consequences of temporary
differences between the financial reporting and tax bases of assets and
liabilities, and for operating losses and tax credit carryforwards. We record a
valuation allowance to reduce deferred tax assets to an amount for which
realization is more likely than not.See
Note 9, Provision for Income
Taxes, for additional information related to the provision for income
taxes.




Initial
Adoption of FIN 48




In June
2006, the FASB issued FIN 48, Accounting for Uncertainty in Income
Taxes-An Interpretation of FASB Statement No. 109.  The
interpretation clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements in accordance with FASB
Statement No. 109, Accounting
for Income Taxes (“SFAS
No. 109”).  It prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return.  This
interpretation prescribes that a company should use a “more likely than not”
recognition threshold based on the technical merits of the tax position
taken.  Tax positions that meet the more likely than not recognition
threshold should be measured in order to determine the tax benefit to be
recognized in the financial statements.  It also provides guidance on
de-recognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition.




We and
one or more of our subsidiaries file income tax returns in the U.S. federal
jurisdiction, and various state and local jurisdictions.  We are no
longer subject to U.S. federal income tax examinations by authorities for years
prior to 2004.  With few exceptions, we are no longer subject to state
and local or non-U. S. income tax examinations for years prior to
2002.  The New York Department of Revenue is currently examining state
income tax returns for one subsidiary for years 2003 through
2005.  The results of this examination are not expected to have a
material impact on our consolidated financial position or consolidated results
of operations.




We
adopted the provisions of FASB Interpretation No. 48 on January 1,
2007.  As a result of the implementation, we recognized a $762
increase in the liability for unrecognized tax benefits, which was accounted for
as an increase of the January 1, 2007 balance of accumulated
deficit.  We have a $762 liability recorded for unrecognized tax
benefits as of January 1, 2007 which includes interest and penalties of
$135.  We recognize interest and penalties accrued related to
unrecognized tax benefits in tax expense.  The total net amount of
unrecognized tax benefits that, if recognized, would affect the effective tax
rate is $521, which includes interest and penalties of $135.   A
reconciliation of the beginning and ending amount of unrecognized tax benefits
is as follows:




57


I-TRAX,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (in thousands,
except per share data)






Balance
      at January 1, 2007
            $            762Additions
      based on tax positions related to the current year
            93Additions
      for tax positions of prior years
            168Lapse
      of Statute of Limitations
            (116
            )Balance
      at December 31, 2007
            $           907




In the
December 31, 2007 balance of unrecognized tax benefits, there are no tax
positions for which the ultimate deductibility is highly certain but the timing
of such deductibility is uncertain.  Accordingly there is no impact to
the deferred tax accounting for certain tax benefits.




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 our senior
secured credit facility as of December 31, 2007 approximates its principal
amount of $19,137 of which $3,939 is classified as current and $15,198 is
classified as long term.  The carrying amount of this facility
approximates its fair value due to market-based interest rates on the
facility.




Revenue
Recognition




We
recognize revenue 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.  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 applicable client contract.  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 sheet.




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, we
provide pharmaceuticals to clients as a component of the 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 agreements stipulate that we are reimbursed upon
purchasing pharmaceuticals, and not upon dispensing, thus limiting inventory
risk.  Furthermore, we mitigate credit risk through structured payment
terms.  We believe the substance of these agreements in relation to
pharmaceutical purchases demonstrates an agent-like arrangement and points to
net reporting.  As such, we record pass-through pharmaceutical
purchases on a net basis.






58


I-TRAX,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (in thousands,
except per share data)




Pass
through pharmaceutical purchases for the years ended December 31, 2007, 2006 and
2005 were approximately $153,601, $152,721, and $133,127,
respectively.




Stock-Based
Compensation Plans




On
January 1, 2006, we adopted the fair value recognition provisions of SFAS No.
123 (revised 2004), Share-Based Payment(“SFAS 123R”), requiring us to
recognize expense related to the fair value of our stock-based compensation
awards.  SFAS 123R supersedes our previous accounting under Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, for periods beginning in 2006.




We
elected the modified prospective transition method as permitted by SFAS
123R.  Under this transition method, stock-based compensation expense
for the year ended December 31, 2006, includes: (1) compensation expense
for all stock-based compensation awards granted prior to, but not yet vested as
of December 31, 2005, based on the grant date fair value estimated in accordance
with the original provisions of SFAS No. 123, Accounting for Stock-Based
Compensation; and (2) compensation expense for all stock-based
compensation awards granted subsequent to December 31, 2005, based on the
grant-date fair value estimated in accordance with the provisions of SFAS
123R.  We recognize compensation expense on a straight-line basis over
the requisite service period of the award.  Total stock-based
compensation expense included in general and administrative expenses in our
consolidated statements of operations was $1,691 and $1,268 for 2007 and 2006,
respectively.  In accordance with the modified prospective transition
method of SFAS 123R, financial results for prior periods have not been
restated.




New
Accounting Pronouncements




In
December 2007, the FASB issued SFAS No. 141 (revised 2007) (“SFAS 141R”), Business Combinations and
SFAS No. 160 (“SFAS 160”), Noncontrolling Interests in
Consolidated Financial Statements, an amendment of Accounting Research Bulletin
No. 51.  SFAS 141R will change how business
acquisitions are accounted for and will impact financial statements both on the
acquisition date and in subsequent periods. SFAS 160 will change the
accounting and reporting for minority interests, which will be recharacterized
as noncontrolling interests and classified as a component of equity.
SFAS 141R and SFAS 160 are effective for us beginning in the first
quarter of fiscal 2010. Early adoption is not permitted. We are currently
evaluating the impact that SFAS 141R and SFAS 160 will have on our
consolidated financial statements.




In
February 2007, the FASB issued SFAS No. 159 (“SFAS 159”), The Fair Value Option for Financial
Assets and Financial Liabilities. Under SFAS 159, companies may
elect to measure certain financial instruments and certain other items at fair
value.  The standard requires that unrealized gains and losses on items for
which the fair value option has been elected be reported in earnings.
SFAS 159 is effective for us beginning in the first quarter of fiscal
2009.






59


I-TRAX,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (in thousands,
except per share data)




We do not
believe that any other recently issued, but not yet effective, accounting
pronouncements will have a material impact on our financial position or results
of operations.




2.  Acquisitions




On
December 14, 2007, we acquired Pro Fitness Health Solutions, LLC, a New York
limited liability company (“Pro
FitnessHealth”)
and a provider of employer-sponsored wellness, fitness and occupational health
services in 22 states for more than 50 clients.




