**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, 2006OR[
                ]
            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, or a non-accelerated filer. See definition of “accelerated
      filer” and large accelerated filer in Rule 12b-2 of Securities Exchange Act.
      (Check one):





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





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, 2006, the last business day of the registrant’s most recently completed
      second fiscal quarter, was $109,799,161. The number of outstanding shares of
      the
      registrant’s common stock as of March 6, 2007, was 39,970,763.





Documents
      Incorporated by Reference: Portions of the Proxy Statement for the 2007 annual
      stockholders’ meeting are incorporated by reference into Part III.





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          of Contents




**CAUTIONARY
      STATEMENT PURSUANT TO THE PRIVATE SECU** **RITIES
      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.




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          of Contents


**TABLE
      OF CONTENTS**





**Item**
            
            **Page****Part
                I**1.
            Business
            11A.
            Risk
                Factors
            61B.
            Unresolved
                Staff Comments
            172.
            Properties
            173.
            Legal
                Proceedings
            174.
            Submission
                of Matters to a Vote of Security
                Holders
            17**Part
                II**5.
            Market
                for Registrant’s Common Equity, Related Stockholder
                Matters
              and
                Issuer Purchases of Equity Securities
            186.
            Selected
                Financial Data
            197.
            Management’s
                Discussion and Analysis of Financial Condition
                and Results of Operation
            217A.
            Quantitative
                and Qualitative Disclosures About Market
                Risk
            388.
            Financial
                Statements and Supplementary Data
            389.
            Changes
                in and Disagreements With Accountants on Accounting
                and Financial Disclosure
            709A.
            Controls
                and Procedures
            709B.
            Other
                Information
            70**Part
                III**10.
            Directors,
                Executive Officers and Corporate
                Governance
            7111.
            Executive
                Compensation
            7112.
            Security
                Ownership of Certain Beneficial Owners and
                Management
              and
                Related Stockholders Matters
            7113.
            Certain
                Relationships and Related Transactions, and
                Director Independence
            7114.
            Principal
                Account Fees and Services
            71**Part
                IV**15.
            Exhibits,
                Financial Statement Schedules
            73





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**PART** **I**




**Item
      1**  **Business**




**Our** **Business**




I-trax,
      Inc. provides integrated workplace medical, pharmacy, wellness, 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 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 pharmaceutical benefits
      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.




**Our
      Clients**




As
      of
      December 31, 2006, we were providing services to approximately 98 clients,
      including large financial institutions, consumer products manufacturers,
      automotive and automotive parts manufacturers, diversified industrial companies,
      and a variety of other employers. As of December 31, 2006, we were operating
      212
      on-site facilities in 34 states. 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 four general categories: occupational
      health, primary care and corporate health centers and pharmacies. Traditional
      lines among the occupational health, primary care and corporate health
      categories are blurring, however, as employers seek unique combinations of
      services to challenge raising healthcare costs. Accordingly, although we
      continue to use the general 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.




***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






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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.




***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. We also offer our own
      pharmaceutical benefits management programs. 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. Other
      pharmacy care management services we offer include:




·
            We
                contract with pharmaceutical manufacturers for formulary products
                as a
                captive class of trade to provide substantial 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.




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




·
            Ournationalpharmaceutical and therapeutic committee establishes and monitors
                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.






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·
            We
                review and design pharmacy programs to promote certain activities
                that
                provide economic andwellnessbenefits 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.




***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.




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 are typically for
      an
      initial term of three years and renew automatically in the absence of notice
      to
      the contrary. Under these contracts, we typically provide services to our
      clients’ employees, dependents and retirees, although arrangements vary
      depending on the contract. We charge these clients for our services on a “cost
      plus” and “fixed fee” basis, 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 by merger 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.








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Under
      the
      merger agreement, we delivered to CHD Meridian Healthcare stockholders
      10,000,000 shares of I-trax common stock, 400,000 shares of I-trax Series A
      Convertible Preferred Stock, each of which is convertible into 10 shares of
      I-trax common stock, and paid $25.5 million in cash. Immediately prior to the
      merger, CHD Meridian Healthcare redeemed certain of its then outstanding shares
      of common stock and options to purchase common stock for approximately $9.5
      million in the aggregate. Immediately following the closing of the merger,
      we
      also redeemed from former CHD Meridian Healthcare stockholders that participated
      in the merger, pro rata, an aggregate of 200,000 shares of Series A Convertible
      Preferred Stock at their original issue price of $25.00 per share or $5.0
      million in the aggregate. Accordingly, CHD Meridian Healthcare stockholders
      and
      option holders received an aggregate of approximately $40.0 million of cash
      in,
      or immediately prior to, the merger. In the merger, we also assumed all of
      CHD
      Meridian Healthcare’s liabilities, which equaled approximately $21.5 million.




To
      fund
      $30.5 million required to pay the cash portion of the merger consideration
      and
      to redeem the preferred stock, we sold 1,000,000 shares of Series A Convertible
      Preferred Stock at a purchase price of $25.00 per share for gross proceeds
      of
      $25.0 million, and borrowed $12.0 million under a senior secured credit facility
      from a national lender.




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




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




**Competition
      and Opportunity**




On-site
      health centers and pharmacies dedicated to specific employers, and their
      employees and dependents, represent a small segment of the overall United States
      healthcare market. We refer to this segment as on-site healthcare 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 are 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. A smaller portion is
      operated by third-party vendors like us. Among the third-party vendors operating
      on-site facilities, our primary competitors are regional providers and certain
      companies competing nationally such as Comprehensive Health, Concentra, Whole
      Health, and Medcor. 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 components of our services. These companies include disease
      management companies, health insurers and plans, Internet health information
      companies and pharmacy benefit management companies, among others. Many of
      these
      companies are larger than we are and have greater resources, including access
      to
      capital, than we do. We believe, however, that our broad expertise in
      establishing and managing on-site healthcare facilities and the community of
      physicians, nurses and other employees 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, Inc., and Future Health. Pharmacy
      benefit management companies, which also deliver a component of our services,
      include Caremark Rx, Drugmax, Express Scripts and national pharmacy chains,
      such
      as CVS and Walgreens.




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**Our
      Vision**




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




·
            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 asimplehealth risk assessment to a fully integrated ambulatory care center,
                integrated with a pharmacy and pharmaceutical
                benefits management services.




·
            Deliveringon
                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, intheright 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 and .net, MyFamilyMD.com
      and .net, and CHDMeridian.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. As of December 31, 2006, we had
      1,079
      full-time employees, 185 part-time employees, 626 nurses, physicians and
      pharmacists employed on an “as needed” basis, and 15 temporary employees.