Pursuant
to the terms of the Acquisition Agreement, we purchased all of the outstanding
membership interests of Pro Fitness Health from Minute Men (the “Acquisition”).  The purchase price
for the Acquisition was $8,336, subject to certain adjustments.  We
delivered the purchase price as follows: $6,536 in cash (including direct
costs); 222,684 shares of our common stock (valued at $750, or $3.368 per share,
under the terms on the Acquisition Agreement) (the “Consideration Shares”); and a promissory note in
the principal amount of $1,050 (the “Promissory Note”).  The
Consideration Shares will be held in escrow and the Promissory Note will be paid
if certain performance criteria are met by the Pro Fitness business in
2008.




The
purchase price in the Pro Fitness Health acquisition is subject to the following
adjustments: Minute Men will receive an additional cash payment if the Pro
Fitness business has gross profit for 2008, derived from its historic business
and pipeline opportunities as of the closing date (the “2008 Gross Profit”), in excess
of $2,450 (“Gross Profit Target”).  The additional cash
payment will equal twice the amount by which the 2008 Gross Profit exceeds the
Gross Profit Target.  If the 2008 Gross Profit is less than the Gross
Profit Target, then Minute Men will pay I-trax an amount equal to 3.164
multiplied by the amount by which the Gross Profit Target exceeds the 2008 Gross
Profit.  Minute Men’s obligation to do so, however, is limited to the
value of the Consideration Shares and the Promissory Note.  Further,
if the value of the Consideration Shares when they are released from escrow is
less than the value of the Consideration Shares on the date of the closing,
I-trax will pay Minute Men an amount equal to the difference in
value.




I-trax
funded the cash portion of the purchase price by using amounts available under
its existing senior secured credit facility and new term loan with Bank of
America.  See the description of the Ninth Amendment to the Credit
Agreement in Note 8, Long Term
Debt.




The
acquisition was accounted for using the purchase method of
accounting.  We incurred acquisition costs of $512 that were included
in the purchase price.  In addition, $6 of transaction-related
expenses were included in general and administrative expenses on the
consolidated statements of operations.  The goodwill was allocated
entirely to the Pro Fitness Health reporting unit.






60


I-TRAX,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (in thousands,
except per share data)






The
aggregate purchase price of $8,336 for this transaction was allocated as
follows:




Amount
            
            
            Estimated
      Useful LifeFair
      value of tangible assets acquired (includes cash of $573)
            
            $
            2,223
            
            
            
            N/ALiabilities
      assumed
            
            
            (1,700
            )
            
            
            N/AGoodwill
            
            
            7,271
            
            
            
            N/ACustomer
      list
            
            
            540
            
            
            20
      yearsOther
      intangibles
            
            
            2
            
            
            1
      Year$
            8,336




The
goodwill value of $7,271 is considered to be deductible for tax
purposes.




On April
5, 2005, we 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
market value of these shares was $1.89 per share, or $7,294, at December 31,
2004.  The market value of our common stock on April 5, 2005 was
$1.45.  Consequently, we reduced our liability for the issuance of
these shares by $1,698, which was recorded as a reduction of
goodwill.






During
2005, we 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 milestone referenced
above.  The total liability of the cash bonus plan was estimated at
$352, which was recorded as an increase to goodwill pursuant to the merger
agreement.  We paid the amounts due under the cash bonus plan during
2005.






The
following are our 2007 and 2006 unaudited pro forma results of operations giving
effect to the acquisition of Pro Fitness as though the transaction occurred on
January 1, 2006.  The 2007 unaudited pro forma results exclude
transaction costs of $6.  The 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. We acquired Pro
Fitness on December 14, 2007.  The results of operations of Pro
Fitness will be included in operations commencing January 1, 2008.






61


I-TRAX,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (in thousands,
except per share data)




2007
              (pro
      forma)
            
            
            2006
              (pro
      forma)Net
      revenue
            
            $
            156,873
            
            
            $
            135,867Operating
      income
            
            $
            651
            
            
            $
            2,216Income
      from continuing operations
            
            $
            453
            
            
            $
            399Net
      income
            
            $
            453
            
            
            $
            1,698Net
      income (loss) applicable to common stockholders
            
            $
            (124
            )
            
            $
            514Earnings
      (loss) per share, basic
            
            $
            0.00
            
            
            $
            0.01Earnings
      (loss) per share, diluted
            
            $
            0.00
            
            
            $
            0.01




3.  Restructuring
and Related Activities




During
2005, we completed an in-depth analysis of our organization, products and
services.  This analysis led to the conclusion that certain products
and services we offered were no longer essential to our business.  We
then restructured our 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, we impaired goodwill and long-lived assets
by $12,470.  Of this amount, we wrote off software development
costs of $3,563 associated with products that we stopped selling or supporting
or with proprietary systems that we stopped developing.  We also
impaired goodwill by $8,424, most of which was related to the acquisitions of
iSummit Partners, LLC and WellComm Group, Inc., and miscellaneous long-lived
assets by $483.




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




One-Time
              Termination
              Benefits
            
            Contract
              Termination
      Costs
            
            Other
              Associated
      Costs
            
            Restructuring
      Total
            
            Provision
      for Loss ContractsDecember
      31, 2004
            $                     --
            
            $                     --
            
            $                     --
            
            $                     --
            
            $                     --Expensed
            542
            
            217
            (1)
            69
            
            828
            
            663
            (2)Cash payments
            (357
            )
            (76
            )
            (69
            )
            (502
            )
            (244
            )Adjustments
            --
            
            --
            
            --
            
            --
            
            --December
      31, 2005
            185
            
            141
            
            --
            
            326
            
            419Cash payments
            (181
            )
            (27
            )
            --
            
            (208
            )
            (419
            )Adjustments
            -
            
            --
            
            --
            
            --
            
            --December
      31, 2006
            4
            
            114
            
            --
            
            118
            
            --Cash payments
            (4
            )
            (11
            )
            --
            
            (15
            )
            --Adjustments
            --
            
            (103
            )
            --
            
            (103
            )
            --December
      31, 2007
            $                     --
            
            $                     --
            
            $                     --
            
            $                     --
            
            $                     --




(1)
            We
      initially recorded $228 of contract termination costs.  We later
      realized our estimate was overstated by $11 and adjusted the balance
      accordingly.




(2)
            We
      initially recorded $2,116 as a provision for loss contracts related to
      customer contracts that we determined would be unprofitable despite
      reductions in operating expenses implemented in the
      restructuring.  Subsequently, we reached favorable agreements
      with customers to terminate or phase out of these contracts resulting in
      the reversal of $1,453 of the provision for loss
  contracts.






62


I-TRAX,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (in thousands,
except per share data)




During
2005, we recorded restructuring expenses of $783 and expenses related to loss
contracts of $663.  No additional expense was recorded during 2006 or
2007.