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**Available
      Information**




For
      more
      information about us, visit 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 we are. 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.




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.






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***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
      incentive 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 effectively our professional liability risks could expose us to
      unexpected expenses, thus resulting in losses.***




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




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 occurring
      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 occurring
      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 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.




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




If
      we
      fail to manage effectively any of the professional liability matters covered
      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 causing 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.




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




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




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.




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***Our
      credit facility matures soon.***




Our
      senior secured credit facility matures on January 1, 2008. Accordingly,
      effective January 1, 2007, all indebtedness under the credit facility will
      be
      classified as a short-term liability. We are currently negotiating a new credit
      facility and anticipate having a firm commitment by March 31, 2007. 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 2006 and may incur a net loss in
      2007.***




Although
      we recorded a small net profit for 2006 and expect to be profitable in the
      future, we may not earn a net profit in 2007 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




·
            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 2007.




***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.




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***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.




***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
      managed by a reputable third party, our infrastructure may be vulnerable to
      physical or virtual break-ins, computer viruses, programming errors or similar
      disruptive problems. A material security breach could damage our reputation
      or
      result in liability to us.




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




Our
      business greatly depends on, among others, Frank A. Martin, chairman, R. Dixon
      Thayer, chief executive officer, Dr. Raymond J. Fabius, president and chief
      medical officer, and David R. Bock, executive vice president and chief financial
      officer. If one of these individuals leaves, 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, Thayer and Bock and Dr.
      Fabius. In December 2006, Mr. Martin’s employment agreement renewed for a
      one-year term ending December 2007. In February 2005, we entered into an
      employment agreement with Mr. Thayer for an initial term of three years. In
      April 2005, we entered into an employment agreement with Dr. Fabius for an
      initial term of three years, and in November 2004, we entered into an employment
      agreement with Mr. Bock for up to five years. Each employment agreement may
      be
      terminated by us with or without cause and by the applicable executive with
      or
      without good reason.




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




***Our
      sales cycle is 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.




***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. Because of the risks associated with client insolvency,
      and the concentration of CHD Meridian Healthcare’s client base, our business is
      to some extent dependent on the continued health of U.S. manufacturing
      industries. Also, if 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 to not 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.








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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.***




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






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·
            substantially
                greater financial, technical and other resources;
                and




·
            a
                wider array of online products and
                services.




To
      be
      competitive, we must continue to enhance our products and services as well
      as
      our sales and marketing channels.




***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 restructure our operations, which will result in a
      material adverse effect on our results of operations.




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




For
      the
      year ended December 31, 2006, we had one client that accounted for 11% of our
      revenue. We anticipate that our results of operations in any given period will
      continue to be influenced to a certain extent by a relatively small number
      of
      clients. Accordingly, if we were to lose the business of such a client, our
      results of operations will be materially and adversely affected.




**Risks
      Related to Our Industry**




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




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




We
      and
      our 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.




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***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
      may
      be successfully asserted against us in any jurisdiction, which may subject
      us to
      civil and criminal penalties, or we could be required to restructure our
      contractual arrangements with clients. Any restructuring of contractual
      arrangements could result in lower revenue, increased expenses and reduced
      influence over the business decisions of those operations. Alternatively, some
      existing CHD Meridian Healthcare contracts could be found to be illegal and
      unenforceable, which could result in their termination and an associated loss
      of
      revenue, or inability to enforce valuable provisions of those contracts.




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




Our
      personnel who staff our on-site pharmacies and clinics have custody of
      confidential patient records. The 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.








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




The
      doctors, nurses and other healthcare professionals who staff our affiliated
      professional corporations, the nurses who staff our care communication centers,
      and the pharmacists and other healthcare professionals, who staff our on-site
      pharmacies and clinics, are subject to individual licensing requirements. All
      of
      our healthcare professionals and facilities subject to such licensing
      requirements are licensed in the state where 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.




***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). There is an annual open period
      during which Medicare beneficiaries will choose their drug plan from among
      those
      available in their area of residence.




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




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**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, 2006 through December 31, 2006, the price of our stock has fluctuated
      from a high of $3.91 to a low of $2.00. 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 6, 2007, 39,970,763 shares of our common stock were issued
      and outstanding and the three-month average daily trading volume of our common
      stock was approximately 234,000 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, 2006, 5,591,010 shares of our common stock were reserved for
      issuance upon conversion of outstanding shares of Series A Convertible Preferred
      Stock and 4,775,946 shares of our common stock were reserved for issuance upon
      the exercise of our outstanding warrants and options. In addition, outstanding
      shares of our Series A Convertible Preferred Stock accrue dividends at the
      rate
      of 8% per year, which is payable in common stock or cash when shares of our
      Series A Convertible Preferred Stock are converted. Under the current terms
      of
      our senior secured credit facility, however, we are required to pay the
      dividends in shares of common stock. As of December 31, 2006, such accrued
      dividends were approximately $3.1 million. If such dividends were converted
      into
      common stock at $3.10, the closing price of our common stock on December 31,
      2006, we would issue approximately 1,005,000 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
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**Item
      1B.**  **Unresolved
      Staff Comments**




At
      March
      6, 2007, 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
      $222,000. The property is in good condition.




Certain
      of our executive, administrative and sales offices are located in Nashville,
      Tennessee, where we lease approximately 31,000 square feet of office space
      pursuant to a lease expiring in June 2010 at a current base annual rate of
      $803,000. The property is in good condition.




Certain
      of our executive and administrative offices are located in New York, New York,
      where we lease approximately 5,000 square feet of office space pursuant to
      a
      lease expiring in April 2012 at a current base annual rate of $133,000. The
      property is in good condition.




**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 operation or financial condition.




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




No
      matters were submitted to a vote of our stockholders during the quarter ended
      December 31, 2006.




17
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**PART
      II**




**Item
                5.**
            **Market
                for Registrant’sCommon 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
                Price******
            **High**
            ****
            **Low****2006**First
                Quarter
            $
                3.91
            
            $
                2.00Second
                Quarter
            3.44
            
            2.70Third
                Quarter
            3.38
            
            2.59Fourth
                Quarter
            3.37
            
            2.39**2005**First
                Quarter
            $
                2.35
            
            $
                1.10Second
                Quarter
            1.53
            
            1.07Third
                Quarter
            1.74
            
            1.45Fourth
                Quarter
            1.75
            
            1.15




**Holders**




As
      of
      March 6, 2007, there were 380 shareholders of record of our common stock (which
      excludes shares held by brokers) and 29 registered holders of our Series A
      Convertible Preferred Stock. On March 6, 2007, the last reported sales price
      of
      our common stock was $4.00.




**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.




**Recent
      Sales of Unregistered Securities**




On
      October 28, 2006, a stockholder converted 58.99 shares of I-trax Series A
      Convertible Preferred Stock into 589 shares of common stock. In this conversion,
      we also issued an additional 110 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.






18
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On
      December 6, 2006 and December 21, 2006, two former employees of I-trax exercised
      warrants to purchase an aggregate of 115,514 shares of I-trax common stock
      at an
      exercise price of $.75 per share. In lieu of paying the
      exercise price in cash, the stockholders used the warrants’ cashless exercise
      feature, such that the stockholders received an aggregate of 86,266 shares
      of
      our common stock net of 29,248 shares of common stock surrendered for
      cancellation. In undertaking this issuance, we relied on an exemption from
      registration under Section 4(2) of the Securities Act of 1933, as amended.




Between
      December 6, 2006 and December 29, 2006, five former and two current employees
      of
      I-trax exercised warrants to purchase an aggregate of 77,381 shares of I-trax
      common stock at an exercise prices of $2.50 per share.
      In lieu of paying the exercise price in cash, the stockholders used the
      warrants’ cashless exercise feature, such that the stockholders received an
      aggregate of 164,894 shares of our common stock net of 317,106 shares of common
      stock and surrendered for cancellation. In undertaking this issuance, we relied
      on an exemption from registration under Section 4(2) of the Securities Act
      of
      1933, as amended.




On
      our
      Current Report on Form 8-K date February 22, 2007, we disclosed that January
      17,
      2007 and March 6, 2007, 263,350 shares of Series A Convertible Preferred Stock
      were converted into 2,633,500 shares of common stock, and 420,628 shares of
      common stock were issued to satisfy the dividends accrued on the converted
      shares.




Furthermore,
      on March 6, 2007, two additional stockholders converted 2,400 shares of I-trax
      Series A Convertible Preferred Stock into 24,000 shares of common stock. In
      this
      conversion, we also issued an additional 3,530 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.




Following
      the issues above, 293,351 and 39,970,763 shares of I-trax Series A Convertible
      Preferred Stock and common stock, respectively, were outstanding.




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




None.




**Item
      6.**  **Selected
      FinancialData**




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 of 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 include CHD Meridian
      Healthcare operations beginning as of April 1, 2004 and are not necessarily
      indicative of results to be expected for any future period.




19
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          of Contents




**Five-Year
      Financial Highlights**




*$
      in
      thousands, except per share amounts*




**2006**
            **(1)**
            **2005**
            
            **2004**
            **(2)**
            **2003**
            ****
            **2002**
            **(3)****Consolidated
                Statements of Earnings Data**Revenue
            $
            124,589
            
            $
            115,887
            
            $
            76,402
            
            $
            4,189
            
            $
            3,932Restructuring-related
                activities(4)
            —
            
            13,916
            
            —
            
            —
            
            —Operating
                income (loss)
            1,682
            
            (13,232
            )
            (2,200
            )
            (5,315
            )
            (8,130
            )Net
                loss
            1,766
            
            (14,072
            )
            (3,937
            )
            (8,059
            )
            (9,425
            )**Per
                Share Data**Earnings
                (loss) per share
            $
            0.02
            
            $
            (0.54
            )
            $
            (0.96
            )
            $
            (0.74
            )
            $
            (1.04
            )Shares
                outstanding
            36,613,707
            
            32,818,955
            
            26,226,818
            
            13,966,817
            
            9,372,727Weighted
                average shares outstanding, diluted
            37,614,510
            
            29,716,114
            
            22,466,262
            
            10,904,553
            
            9,096,958Anti-dilutive
                securities
            8,605,580
            
            15,441,556
            
            15,850,883
            
            5,469,286
            
            3,843,755Common
                stock price:High
            3.91
            
            2.35
            
            5.70
            
            5.00
            
            7.65Low
            2.00
            
            1.07
            
            1.29
            
            1.37
            
            2.50**Operating
                Statistics**Gross
                profit rate
            25.2
            %
            23.7
            %
            23.9
            %
            67.2
            %
            68.7
            %General
                and administrative expense rate
            21.2
            %
            20.0
            %
            21.7
            %
            41.6
            %
            43.8
            %Operating
                income (loss) rate
            1.4
            %
            (11.4
            )%
            2.9
            %
            (126.9
            )%
            (206.8
            )%**Year-End
                Data**Current
                ratio(6)
            1.27
            
            1.00
            
            1.09
            
            0.82
            
            0.66Total
                assets
            $
            103,387
            
            $
            98,983
            
            $
            111,953
            
            $
            13,603
            
            $
            14,407Long-term
                debt, including current portion
            9,057
            
            8,649
            
            8,308
            
            —
            
            —Total
                stockholders’ equity
            65,691
            
            62,163
            
            71,763
            
            8,385
            
            8,399





(1)
              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*(123(R)),
                  requiring us to recognizeexpense
                  related to the fairvalueof
                  our stock-based compensation awards. We elected the modified prospective
                  transition method as permitted by SFAS No. 123(R) 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.(2)
              We
                  acquired MeridianOccupationalHealthcare 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.(3)
              We
                  acquired WellComm Group LLC on February 6, 2002. The results of
                  operations
                  of this business are included from the date of acquisition.(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 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.(5)
              Prior
                  to March 19, 2004, I-trax, Inc. did not provide on-site health
                  centers or
                  pharmacies.(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.


20
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**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.




This
      year, 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, 2006. Our independent registered public accounting
      firm expressed an unqualified opinion on management’s assessment of the
      effectiveness of our internal control over financial reporting. 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




·
            Financial
                Reporting Changes




·
            Results
                of Operations




·
            Liquidity
                and Capital Resources




·
            Critical
                Accounting Estimates




·
            New
                Accounting Standards




·
            Material
                Equity Transactions




**Overview**




I-trax,
      Inc. provides integrated workplace medical, pharmacy, wellness, 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 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 pharmaceutical benefits
      management programs. We believe our clinicians deliver excellent care because
      of
      the trusted relationship they establish with their patients at the worksite.






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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.




As
      of
      December 31, 2006, we were providing services to approximately 98 clients,
      including large financial institutions, consumer products manufacturers,
      automotive and automotive parts manufacturers, diversified industrial companies, and
      a
      variety of other employers .
      As of
      December 31, 2006, we were operating 212 on-site facilities in 34 states. 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.