4.  Discontinued
Operations




In 2001,
prior to the merger discussed in Note 2, Acquisitions, CHD Meridian
was notified of the cancellation of two government contracts that met the
requisite requirements to be accounted for as discontinued operations under SFAS
No. 144.  At December 31, 2005, the remaining net liabilities of
discontinued operations consisted of contract staffing accruals of $1,299
representing our estimate of our maximum obligation related to the government’s
right to audit the contract terms and conditions.  During 2006, we
determined that the likelihood of loss related to these staffing accruals was
remote and reversed this reserve during the quarter ended December 31,
2006.  Consequently, we have included $1,299 of income from
discontinued operations in our 2006 statements of operations.




5.  Other
Current and Long Term Liabilities




At
December 31, 2007 and 2006, the following amounts were included in other current
liabilities in the consolidated balance sheet:




2007
            
            
            2006Dividends
      payable
            
            $
            1,644
            
            
            $
            3,116Reserve
      for unpaid losses
            
            
            3,462
            
            
            
            3,362Accrued
      health insurance incurred but not reported
            
            
            550
            
            
            
            642Accrued
      insurance deductible
            
            
            766
            
            
            
            759Deferred
      revenue
            
            
            1,063
            
            
            
            357Accrued
      incentive compensation
            
            
            1,771
            
            
            
            1,395Term
      loan (Note 8)
            
            
            3,000
            
            
            
            --Swingline
      loan (Note 8)
            
            
            939
            
            
            
            --Other
      (none in excess of 5% of current liabilities)
            
            
            2,460
            
            
            
            1,996Total
            
            $
            15,655
            
            
            $
            11,627




I-TRAX,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (in thousands,
except per share data)




At
December 31, 2007 and 2006, the following amounts were included in other long
term liabilities in the consolidated balance sheet:




2007
            
            
            2006Accrued
      purchase price (Note 2)
            
            $
            750
            
            
            $
            --FIN
      48 liability
            
            
            906
            
            
            
            --Deferred
      rent
            
            
            964
            
            
            
            --Accrued
      insurance (Note 14)
            
            
            1,638
            
            
            
            1,638Other
            
            
            247
            
            
            
            307Total
            
            $
            4,505
            
            
            $
            1,945









63


I-TRAX,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (in thousands,
except per share data)






6.
Property and Equipment






Property
and equipment consisted of the following as of December 31:




2007
            
            
            2006Furniture
      and fixtures
            
            $
            9,542
            
            
            $
            5,771Leasehold
      improvements
            
            
            477
            
            
            
            47710,019
            
            
            
            6,248Less:
      Accumulated depreciation and amortization
            
            
            (5,284
            )
            
            
            (2,871
            )Total
            
            $
            4,735
            
            
            $
            3,377




Depreciation
and amortization expense of property and equipment for 2007, 2006 and 2005 was
$2,427, $1,519, and $1,538, respectively.  During 2006, we disposed of
$6,817 of obsolete furniture, fixtures and equipment resulting in a loss on
disposal of $651.  Of this amount, $247 is included as operating
expenses in our 2006 statements of operations.  The remaining $364 is
included in 2006 general and administrative expenses.






7.
Goodwill and Purchased and Other Intangibles




The
changes in the carrying amount of goodwill were as follows:




Balance
      at December 31, 2004
            
            $
            61,390Restructuring-related
      impairment
            
            
            (8,424
            )Reduction
      in value of shares held in escrow
            
            
            (1,698
            )Cash
      bonus plan
            
            
            352Balance
      at December 31, 2005 and 2006
            
            
            51,620Acquisition
      of Pro Fitness (Note 2)
            
            
            7,271Balance
      at December 31, 2007
            
            
            58,891





Amortization
of intangible assets for the years ended December 31, 2007, 2006 and 2005
amounted to $1,816, $1,740, and $2,078, respectively.




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





Year
            
            Expense2008
            
            $
            1,5922009
            
            
            1,5262010
            
            
            1,5262011
            
            
            1,5262012
            
            
            1,526Thereafter
            
            
            9,670









64


I-TRAX,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (in thousands,
except per share data)




8.  Long
Term Debt




We have a
senior secured credit facility with Bank of America, N.A., which provides
financing through a revolving credit line.  We use the facility to
finance operations, which includes the purchase of pharmaceuticals on a
pass-through basis for the benefit of our pharmacy clients. Borrowings under the
facility are secured by substantially all of our tangible assets and bear
interest at rates specified in the credit agreement.




On
December 14, 2007, I-trax, certain of I-trax’s direct and indirect subsidiaries,
and Bank of America entered into a Ninth Amendment to the Credit
Agreement.  The purpose of this amendment was to increase cash
availability to meet increased working capital requirements and to fund the
acquisition of Pro Fitness (Note 2, Acquisitions).  Under
the Ninth Amendment:




·
            The
      amount I-trax can borrow under the facility was increased from $20,000 to
      $25,000, comprised of:




·
            a
      $17,000 revolving loan facility, which was increased from
      $15,000;




·
            a
      separate $5,000 swingline loan facility, which remained unchanged;
      and




·
            a
      new term loan of $3,000.




·
            Certain
      of the financial covenants under the facility have been
      amended.




·
            The
      $17,000 and $5,000 facilities mature on July 1, 2009 and the term loan
      matures on September 30, 2008.




The
facility contains financial covenants measuring: (1) our fixed charges coverage
ratio, and (2) minimum EBITDA and stockholders’ equity
amounts.  Borrowings under the facility accrue interest based on a
pricing grid tied to our financial covenants.  Commitment fees are
payable on the facility at rates between 0.3% and 0.5%.  As of
December 31, 2007, we were in compliance with all covenants.




At
December 31, 2007, $1,700 of the facility is outstanding as a standby letter of
credit, which reduces the amount available under the facility for
borrowings.  On January 14, 2008, an outstanding letter of credit for
$1,000 was retired.






65


I-TRAX,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (in thousands,
except per share data)






On June
29, 2007, we amended our credit facility to include a $5,000 Swingline
loan.  We drew $2,500 on that date for working capital requirements
related to expanding sites and services.




On
December 14, 2007, we entered into a new $3,000 term loan with our existing
lender and drew and an additional $2,500 under an existing Swingline loan in
order to fund the Pro Fitness acquisition (Note 2, Acquisitions).  On
that date, we also increased the amount of our revolving line of credit by
$2,000 to $17,000.  The term loan matures on September 30, 2008, while
the swingline commitment must be repaid in installments beginning April 1, 2008
and on the first day of each succeeding July, October, January, and April
thereafter in the amount of $313 with the remaining outstanding balance due at
the maturity date of July 1, 2009.  Our credit facility allows us to
repay both the term loan and the swingline commitment with funds available
through our revolving credit facility.  We did not have term loan or
swingline commitment balance at December 31, 2006.




At
December 31, 2007 and 2006, we had $11,137 and $9,057, respectively, of debt
outstanding under our revolver loan facility.  At December 31, 2007,
the interest rate applicable under the facility was
7.3%.  Availability under the revolver loan facility was $5,163 and
$4,943 at December 31, 2007 and 2006, respectively.




9.  Provision
for Income Taxes




Income
tax expense is comprised of the following for the year ended December 31,
2007:




Current:Federal
            
            $
            158State
            
            
            361Deferred:
            
            
            -Income
      Tax Expense
            
            $
            519




The
provision for income taxes from continuing operations differs from the amount
computed by applying the statutory federal income tax rate to income before
income taxes.  A reconciliation of the provision (benefit) for income
taxes at the statutory federal income tax rate to the amount provided
(benefited) is as follows:




Year
      Ended December 312007
            
            2006Tax
      at federal statutory rate
            34.00
            %
            34.00
            %State
      income taxes
            26.28
            
            (0.39
            )State
      payable true-up
            7.70
            
            --Stock
      compensation
            58.23
            
            16.72Other
      nondeductible items
            --
            
            4.69Meals
      & Entertainment
            6.84
            
            --Officer
      Life Insurance
            10.52
            
            --Change
      in valuation allowance
            (80.83
            )
            (39.35
            )Prior
      year true-up
            --
            
            11.95FIN48
      additional reserve
            19.01
            
            --FIT
      refund
            (13.48
            )
            --Other
            --
            
            (5.66
            )Income
      tax provision (benefit)
            68.27
            %
            21.96
            %






66


I-TRAX,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (in thousands,
except per share data)






At
December 31, 2007 and 2006, we had net operating loss (“NOL”) carry forwards for
federal income tax purposes of $33,723 and $39,098, respectively, which expire
between 2011 and 2025.  Federal NOL carry forwards are subject to
certain limitations under Section 382 of the Internal Revenue
Code.  Of the $33,723 NOL available at December 31, 2007, $31,261 is
subject to this limitation.  Because of this limitation, we may not be
able to fully recognize the value of this NOL before it expires.  At
December 31, 2007 and 2006, we had NOL carry forwards for state income tax
purposes of $9,617 and $21,500, respectively, which expire between 2008 and
2027.




Our
income tax provision is computed based on the federal statutory rates and the
state statutory rates, net of related federal benefit.




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
our deferred tax assets and liabilities are as follows:




Year
      Ended December 31,2007
            
            
            2006Deferred
      tax assets:Net
      operating loss carry forwards
            
            $
            10,135
            
            
            $
            13,146Allowance
      for doubtful accounts
            
            
            192
            
            
            
            219Accrued
      expenses
            
            
            2,270
            
            
            
            1,838Lease
      Buy-Out
            
            
            304
            
            
            
            --Depreciation
            
            
            163
            
            
            
            --FIN
      48
            
            
            286
            
            
            
            --Stock
      – Options and Restricted
            
            
            152
            
            
            
            --Other
            
            
            206
            
            
            
            91Total
      gross deferred tax assets
            
            $
            13,708
            
            
            $
            15,294Less:  Valuation
      allowance
            
            
            (6,963
            )
            
            
            (7,578
            )Total
      deferred tax assets
            
            $
            6,745
            
            
            $
            7,716Deferred
      tax liabilities:Depreciation
            
            
            --
            
            
            
            (402
            )Amortization
            
            
            (6,745
            )
            
            
            (7,314
            )Net
      deferred tax asset (liability)
            
            $
            (6,745
            )
            
            $
            (7,716
            )Total
      deferred tax liability
            
            $
            --
            
            
            $
            --




The
valuation allowance for deferred tax assets specifically relates to the future
utilization of federal and state net operating loss carry forwards and other
deferred tax assets.  Future utilization of these deferred tax assets
is evaluated by the Company on an annual basis and the valuation allowance is
adjusted accordingly.  In 2007, the valuation allowance decreased by
$615 as the Company was able to reduce taxable income based upon the projected
ability of the Company to utilize the deferred tax assets.






67


I-TRAX,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (in thousands,
except per share data)




10.  Stockholders’
Equity




Preferred
Stock




We have
2,000,000 authorized shares of preferred stock.  As of December 31,
2007 and 2006, we had issued and outstanding 217,126 and 559,101 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 our option, in cash or common stock,
and only upon the liquidation or conversion of the Series A Convertible
Preferred Stock into common stock.  We have recorded approximately
$1,644 and $3,116 in accrued dividends at December 31, 2007 and 2006,
respectively, which is included in other current liabilities on the consolidated
balance sheet.




During
2007 and 2006, 341,975 and 293,938 shares, respectively, of Series A Convertible
Preferred Stock were converted into 3,419,747 and 2,939,375 shares of common
stock, and 549,573 and 417,016 shares of common stock, respectively, were issued
to satisfy the dividends accrued on the converted shares.




Warrants




The
following table summarizes our warrant activity:




Shares
      Underlying WarrantsOutstanding
      at December 31, 2004
            
            
            3,394,894Granted
            
            
            55,000Exercised
            
            
            (40,380
            )Expired
            
            
            (340,000
            )Outstanding
      at December 31, 2005
            
            
            3,069,514Granted
            
            
            100,000Exercised
            
            
            (390,806
            )Expired
            
            
            (270,097
            )Outstanding
      at December 31, 2006
            
            
            2,508,611Exercised
            
            
            (920,856
            )Outstanding
      at December 31, 2007
            
            
            1,587,755




At
December 31, 2007, all outstanding warrants were exercisable at a weighted
average exercise price of $3.06 per share.






68


I-TRAX,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(in thousands,
except per share data)






11.  Share
Based Compensation




The 2000
Equity Compensation Plan and the Amended and Restated 2001 Equity Compensation
Plan (the “Plans”)
authorize us to grant or issue up to 5,100,000 stock options or restricted stock
shares as of December 31, 2007.  Under the terms of the Plans, awards
may be granted to our employees, officers, directors, and certain consultants
and advisors.  At December 31, 2007, a total of 31,852 shares were
available for future grants under the Plans.  The number of shares
authorized for issuance under the 2001 plan increases automatically on the first
day of each year by 300,000 shares.




Our
outstanding stock options generally have a 10-year term.  Outstanding
stock options issued to employees generally vest over three years, and
outstanding stock options issued to directors vest over two
years.  Share awards generally vest based upon continued employment
(time-based).




Prior to
2003, we also granted stock options outside of the Plans.  As of
December 31, 2007, 163,000 non-plan options are outstanding.  Non-plan
options have terms similar to options granted pursuant to Plans, including
exercise price, vesting and exercise terms.




Effective
January 1, 2006, we adopted the fair value recognition provisions of SFAS 123R
using the modified prospective transition method (Note 1,Significant Accounting
Policies).




Prior to
the adoption of SFAS 123R, we recognized the estimated compensation cost of
restricted stock over the vesting term. The estimated compensation cost is based
on the fair value of our common stock on the date of grant.  We continue to
recognize the compensation cost, net of estimated forfeitures, over the vesting
term.