Historically,
      our on-site services separated into four general categories: occupational
      health, primary care and corporate health centers and pharmacies. Traditional
      lines among the occupational health, primary care and corporate health
      categories are blurring, however, as employers seek unique combinations of
      services to challenge raising healthcare costs. Accordingly, although we
      continue to use the general 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.




**Financial
      Reporting Changes**




On
      December 16, 2004, the Financial Accounting Standards Board (FASB) issued
      Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), *Share-Based
      Payment* (123(R)),
      effective for a company’s first fiscal year beginning after June 15, 2005.
      SFAS 123(R) supersedes Accounting Principles Board Opinion No. 25, *Accounting
      for Stock Issued to Employees* .
      SFAS
      123(R) requires all stock-based compensation, including grants of stock
      options, to be recognized in the consolidated statements of earnings.




During
      the first quarter of 2006, we adopted SFAS 123(R), and elected the modified
      prospective transition method. This method permits us to apply the new
      requirements on a prospective basis. Our general and administrative expenses
      ( **“G&A”** )
      rate
      for 2006 included an increase in stock-based compensation expense of $1.3
      million, or $0.03 per diluted share, which increased our G&A rate by
      approximately 1.0% of revenue. For additional information on our adoption of
      SFAS 123(R), see Note 2, *Summary
      of Significant Accounting Policies — Stock-Based Compensation* ,
      of the
      Notes to Consolidated Financial Statements included in Item 8, *Financial
      Statements and Supplementary Data* ,
      of this
      Annual Report on Form 10-K.




**Results
      of Operations**




***2006
      Summary***




We
      operate a variety of different types of sites, from traditional occupational
      health facilities to complex, integrated care sites involving primary care,
      pharmacy services and health, wellness and disease management services (see
      Item
      1, *Description
      of Business* , ** of
      this
      Annual Report on Form 10-K). We added a net 19 new sites in 2006, bringing
      total sites under management to 212 at year end. We continued to pursue
      multi-site client opportunities, particularly in occupational health but also
      in
      primary care and pharmacy. One such multi-site opportunity involved 10 sites
      for
      a new client, which we contracted for at the end of the third quarter. We also
      won a major new contract with an existing client to manage and provide an
      exceptionally comprehensive set of services at a green field manufacturing
      plant. We recruited a new leader for our sales and marketing initiatives and
      added four new sales associates. By year end, we had significantly strengthened
      our sales pipeline over what it was at the beginning of the year. We continued
      to balance earnings growth with investment in new products, sales and marketing,
      technology and research aimed at demonstrating clear proof of concept for our
      services.




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Our
      2006
      revenue increased by $8.7 million to $124.6 million, or by 7.5%. However, if
      we
      adjust for the fact that last year’s revenue included $3.3 million in revenue
      from contracts that were part of our second quarter 2005 restructuring, our
      2006
      revenue increased by $12.0 million or by 10.8%.




We
      measure our revenue growth performance in a number of ways, including same
      site
      revenue growth and growth in non-occupational visits. Both calculations compare
      growth trends 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. Growth in
      non-occupational visits is an indicator of our ability to increase the
      utilization of our primary care clinics and pharmacies. The table below shows
      the quarterly data for both of these key performance indicators during 2006.




**Twelve
                months ended****March
                31, 2006**
            
            **June
                30, 2006**
            
            **September
                30, 2006**
            
            **December
                31, 2006**Same
                site revenue growth
            
            8.0%
            
            8.2%
            
            7.9%
            
            5.3%Non-occupational
                visits
            
            10.2%
            
            9.5%
            
            8.4%
            
            6.2%




Our
      sites
      under management vary considerably in size. For sites that had been in operation
      for at least 12 months through December 31, 2006, our median site generated
      revenue of $291,000 in 2006; 25% of our sites generated revenue of more than
      $702,000 and 25% of our sites produced revenue of $132,000 or less. The mean
      (average) revenue per site was $686,000. Our largest sites produced several
      million dollars in revenue each; these are generally the integrated care sites
      that provide primary care and pharmacy but also include some large traditional
      occupational health sites.




Our
      pharmacy business showed strong growth as pass-through pharmaceutical purchases
      increased by $19.6 million or by 14.7%.




*$
      in
      thousands*




**2006**
            
            **2005**
            
            **Growth**Quarter
                EndedMarch
                31
            $
                37,442
            
            $
                31,800
            
            17.7%June
                30
            37,782
            
            31,346
            
            20.5%September
                30
            37,888
            
            34,365
            
            10.3%December
                31
            39,607
            
            35,615
            
            11.2%Year
                Ended December 31
            $
                152,719
            
            $
                133,126
            
            14.7%




Our
      2006
      gross margin (net revenue minus operating expenses) increased to 25.1% from
      23.7% in 2005. Much of this margin improvement stemmed from reductions in
      insurance related expenses, including $1.3 million in one-time premium refunds
      from insurance companies with which we did business in the past. Excluding
      these
      insurance-related savings, our 2006 gross margin would have been 24.1%, an
      increase of 0.4% over the prior year.






23
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We
      also
      measure the relationship between our margins on new business to our existing
      book of business by comparing margins on sites that have been operating for
      at
      least 12 months with margins on all 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
                ended****March
                31,**
              **2006**
            
            **June
                30,**
              **2006**
            
            **September
                30,**
              **2006**
            
            **December
                31,**
              **2006**Ratio
                of new site gross margin to
              existing
                site gross margin
            
            1.04
            
            1.22
            
            1.22
            
            1.08




Our
      margins also vary by site. Our median gross margin for sites in operation for
      at
      least 12 months was 20.7%; the mean average margin for these sites was 22.5%.
      Our larger, integrated care sites tend to have higher margins than smaller,
      traditional occupational health sites. Sites where we provide pharmacy services
      generally have higher margins due to economies of scale in purchasing of
      pharmaceutical ingredients, which affect our net revenue while the expenses
      associated with our system-wide pharmacy services (see Item 1, *Description
      of Business* , ** of
      this
      Annual Report on Form 10-K) are included in our general and administrative
      ( **“G&A”** )
      expenses.




Our
      G&A expenses increased during 2006 by $3.3 million, to $26.4 million.
      Approximately $1.9 million, or 58% of the total increase, was due to
      implementation of SFAS 123(R) ($1.3 million) and compliance with Section 404
      of
      the Sarbanes-Oxley Act ($0.6 million). Another 15% of the increase ($0.5
      million) represents normal increases in associate compensation. The balance
      of
      the increase, which was concentrated in the fourth quarter, was discretionary
      investment in new product development, sales and marketing and information
      systems. Our strategy is to fund organic growth of our on-site business using
      internally generated funds and debt while investing in the business of the
      future. We thus balance growth in earnings with spending on new products,
      systems and people. A significant portion of such spending increased our G&A
      expenses and reduced the rate of growth of our profitability in
      2006.