Prior to
the first quarter of fiscal 2006, we accounted for our stock-based compensation
plans under the recognition and measurement provisions of APB 25 as
permitted by SFAS 123, amended by SFAS No. 148 (“SFAS 148”), Accounting for Stock-Based
Compensation-Transition and Disclosure.  As required by
SFAS 148, prior to the adoption of SFAS 123R, we provided pro forma
net income and pro forma net income per share disclosures for stock-based
awards, as if the fair value-based method defined in SFAS 123 had been
adopted.




The
following table sets forth the pro forma effect on net income and net income per
share for 2005 that would have resulted if we had accounted for our employee
stock plans under the fair value recognition provisions of
SFAS 123:




2005Net
      loss, as reported
            
            $
            (14,072
            )Add:
      Intrinsic value of the options issued to employee and charged to
      operations
            
            
            25Deduct:
      Stock-based compensation expense determined under fair value method for
      all awards
            
            
            (1,261
            )Net
      loss, pro forma
            
            $
            (15,308
            )Loss
      per share:Basic
      and diluted — as reported
            
            $
            (0.54
            )Basic
      and diluted — pro forma
            
            $
            (0.58
            )






69


I-TRAX,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (in thousands,
except per share data)




As a
result of the adoption of SFAS 123R, our net income for 2007 and 2006 includes
$1,691and $1,268 of share-based compensation as a component of general and
administrative expenses.






The fair
value of each stock option was estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions:




Valuation Assumptions
      (1)
            
            2007
            
            2006
            
            2005Risk-free
      interest rate (2)
            
            4.9%
            
            4.8%
            
            4.0%Expected
      dividend yield
            
            0.0%
            
            0.0%
            
            0.0%Expected
      stock price volatility (3)
            
            57.0%
            
            62.0%
            
            79.7%Expected
      life of non-qualified stock options (in years) (4)
            
            6.0
            
            6.0
            
            5.0




(1)
            Forfeitures
      are estimated using historical experience and projected employee
      turnover.




(2)
            Based
      on the Treasury constant maturity interest rate whose term is consistent
      with the expected life of our stock
options.




(3)
            During
      2007 and 2006, expected stock price volatility is estimated in accordance
      with guidance in SFAS 123R considering both the historical volatility of
      our stock price as well as volatilities from comparable companies. Prior
      to 2005, expected stock price volatility was based primarily on historical
      experience.




(4)
            We
      estimate the expected life of stock options in accordance with guidance in
      SFAS 123R and Staff Accounting Bulletin No. 107 using the short cut
      method.






70


I-TRAX,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(in thousands,
except per share data)






Stock
option activity during 2007, 2006 and 2005 was as follows:




Stock
      Options
            
            Weighted-
      Average Exercise Price
              per Share
            
            Weighted-
      Average Remaining Contractual Term (in years)
            
            Aggregate
      Intrinsic
              Value(2)Outstanding
      on December 31, 2004
            
            1,578,326
            
            
            $
            2.85Granted
            
            3,231,000
            
            
            1.44Exercised
            
            --
            
            
            --Forfeited
      (1)
            
            (1,133,861
            )
            
            2.48Expired
            
            (2,400
            )
            
            2.75Outstanding
      on December 31, 2005
            
            3,673,065
            
            
            $
            1.72Granted
            
            1,087,300
            
            
            3.03Exercised
            
            (157,351
            )
            
            0.95Forfeited
            
            (311,580
            )
            
            2.28Expired
            
            (18,000
            )
            
            7.67Outstanding
      on December 31, 2006
            
            4,273,434
            
            
            $
            2.02Granted
            
            725,166
            
            
            
            3.55Exercised
            
            (331,085
            )
            
            
            1.62Forfeited
            
            (114,890
            )
            
            
            2.00Outstanding
      on December 31, 2007
            
            4,552,625
            
            
            $
            2.29
            
            
            7.5
            
            
            $
            5,923Vested
      and exercisable on December 31, 2007
            
            3,032,808
            
            
            $
            1.88
            
            
            6.7
            
            
            $
            5,232




(1)
            During
      2006, we determined that 6,246 stock options to certain employees were
      forfeited in error during 2005.  These options were reinstated
      and are included in the outstanding balance at the end of the
      year.  The affect on the consolidated financial statements was
      deemed immaterial.




(2)
            Aggregate
      intrinsic value calculated using in-the-money options and our closing
      stock price of $3.55 on December 31,
2007.




The
weighted-average grant-date fair value of stock options granted during 2007,
2006 and 2005 was $2.07, $1.87 and $0.96 per share, respectively.  The
aggregate intrinsic value of our stock options (the amount by which the market
price of the stock on the date of exercise exceeded the exercise price of the
option) exercised during 2007 and 2006 was $778 and $376,
respectively.  Net cash proceeds from the exercise of stock options
were $536 and $148 for 2007 and 2006, respectively.  No tax benefit
has been recognized due to accumulated net losses.  There were no
stock option exercises in 2005.








71


I-TRAX,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (in thousands,
except per share data)




Below is
a summary of our non-vested shares activity for 2007 and 2006:




Number
      of Shares
            
            Weighted-Average
      Grant Date Fair ValueNon-vested
      at December 31, 2005
            2,435,862
            
            $1.00Granted
            1,087,300
            
            $1.86Vested
            (1,319,059
            )
            $1.01Forfeited
            (198,004
            )
            $1.02Non-vested
      at December 31, 2006
            2,006,099
            
            $1.45Granted
            725,166
            
            $2.07Vested
            (1,114,431
            )
            $1.29Forfeited
            (97,017
            )
            $2.11Non-vested
      at December 31, 2007
            1,519,817
            
            $1.82




At
December 31, 2007, there was $2,156 of unrecognized compensation expense related
to stock options that is expected to be recognized over a weighted-average
period of 0.97 years.  Our assumptions used in estimating forfeiture
rates are reviewed each reporting period and the total value of the awards is
adjusted accordingly.




Information
regarding options outstanding at December 31, 2007 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$0.01-$2.00
            
            2,390,469
            
            6.93
            
            $1.40
            
            2,237,030
            
            $1.40$2.01-$4.00
            
            2,096,095
            
            8.16
            
            $3.19
            
            729,717
            
            $2.97$4.01-$6.00
            
            39,361
            
            3.87
            
            $4.76
            
            39,361
            
            $4.76$6.01-$8.00
            
            16,100
            
            4.04
            
            $6.19
            
            16,100
            
            $6.19$8.01-$10.00
            
            10,600
            
            3.10
            
            $10.00
            
            10,600
            
            $10.004,552,625
            
            7.45
            
            $2.29
            
            3,032,808
            
            $1.88




Restricted
stock grants consist of our common stock and typically vest over three
years.  The fair value of each restricted share grant is equal to the
market price of our common stock at the date of grant using fair market
value.  Expense relating to restricted shares is amortized ratably
over the vesting period.






72


I-TRAX,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (in thousands,
except per share data)






A summary
of our restricted stock activity and related information during 2007 and 2006 is
as follows:




Number
      of Shares
            
            Weighted-Average
      Grant Date Fair ValueNon-vested
      at December 31, 2005
            --
            
            --Granted
            107,630
            
            $3.08Forfeited
            (2,790
            )
            $3.09Non-vested
      at December 31, 2006
            104,840
            
            $3.08Granted
            121,500
            
            $3.58Vested
            (32,163
            )
            $3.08Forfeited
            (16,479
            )
            $3.22Non-vested
      at December 31, 2007
            177,698
            
            $3.41




At
December 31, 2007, there was $493 of unrecognized compensation expense related
to restricted stock options that is expected to be recognized over a
weighted-average period of 1.14 years.




12.  Net
Income (Loss) Per Share




Basic net
income per share is computed using the weighted average number of common shares
outstanding for the period, excluding unvested restricted stock. Diluted net
income per share is based upon the weighted average common shares outstanding
for the period plus dilutive potential common shares, including unvested
restricted stock and stock options using the treasury stock method.




The
following table sets forth the computation of basic and diluted net income per
share:




2007
            
            
            2006
            
            
            2005Net
      income (loss) applicable to common stockholders
            
            $
            (379
            )
            
            $
            582
            
            
            $
            (16,121
            )Shares
      used to compute basic net income per share
            
            
            40,288,436
            
            
            
            36,039,650
            
            
            
            29,716,114Stock options
            
            
            --
            
            
            
            1,037,627
            
            
            
            --Unvested restricted
      stock
            
            
            --
            
            
            
            146
            
            
            
            --Dilutive warrants
            
            
            --
            
            
            
            537,087
            
            
            
            --Shares
      used to compute diluted net income per share
            
            
            40,288,436
            
            
            
            37,614,510
            
            
            
            29,716,114Basic
      net income per share
            
            $
            (0.01
            )
            
            $
            0.02
            
            
            $
            (0.54
            )Diluted
      net income per share
            
            $
            (0.01
            )
            
            $
            0.02
            
            
            $
            (0.54
            )









73


I-TRAX,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (in thousands,
except per share data)






The
following shares 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:




2007
            
            2006
            
            2005Series
      A Convertible Preferred Stock
            2,171,260
            
            5,591,010
            
            8,530,390Warrants
            1,587,755
            
            1,316,638
            
            3,069,514Stock
      options
            4,552,625
            
            1,593,092
            
            3,841,652Restricted
      shares
            177,698
            
            104,840
            
            --Anti-dilutive
      shares
            8,489,338
            
            8,605,580
            
            15,441,556




13.  Commitments
and Contingencies




Employment
Agreements




We have
employment agreements with executive officers and certain
employees.  Initial terms of these agreements are one to three years
with annual salaries ranging from $145 to $386.




Litigation




We are
involved in legal disputes on a variety of matters in the ordinary course of
business.  After reasonable diligence, we expect these matters will be
resolved without a material adverse effect on our consolidated financial
position or results of operations.  Further, after reasonable
diligence, we believe that our estimated losses from such matters have been
adequately reserved in other current and other long term liabilities to the
extent probable and reasonably estimable.  Nonetheless, it is possible
that our future results of operations for any particular quarterly or annual
period may be materially affected by changes in such matters See Note 14, Professional Liability and Related
Reserves, for further details.




Compliance
with Healthcare Regulations




Because
we operate in the healthcare industry, we are 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 remains 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.




We
believe we are in compliance with laws and regulations applicable to our
business.  Further, compliance with such laws and regulations in the
future is subject to further government review, changing interpretations and
other regulatory actions.  Accordingly, major changes in healthcare
laws, regulations or regulatory interpretations may have an adverse effect on
our future results of operations.






74




I-TRAX,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (in thousands,
except per share data)




Significant
Customers




As of
December 31, 2007 and 2006, one customer represented 33% and 24%, respectively,
of our accounts receivable as reflected on the consolidated balance
sheet.




During
2007, one customer accounted for 13% of our revenue as reflected on the
consolidated statements of operations.  For the years ended December
31, 2007, 2006, and 2005, another customer accounted for 12%, 11%, and 13%,
respectively, of our revenue.




Risk-Sharing
Contracts




From time
to time we enter into risk-sharing contracts where we are required to refund our
clients a percentage of our fees if we do not achieve certain agreed upon
milestones.  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.  At risk fees
as of December 31, 2007 and 2006 were immaterial.




Operating
Leases




Under the
terms of a Lease Agreement dated January 25, 2002, as amended on May 17, 2005,
we lease from Burton Hills IV Investments, Inc. approximately 31,000 square feet
of office space in Nashville, Tennessee for use as executive, administrative and
sales offices.




On August
9, 2007, we executed an Amended and Restated Second Amendment to the Lease
Agreement with Burton Hills IV Investments.  Under the terms of the
Amended and Restated Second Amendment, we agreed to relinquish the majority of
the office space on May 1, 2008 in consideration of an early termination payment
of $964.




On August
9, 2007, CHD Meridian, LLC executed an Office Facility Lease with First
Industrial Development Services, Inc.  Under the terms of this Office
Facility Lease:




·
            First
      Industrial paid Burton Hills IV Investments on our behalf the early
      termination payment of $964 required under the Amended and Restated Second
      Amendment and we will repay the amount over the life of the
      lease.






75


I-TRAX,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (in thousands,
except per share data)






·
            First
      Industrial will build for us an office building in Franklin, Tennessee of
      approximately 50,000 square feet, which we expect to occupy on or about
      July 1, 2008.




·
            The
      total value of contractual lease payments related to this facility is
      approximately $9,409.




·
            The
      facility lease is for a term of 11 years.




We
account for lease expenses in accordance with FASB Technical Bulletin 88-1,
Issues Relating to Accounting
for Leases, which stipulates that rent expense for operating leases with
rent-free periods or scheduled increases must be accounted for on a
straight-line basis over the lease term.




In
connection with the termination of the Burton Hills IV Investments lease, $184
of deferred rent related to our lease with Burton Hills IV Investments was
offset against the termination payment of $964 resulting in a net lease
termination charge of $780.




At
December 31, 2007, other long term liabilities on our condensed consolidated
balance sheet included deferred rent of $964 related to our new lease
agreement.  Our scheduled lease payments to First Industrial include
the repayment of deferred rent.