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, Sarbanes-Oxley related
      expenses) or discretionary in amount (new product development, sales and
      marketing). Overall, our G&A rate for 2006 increased by 1.2% of revenue to
      21.2% of revenue. This increase is largely due to our change of accounting
      for
      stock-based compensation and expenses related to our compliance efforts with
      Section 404 of the Sarbanes-Oxley Act of 2002.




The
      following table breaks out certain 2006 G&A expenses by quarter and as a
      percent of revenue to provide additional insight on what types of G&A costs
      we incur:




*$
      in
      thousands*




**Quarter
                ended**
            
            **Year
                ended****March
                31,**
              **2006**
            
            **June
                30,**
              **2006**
            
            **September
                30, 2006**
            
            **December
                31, 2006**
            
            **December
                31, 2006**Net
                revenue
            
            $
            30,525
            
            
            30,042
            
            
            30,495
            
            
            33,527
            
            $
            124,589Total
                G&A expenses
            
            
            5,992
            
            
            5,926
            
            
            6,437
            
            
            8,046
            
            
            26,401G&A
                as % of revenue
            
            
            19.6
            %
            
            19.7
            %
            
            21.1
            %
            
            24.0
            %
            
            21.2
            %G&A
                excluding certain expenses
              as
                % of revenue (1)
            
            
            17.2
            %
            
            17.0
            %
            
            16.9
            %
            
            18.5
            %
            
            17.4
            %




(1)
      Excludes SFAS 123R expense, and
      expenses related to Sarbanes-Oxley Act compliance, new product development,
      and
      sales and marketing.




Net
      income applicable to common stockholders for 2006 increased to $0.6 million,
      or
      $0.02 per diluted share, compared with a net loss applicable to common
      stockholders of $(16.1) million, or $(0.54) per diluted share in 2005. Excluding
      restructuring charges of $13.9 million from last year’s net loss, we increased
      our net income applicable to common stockholders by $2.8 million. Approximately
      $0.8 million of this improvement was due to ongoing conversions of our preferred
      stock, which reduced preferred dividends from $2.0 million in 2005 to $1.2
      million in 2006. Our 2006 net income was also affected by a non-recurring gain
      related to discontinued business of $1.3 million.




24
 Table
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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 2005, we show EBITDA including and excluding the effects of SFAS 123(R)
      on
      non-cash stock compensation (a new requirement in 2006 that was not included
      in
      2005 results) and certain other non-cash gains and losses (that is, this
      year’s $1.3 non-recurring million gain from discontinued business and non-cash
      restructuring charges incurred in 2005).




*$
      in
      thousands*




**2006**
            
            **2005**Net
                income (loss)
            
            $
            1,766
            
            $
            (14,072
            )Interest
            
            
            474
            
            
            454Taxes
            
            
            511
            
            
            147Depreciation
                and amotization
            
            
            3,489
            
            
            3,855Reported
                EBITDA
            
            
            6,240
            
            
            (9,616
            )SFAS
                123R expense
            
            
            1,268
            
            
            —Income
                from discontinued operations
            
            
            (1,299
            )
            
            —Restructuring-related
                activities
            
            
            —
            
            
            13,916EBITDA,
                excluding certain non-cash items
            
            $
            6,209
            
            $
            4,300




Reported
      EBITDA in 2006 was $6.2 million compared to reported EBITDA of negative $(9.6)
      million for 2005. Excluding the items mentioned above, 2006 EBITDA was $6.2
      million compared to $4.3 million for 2005, an increase of 44%. This shows the
      effectiveness of our 2005 restructuring as well as our success in balancing
      earnings growth with significant investment in our future.




***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**
            ****
            **2006**
            
            **2005**
            
            **2004**Revenue
            
            $
                124,589
            
            $
                115,887
            
            $
                76,402Gross
                profit as % of revenue
            
            25.2
            %
            23.7
            %
            23.9
            %G&A
                as % of revenue
            
            21.2
            %
            20.0
            %
            21.7
            %Operating
                income/(loss)
            
            $
                1,682
            
            $
                (13,232
            )(1)
            $
                (2,200
            )Operating
                income as % of revenue
            
            1.4
            %
            (11.4
            )%
            (2.9
            )%Net
                income (loss) applicable to common stockholders
            
            $
                582
            
            $
                (16,121
            )
            $
                (21,635
            )Diluted
                earnings (loss) per share
            
            $
                0.02
            
            $
                (0.54
            )
            $
                (0.96
            )




(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.




25
 Table
          of Contents




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




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 $4.8 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.




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 123(R) 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 $0.4 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 the year 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.






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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.




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.




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




Revenue
      for the year ended December 31, 2005 was $115.9 million, an increase of $39.5
      million from $76.4 million for the year ended December 31, 2004. The substantial
      increase results from the effects of the CHD Meridian Healthcare acquisition,
      the overall addition of 16 facilities, and year over year growth in existing
      site revenue.




Operating
      expenses, which represent our direct costs associated with the operation of
      our
      on-site and health management services, amounted to $88.5 million for the year
      ended December 31, 2005, an increase of $30.3 million from $58.2 million for
      the
      year ended December 31, 2004. The substantial increase is the result of the
      CHD
      Meridian Healthcare acquisition and greater number of facilities under
      management. Operating expenses as a percent of revenue were 76.3% for 2005,
      consistent with 76.1% for 2004.




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 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
      $23.1 million for the year ended December 31, 2005 from $16.6 million for the
      year ended December 31, 2004. The increase of $6.5 million is primarily
      attributable to the CHD Meridian Healthcare acquisition.






27
 Table
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Depreciation
      and amortization expenses were $3.6 million for the year ended December 31,
      2005, a decrease of $0.3 million as compared to $3.9 million for the year ended
      December 31, 2004. The decrease is attributable to certain intangible and
      long-lived assets being fully depreciated during 2005.




Interest
      expense for the year ended December 31, 2005 was $0.5 million, representing
      a
      decrease of $0.5 million from $1.0 million for the year ended December 31,
      2004.
      Interest expense in 2005 is primarily attributable to our senior secured credit
      facility, as contrasted with 2004 interest expense that also includes non-cash
      charges associated with a convertible debenture and associated warrants.