Future
minimum cash lease commitments under all non-cancelable leases in effect at
December 31, 2007 were as follows:




Cash
      Lease Commitments
            
            
            Client
      Reimbursements
            
            
            Total2008
            
            $
            2,284
            
            
            $
            (1,226
            )
            
            $
            1,0582009
            
            
            2,139
            
            
            
            (958
            )
            
            
            1,1812010
            
            
            1,710
            
            
            
            (805
            )
            
            
            9052011
            
            
            1,121
            
            
            
            (283
            )
            
            
            8382012
            
            
            1,074
            
            
            
            (219
            )
            
            
            855Thereafter
            
            
            6,807
            
            
            
            (982
            )
            
            
            5,825Total
            
            $
            15,135
            
            
            $
            (4,473
            )
            
            $
            10,662




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.  Rental
expense for operating leases was $3,167, $3,225, and $2,977 for 2007, 2006, and
2005, respectively.






76


I-TRAX,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (in thousands,
except per share data)




14.  Professional
Liability and Related Reserves




Since
2004, we have secured professional and general liability insurance for certain
of our 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.  GHIC provides professional and general liability insurance
to CHD Meridian Healthcare on a claims-made basis.  A claims-made
policy covers claims made during a given period of time regardless of when the
causable event occurred.  We purchase excess insurance to mitigate
risk in excess of GHIC’s policy limits.  In years prior to 2004, we
secured similar insurance in the commercial market.




The
operations of GHIC are reflected in our consolidated financial
statements.




During
2006, we recovered $683 from commercial insurance carriers who provided medical
malpractice and general liability insurance subsequent to the formation of
GHIC.  These recoveries are included as reductions to operating
expenses in 2006. We maintain professional liability reserves as
follows:




TotalReserve
      at December 31, 2005
            
            $
            5,268Payments
            
            
            (598
            )Charged
      to operating expenses
            
            
            1,089Reserve
      at December 31, 2006
            
            
            5,759Payments
            
            
            (942
            )Charged
      to operating expenses
            
            
            1,049Reserve
      at December 31, 2007
            
            $
            5,866






77


I-TRAX,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (in thousands,
except per share data)




Reported
Claims




Our
reported claims reserve includes our estimated exposure for claims pre-dating
GHIC and claims that have been reported under GHIC’s policies.  This
reserve is included in other current liabilities on our consolidated balance
sheet.  These reserves are estimated using individual case-basis
valuations, statistical analyses, and independent third-parties
valuations.  These reserves represent our best estimate of the
ultimate net cost of satisfying all obligations associated with the
claims.  These estimates are reviewed and adjusted as experience
develops or new information becomes known.  We also record loss and
loss adjustment expenses, which include changes in exposure estimates, related
to reported claims on a monthly basis.  Any changes in estimates are
reflected in operating expenses.  At December 31, 2007 and 2006,
reported claims included in other current liabilities on our consolidated
balance sheet were $1,496 and $1,745, respectively.




Unreported
Claims




We
maintain additional reserves for potential claims that may be reported in the
future.  On an annual basis, we use independent actuaries to estimate
our exposure for unreported claims.  Our 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 and such adjustments are included in current
operations.  Reserves for unreported claims that have been transferred
to GHIC or relate to current operations are recorded as current
liabilities.  Unreported claims reserves that have not yet been transferred
to GHIC are included in other long-term liabilities.






At
December 31, 2007 and 2006, unreported claims reserves were $4,370 and $4,014,
respectively.  Of these amounts, unreported claims exposures not
transferred to GHIC of $1,638 were included in other long-term liabilities on
our consolidated balance sheets.  The remaining amounts are classified
as other current liabilities.




15.  Profit
Sharing and 401(k) Plans




We
sponsor a retirement savings plan for employees meeting certain age and service
requirements. Participants may choose from various investment
options.  Participants can contribute up to 100% of their eligible
compensation annually as defined by the plan document, subject to Internal
Revenue Service limitations.  We currently match up to 50% of the
first 2% of participating employees’ pre-tax earnings and 25% of the employees’
contributions from 3% to 6% of the employee’s pre-tax earnings.  Our
matching contribution is subject to annual approval.  The total
matching contributions, net of forfeitures, were $1,307, $663, and $613 in 2007,
2006, and 2005, respectively.






78


I-TRAX,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (in thousands,
except per share data)




16.  Subsequent
Event


On March
14, 2008, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with
Walgreen Co., an Illinois corporation (the “Walgreens”) and Putter
Acquisition Sub, Inc., a Delaware corporation and a wholly owned subsidiary of
Walgreens (“Acquisition
Sub”).  Under the terms of the Merger Agreement Acquisition Sub
will commence cash tender offers (the “Offers”) to acquire all of
the outstanding shares of our common stock and our Series A Convertible
Preferred Stock (collectively, “I-trax Shares”) at a price
per share equal to $5.40, in the case of our common stock, and $54.00 plus an
amount in respect of the conversion value of accrued and unpaid dividends in the
case of shares of our Series A Convertible Preferred Stock.  Following
the consummation of the Offers, Acquisition Sub will merge with and into I-trax
(the “Merger”), and all
I-trax Shares not acquired in the Offers will be converted into the right to
receive the applicable per share consideration.
  The
Merger Agreement includes customary representations, warranties and covenants by
the parties.  Our Board of Directors  approved the Merger
Agreement and the transactions contemplated thereby, including the Offers and
the Merger.
  Consummation
of the Offers is subject to certain conditions, including acceptance of the
Offers by holders of a majority of I-trax Shares outstanding, regulatory
approvals, and other customary conditions.







79


I-TRAX,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (in thousands,
except per share data)







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




None.




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 disclosure controls and procedures as of December 31, 2007,
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.




Management’s
annual report on our internal controls over financial reporting and the related
report of our independent registered public accounting firm are included in Item
8, Financial Statements and Supplementary Data.  There were no changes
that occurred during the quarter ended December 31, 2007 that have materially
affected, or are reasonably likely to materially affect, our internal controls
over financial reporting.




Item
9B. Other
Information




None.









80




PART
III




Item 10.
            Directors,
      Executive Officers and Corporate
Governance




The
information required under this item is incorporated herein by reference to our
Proxy Statement for the 2008 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission within 120 days after the end of our year
ended December 31, 2007.




Item 11.
            Executive
      Compensation




The
information required under this Item is incorporated herein by reference to our
Proxy Statement for the 2008 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission within 120 days after the end of our year
ended December 31, 2007.




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




The
information required under this Item is incorporated herein by reference to our
Proxy Statement for the 2008 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission within 120 days after the end of our year
ended December 31, 2007.




Item 13.
            Certain
      Relationships and Related Transactions, and Director
      Independence




The
information required under this Item is incorporated herein by reference to our
Proxy Statement for the 2008 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission within 120 days after the end of our year
ended December 31, 2007.