Amortization
      of financing costs for the year ended December 31, 2005 was $0.2 million,
      representing an increase of $0.1 million from $0.1 million for the year ended
      December 31, 2004. The increase is due to additional debt issuance costs
      capitalized in association with amendments of our senior secured credit facility
      during 2005 and 2004.




The
      provision for income taxes for the year ended December 31, 2005 was $0.1
      million, representing a decrease of $0.2 million from $0.3 million for the
      year
      ended December 31, 2004. This increase is related to certain state taxes for
      CHD
      Meridian Healthcare operations.




Other
      expense for the year ended December 31, 2004 relates to a one-time non-cash
      charge of $0.4 million associated with the fair value of certain warrants.
      This
      charge represents the increase in the fair value of the common stock underlying
      warrants between the date on which the warrants were granted and the date on
      which the registration statement covering the resale of such common stock was
      declared effective by the Securities and Exchange Commission.




For
      the
      year ended December 31, 2005, our net loss was $14.1 million, as compared to
      a
      net loss of $4.0 million for the year ended December 31, 2004. The net loss
      for
      2005 includes restructuring related charges of $13.9 million. The net loss
      for
      2004 includes $0.8 million of transaction related compensation costs, which
      were
      included in general and administrative expense.




***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 stabalized 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
      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. In addition, based
      on
      updated actuarial analysis and actual loss experience, we revised our
      estimates of professional liability exposures and accordingly reduced our
      reserves by approximately $0.6 million.




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 Table
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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, 2006,
      is $7.2 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 has exposed us
      to
      substantial additional regulatory requirements, with attendant risks if we
      fail
      to comply with applicable regulations.




***Selected
      Quarterly Operating Results***




The
      following table shows our quarterly unaudited consolidated financial information
      for the eight quarters ended December 31, 2006. 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.




29
 Table
          of Contents


*$
      in
      thousands, except per share amounts*


**(Unaudited)****Quarter
                ended****2006**
            
            **2005****Dec.
                31**
            
            **Sept.
                30**
            
            **June
                30**
            
            **March
                31**
            
            **Dec.
                31**
            
            **Sept.
                30**
            
            **June
                30**
            
            **March
                31**Net
                revenue
            
            $
            33,527
            
            $
            30,495
            
            $
            30,042
            
            $
            30,525
            
            $
            31,359
            
            $
            28,824
            
            $
            28,239
            
            $
            27,465Costs
                and expensesOperating
                expenses
            
            
            24,397
            
            
            22,622
            
            
            22,785
            
            
            23,433
            
            
            23,714
            
            
            21,736
            
            
            21,855
            
            
            21,152Impairment
                of long-lived assets
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            12,470
            
            
            --Provision
                for loss contracts
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            (1,453
            )
            
            2,116
            
            
            --Restructuring
                expenses
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            (56
            )
            
            839
            
            
            --General
                and administrative expenses
            
            
            8,046
            
            
            6,437
            
            
            5,926
            
            
            5,992
            
            
            5,767
            
            
            5,519
            
            
            6,341
            
            
            5,503Depreciation
                and amortization
            
            
            746
            
            
            826
            
            
            828
            
            
            859
            
            
            876
            
            
            772
            
            
            916
            
            
            1,052Total
                costs and expenses
            
            
            33,189
            
            
            29,885
            
            
            29,539
            
            
            30,294
            
            
            30,357
            
            
            26,518
            
            
            44,537
            
            
            27,707Operating
                income (loss)
            
            
            338
            
            
            610
            
            
            503
            
            
            231
            
            
            1,002
            
            
            2,306
            
            
            (16,298
            )
            
            (242
            )Other
                expensesInterest
                expense
            
            
            132
            
            
            113
            
            
            115
            
            
            114
            
            
            55
            
            
            95
            
            
            177
            
            
            127Amortization
                of financing costs
            
            
            58
            
            
            59
            
            
            57
            
            
            56
            
            
            57
            
            
            57
            
            
            80
            
            
            45Total
                other expenses
            
            
            190
            
            
            172
            
            
            172
            
            
            170
            
            
            112
            
            
            152
            
            
            257
            
            
            172Income/(loss)
                before provision for income taxes
            
            
            148
            
            
            438
            
            
            331
            
            
            61
            
            
            890
            
            
            2,154
            
            
            (16,555
            )
            
            (414
            )Provision
                for income taxes
            
            
            97
            
            
            234
            
            
            90
            
            
            90
            
            
            141
            
            
            (253
            )
            
            252
            
            
            7Income
                (loss) from continuing operations
            
            
            51
            
            
            204
            
            
            241
            
            
            (29
            )
            
            749
            
            
            2,407
            
            
            (16,807
            )
            
            (421
            )Income
                from discontinued operations
            
            
            1,299
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --Net
                income (loss)
            
            
            1,350
            
            
            204
            
            
            241
            
            
            (29
            )
            
            749
            
            
            2,407
            
            
            (16,807
            )
            
            (421
            )Less
                preferred stock dividend
            
            
            (282
            )
            
            (282
            )
            
            (283
            )
            
            (337
            )
            
            (489
            )
            
            (518
            )
            
            (518
            )
            
            (524
            )Net
                income (loss) attributable to common stockholders
            
            $
            1,068
            
            $
            (78
            )
            $
            (42
            )
            $
            (366
            )
            $
            260
            
            $
            1,889
            
            $
            (17,325
            )
            $
            (945
            )Income
                (loss) per common share, basicFrom
                continuing operations
            
            $
            (0.01
            )
            $
            (0.00
            )
            $
            (0.00
            )
            $
            (0.01
            )
            $
            0.01
            
            $
            0.06
            
            $
            (0.57
            )
            $
            (0.04
            )From
                discontinued operations
            
            $
            0.04
            
            $
            --
            
            $
            --
            
            $
            --
            
            $
            --
            
            $
            --
            
            $
            --
            
            $
            --Net
                earnings (loss) per common share
            
            $
            0.03
            
            $
            (0.00
            )
            $
            (0.00
            )
            $
            (0.01
            )
            $
            0.01
            
            $
            0.06
            
            $
            (0.57
            )
            $
            (0.04
            )Income
                (loss) per common share, dilutedFrom
                continuing operations
            
            $
            (0.01
            )
            $
            (0.00
            )
            $
            (0.00
            )
            $
            (0.01
            )
            $
            0.01
            
            $
            0.06
            
            $
            (0.57
            )
            $
            (0.04
            )From
                discontinued operations
            
            $
            0.03
            
            $
            --
            
            $
            --
            
            $
            --
            
            $
            --
            
            $
            --
            
            $
            --
            
            $
            --Net
                earnings (loss) per common share
            
            $
            0.03
            
            $
            (0.00
            )
            $
            (0.00
            )
            $
            (0.01
            )
            $
            0.01
            
            $
            0.06
            
            $
            (0.57
            )
            $
            (0.04
            )


30
 Table
          of Contents


**Liquidity
      and Capital Resources**




***Summary***




Cash
      recorded on our consolidated balance sheet consists primarily of cash held
      by
      our insurance subsidiary. We utilize a revolving senior secured credit facility
      to manage our working capital needs during the year. Our payables and cash
      outlays are driven primarily by pass-through pharmaceutical purchases averaging
      $6.2 million every two weeks and weekly payroll-related disbursements. During
      2006, our weighted-average balance outstanding under our revolving credit
      facility was $6.7 million.




We
      ended
      2006 with $6.6 million of cash and cash equivalents, an increase of $1.2 million
      from the end of 2005. This increase is attributable to increased cash reserves
      held at our insurance subsidiary. 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 1.27 at December 31, 2006, as
      compared to 1.00 at December 31, 2005. 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*


**2006**
            
            **2005**
            
            **2004**Total
                cash provided by (used in):Operating
                activities
            
            $
            1,889
            
            $
            3,760
            
            $
            (862
            )Investing
                activities
            
            
            (1,531
            )
            
            (2,661
            )
            
            (21,691
            )Financing
                activities
            
            
            814
            
            
            482
            
            
            25,784Increase
                in cash and cash equivalents
            
            $
            1,172
            
            $
            1,581
            
            $
            3,231




**Operating** ***Activities***




Cash
      provided by operating activities was $1.9 million for 2006, compared with $3.8
      million for 2005 and cash used in operating activities of $0.8 million for
      2004.
      The decline in operating cash flows for 2006, compared with 2005, was due
      primarily to a decrease in cash provided from changes in operating assets and
      liabilities, partially offset by increased net income and non-cash expenses.




***Investing
      Activities***




Cash
      used
      in investing activities was $1.5 million for 2006, compared with $2.7 million
      for 2005 and $21.7 million for 2004. Investing activities in 2004 included
      $18.4
      million related to the acquisition of CHD Meridian Healthcare. We invested
      $0.8
      million and $1.8 million in 2005 and 2004, respectively, in capitalized
      software. The decrease in cash used in investing activities for 2006, compared
      with 2005, was due primarily to our discontinuation of certain internally
      developed software through our restructuring in 2005. Refer to Note 4, *Restructuring
      and Related Activities,* 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 restructuring
      activities in 2005. Also refer to *Capital
      Expenditures* in the *Liquidity
      and Capital Resources* section
      of this MD&A for additional information. In 2006, we used cash for 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.






31
 Table
          of Contents




***Financing
      Activities***




Cash
      provided by financing activities was $0.8 million for 2006, compared with $0.5
      million and $25.8 million for 2005 and 2004, respectively. The increase in
      cash
      provided by financing activities for 2006, compared with 2005, was due primarily
      to additional draws under our credit facility and proceeds from stock private
      placements and stock option exercises. Financing activities during 2004 included
      transactions related to the purchase of CHD Meridian Healthcare.




***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 common stock), asset sales or
      financing from third parties, or a combination of these options. We cannot
      provide assurance that these additional sources of funds will be available
      or,
      if available, would have reasonable terms.




We
      have a
      revolving credit facility that is secured by substantially all of our tangible
      assets. The facility expires on January 1, 2008. We are currently negotiating
      a
      new credit facility and anticipate having a firm commitment by March 31, 2007.
      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 $1.0 million at December 31, 2006, reduce
      amounts available under this facility. As of December 31, 2006 and December
      31,
      2005, $4.9 million was available under the facility. Borrowings under the
      facility at December 31, 2006 and 2005 were $9.1 million and $8.6 million,
      respectively.




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, 2006, 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 2006,
      we
      invested $1.5 million 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 funded through cash provided by operating activities, as well as available
      cash and cash equivalents. In 2007, we anticipate investing $1.5 million to
      $2.0
      million on capital expenditures.




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***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 significant contractual obligations at December
      31, 2006, 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 period****Contractual
                obligations**
            
            **Total**
            
            **<
                1 Year**
            
            **1
                - 3 Years**
            
            **3
                - 5 Years**
            
            **>
                5 Years**Operating
                leases
            
            $
            5,279
            
            $
            1,896
            
            $
            2,513
            
            $
            716
            
            $
            154Less:
                Amounts reimbursed by clients(1)
            
            
            679
            
            
            585
            
            
            91
            
            
            3
            
            
            --$
            4,600
            
            $
            1,311
            
            $
            2,422
            
            $
            713
            
            $
            154




(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.




***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 2, *Summary
      of 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.




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**Description**
            **Judgments
                and Uncertainties**
            **Effect
                if Actual Results Differ From Assumptions*****Professional
                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 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 2006, 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, 2006 was $52 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 past three years.
              
              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.


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**Description**
            **Judgments
                and Uncertainties**
            **Effect
                if Actual Results Differ From Assumptions*****Tax
                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.***Revenue
                Recognition***
              
              See
                Note 1,*Summary
                of 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. 101,*Revenue
                Recognition*,
                in determining when to recognize revenue. Certain 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). 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.






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***Stock-Based
                Compensation***
              
              We
                have stock-based compensation plans, which include stock options
                and
                restricted share awards. See Note 2,*Summary
                of Significant accounting and Policies*,
                and Note 10,*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
                my
                not be representative of the actual economic cost of the stock-based
                compensation.
              
              A
                1% change in our stock-based compensation expense for the year ended
                December 31, 2006, would have an immaterial affect on
                earnings.




***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.






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***New
      Accounting Standards***




In
      July
      2006, the Financial Accounting Standards Board issued FASB Interpretation No.
      48, *Accounting
      for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109* ( **“FIN
      48”** ) *.* FIN 48
      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* .
      FIN 48
      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. FIN 48 also provides guidance on derecognition,
      classification, interest and penalties, accounting in interim periods,
      disclosures, and transition. FIN 48 is effective for fiscal years beginning
      after December 15, 2006. We are currently in the process of evaluating the
      impact of FIN 48 on our financial position and results of
      operations.




In
      September 2006, the FASB issued SFAS No. 157, *Fair
      Value Measurements* .
      SFAS
      No. 157 defines fair value, establishes a framework for measuring fair value
      in
      generally accepted accounting principles and expands disclosures about fair
      value measurements. SFAS No. 157 applies under other accounting pronouncements
      that require or permit fair value measurements and accordingly, does not require
      any new fair value measurements. SFAS No. 157 is effective for fiscal years
      beginning after November 15, 2007. We are currently assessing the impact of
      SFAS
      No. 157 on our consolidated financial statements.