Item 14.
            Principal
      Accounting Fees and Services




The
information required under this Item is incorporated herein by reference to our
Proxy Statement for the 2008 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission within 120 days after the end of our year
ended December 31, 2007.






81




PART
IV




Item 15.
            Exhibits,
      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,
      2004.2.3
            Member
      Interest Purchase Agreement, dated November 27, 2007, by and among I-trax,
      Inc., Pro Fitness Health Solutions, LLC and Minute Men,
      Incorporated.
            Exhibit
      2.1 to I-trax, Inc.’s Current Report on Form 8-K, filed on November 28,
      2007.3.1
            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, 2002.4.2
            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 fiscal year
      ended December 31, 2003, filed on April 8,
2004.








82






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 fiscal 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 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 on Form 10-QSB for the quarter
      ended March 30, 2004, filed on May 14, 2004.






83








10.2
            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 on Form 10-Q for the quarter ended
      June 30, 2005, filed on August 15, 2005.10.3
            Second
      Amendment to Lease Agreement dated June 22, 2007 between Burton Hills IV
      Investments, Inc. and CHD Meridian Healthcare, LLC.
            Exhibit
      99.1 to I-trax, Inc.’s Current Report on Form 8-K, filed June 28,
      2007.10.4
            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 on 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 on Form 10-QSB for the quarter
      ended September 30, 2004, filed on November 15, 2004.10.6
            Amended
      and Restated Office Facility Lease as of August 9, 2007, by and between
      First Industrial Investment, Inc. and CHD Meridian Healthcare,
      LLC.
            Exhibit
      10.2 to I-trax, Inc.’s Quarterly Report on Form 10-Q for the quarter ended
      September 30, 2007, filed on November 9, 2007.10.7
            Guaranty
      of Lease as of August 9, 2007 by I-trax, Inc. to First Industrial
      Investment, Inc.
            Exhibit
      10.3 to I-trax, Inc.’s Quarterly Report on Form 10-Q for the quarter ended
      September 30, 2007, filed on November 9, 2007.10.8
            I-trax,
      Inc. 2000 Equity Compensation Plan.
            Exhibit
      10.16 to I-Trax.com, Inc.’s Registration Statement on Form 10-SB, filed on
      April 10, 2000.10.9
            I-trax,
      Inc. Amended and Restated 2001 Equity Compensation Plan.
            Exhibit
      I to I-trax, Inc.’s 2005 Proxy Statement, filed on April 15,
      2005.10.10
            Amended
      and Restated Employment Agreement effective as of December 17, 2007,
      between I-trax, Inc. and Frank A. Martin.
            Exhibit
      10.2 to I-trax, Inc.’s Current Report on Form 8-K, filed on December 20,
      2007.10.11
            Amended
      and Restated Employment Agreement effective as of May 14, 2007, between
      I-trax, Inc. and David R. Bock.
            Exhibit
      10.1 to I-trax, Inc.’s Quarterly Report on Form 10-Q for the quarter ended
      June 30, 2007, filed on August 9, 2007.10.12
            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,
      2004.10.13
            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 on Form 10-Q for the quarter ended
      June 30, 2005, filed on August 15, 2005.10.14
            Amended
      and Restated Employment Agreement dated December 17, 2007, between I-trax,
      Inc. and R. Dixon Thayer.
            Exhibit
      10.3 to I-trax, Inc.’s Current Report on Form 8-K, filed on December 20,
      2007.






84






10.15
            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,
      2005.10.16
            Employment
      Agreement entered into on September 1, 2007 between I-trax, Inc. and
      Bradley S. Wear.
            Exhibit
      10.1 to I-trax, Inc.’s Quarterly Report on Form 10-Q for the quarter ended
      September 30, 2007, filed on November 9, 2007.10.17
            Amended
      and Restated Employment Agreement dated March 3, 2008 between I-trax, Inc.
      and Peter Hotz.
            Exhibit
      10.1 to I-trax, Inc.’s Current Report on Form 8-K, filed March 4,
      2008.10.18
            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, 2004.10.19
            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 on Form 10-QSB for the quarter
      ended June 30, 2004, filed on August 18, 2004.10.20
            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 on Form 10-QSB for the quarter
      ended June 30, 2004, filed on August 18, 2004.10.21
            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 on Form 10-QSB for the quarter
      ended June 30, 2004, filed on August 18, 2004.10.22
            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,
      2004.10.23
            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,
      2005.10.24
            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.






85






10.25
            Seventh
      Amendment to Credit Agreement, effective as of March 31, 2006 (executed on
      May 4, 2006), by and among I-trax, Inc., certain subsidiaries of I-trax,
      Inc., and Bank of America, N.A.
            Exhibit
      10.1 to I-trax, Inc.’s Quarterly Report on Form 10-Q for the quarter ended
      March 31, 2006, filed on May 15, 2006.10.26
            Letter
      dated December 21, 2006, from Bank of America, N.A.
            Exhibit
      10.21 to I-trax, Inc.’s Annual Report on Form 10-K for the year ended
      December 31, 2006, filed on March 16, 2007.10.27
            Letter
      dated March 30, 2007, from Bank of America, N.A.
            Exhibit
      10.1 to I-trax, Inc.’s Quarterly Report on Form 10-Q for the quarter ended
      March 31, 2007, filed May 10, 2007.10.28
            Eighth
      Amendment to Credit Agreement dated June 29, 2007 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 July 6,
      2007.10.29
            Ninth
      Amendment to Credit Agreement dated December 14, 2007 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 December 20,
      2007.10.30
            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.23.1
            Consent of Goldstein Golub Kessler
    LLP.23.2
            Consent of McGladery & Pullen,
    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
      2002.32.1
            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.






86




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 17, 2008.





I-TRAX,
INC.





By:           /s/ R. Dixon
Thayer


R. Dixon
Thayer, Chief Executive Officer


(Principal
Executive Officer)








By:           /s/ Bradley S.
Wear


Bradley
S. Wear, Senior 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
      17, 2008/s/ Dr. Raymond J.
      Fabius
              Dr.
      Raymond J. Fabius
            Director
            March
      17, 2008/s/ Philip D.
      Green
              Philip
      D. Green
            Director
            March
      17, 2008/s/ Gail F.
      Lieberman
              Gail
      F. Lieberman
            Director
            March
      17, 2008/s/ Frank A.
      Martin
              Frank
      A. Martin
            Chairman
      and Director
            March
      17, 2008/s/ Gerald D.
      Mintz
              Gerald
      D. Mintz
            Director
            March
      17, 2008/s/ Dr. David
      Nash
              Dr.
      David Nash
            Director
            March
      17, 2008/s/ Jack A.
      Smith
              Jack
      A. Smith
            Director
            March
      17, 2008/s/ R. Dixon
      Thayer
              R.
      Dixon Thayer
            Chief
      Executive Officer and Director
            March
      17, 2008





87