**Material
      Equity Transactions**




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




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




****
            **2006**
            
            **2005**
            
            **2004**
            ****Series
                A Convertible Preferred Stock converted
            
            293,938
            
            217,244
            
            129,717Common
                shares issued upon conversion
            
            2,939,377
            
            2,172,445
            
            1,297,164Common
                shares issued in satisfaction of dividends accrued
            
            417,016
            
            418,334
            
            132,983Total
                common shares issued upon Series A Convertible Preferred Stock conversions
            
            3,356,393
            
            2,590,779
            
            1,430,147




Further,
      between January 17, 2007 and March 6, 2007, 265,750 shares of Series A
      Convertible Preferred Stock were converted into 2,657,500 shares of common
      stock, and 424,158 shares of common stock were issued to satisfy the dividends
      accrued on the converted shares.




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




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


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**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 2006 ranged from 7.2% to 8.4%. If the
      rates on the debt were to increase to 9.0%, 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.




**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 Goldstein Golub Kessler
      LLP for the years ended December 31, 2006, 2005 and 2004, an independent
      registered public accounting firm that conducted its audits in accordance with
      the standards of the Public Company Accounting Oversight Board (United States).
      The independent registered public accounting firm’s responsibility 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.




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**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, 2006, 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, 2006. During its
      assessment, management did not identify any material weaknesses in our internal
      control over financial reporting. Goldstein Golub Kessler LLP , the independent
      registered accounting firm that audited our consolidated financial statements
      for the year ended December 31, 2006, included in Item 8, Financial
      Statements and Supplementary Data, of this Annual Report on Form 10-K, has
      issued an unqualified attestation report on management’s assessment of internal
      control over financial reporting.


/s/
                  R. Dixon Thayer
              /s/
                  David R. BockR.
                  Dixon Thayer
              David
                  R. BockChief
                  Executive Officer
              Executive
                  Vice President(Principal
                  Executive Officer)
              and
                  Chief Financial Officer(Principal
                  Financial and Accounting
                  Officer)


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**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





To
      the
      Board of Directors and


Stockholders
      of I-trax, Inc.




We
      have
      audited management’s assessment, included in the accompanying Management’s
      Annual Report on Internal Control Over Financial Reporting, that I-trax, Inc.
      (I-trax) maintained effective internal control over financial reporting as
      of
      December 31, 2006, based on criteria established in *Internal
      Control—Integrated Framework* issued
      by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
      I-trax management is responsible for maintaining effective internal control
      over
      financial reporting and for its assessment of the effectiveness of internal
      control over financial reporting. Our responsibility is to express an opinion
      on
      management’s assessment and an opinion on the effectiveness of 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, evaluating management’s assessment, testing and evaluating
      the design and operating effectiveness of internal control, and 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, management’s assessment that I-trax, Inc. maintained effective internal
      control over financial reporting as of December 31, 2006, is fairly stated,
      in
      all material respects, based on criteria established in *Internal
      Control—Integrated Framework* issued
      by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
      Also in our opinion, I-trax, Inc. maintained, in all material respects,
      effective internal control over financial reporting as of December 31, 2006,
      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 consolidated
      financial statements as of and for the year ended December 31, 2006, of the
      Company and our report dated March 10, 2007 expressed an unqualified opinion
      on
      those financial statements.




/s/
                GOLDSTEIN GOLUB KESSLER LLPGOLDSTEIN
                GOLUB KESSLER LLPNew
                York, New YorkMarch
                10, 2007


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**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 2005, and the related consolidated
      statements of operations, stockholders’ equity and cash flows for the each of
      the three years in the period ended December 31, 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 2005 and the results of their
      operations and their cash flows for each of the three 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, effective January
      1, 2006, the Company changed its method of accounting for share-based payments
      to adopt Statement of Financial Accounting Standards No. 123(R) Share-Based
      Payment.




We
      have
      also audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the effectiveness of the Company’s internal
      control over financial reporting as of December 31, 2006, based on the criteria
      established in Internal Control — Integrated Framework issued by the
      Committee of Sponsoring Organizations of the Treadway Commission and our report
      dated March 10, 2007 expressed an unqualified opinion on management’s assessment
      of the effectiveness of the Company’s internal control over financial reporting
      and an unqualified opinion on the effectiveness of the Company’s internal
      control over financial reporting.




/s/
                GOLDSTEIN GOLUB KESSLER LLPGOLDSTEIN
                GOLUB KESSLER LLPNew
                York, New YorkMarch
                10, 2007





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


**CONSOLIDATED
      BALANCE SHEET**


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





**ASSETS****December
                31,****2006**
            
            2005Current
                assetsCash
                and cash equivalents
            
            **$**
            **6,558**
            
            $
            5,386Accounts
                receivable, net
            
            
            **21,704**
            
            
            15,490Other
                current assets
            
            
            **1,526**
            
            
            1,899Total
                current assets
            
            
            **29,788**
            
            
            22,775Property
                and equipment, net
            
            
            **3,377**
            
            
            4,042Goodwill
            
            
            **51,620**
            
            
            51,620Customer
                list, net
            
            
            **18,159**
            
            
            19,641Other
                intangible assets, net
            
            
            **402**
            
            
            864Other
                long term assets
            
            
            **41**
            
            
            41Total
                assets
            
            **$**
            **103,387**
            
            $
            98,983**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Current
                liabilitiesAccounts
                payable
            
            **$**
            **10,376**
            
            $
            8,069Accrued
                payroll and benefits
            
            
            **4,444**
            
            
            3,961Net
                liabilities of discontinued operations
            
            
            **--**
            
            
            1,299Accrued
                loss contracts
            
            
            **--**
            
            
            419Current
                portion of accrued restructuring charges
            
            
            **118**
            
            
            312Other
                current liabilities
            
            
            **11,627**
            
            
            11,782Total
                current liabilities
            
            
            **26,565**
            
            
            25,842Senior
                secured credit facility
            
            
            **9,057**
            
            
            8,649Note
                payable
            
            
            **129**
            
            
            --Accrued
                restructuring charges, net of current portion
            
            
            **--**
            
            
            14Other
                long term liabilities
            
            
            **1,945**
            
            
            2,315Total
                liabilities
            
            
            **37,696**
            
            
            36,820Commitments
              and contingenciesStockholders’
                equityPreferred
                stock - $.001 par value, 2,000,000 shares authorized, 559,101 and
                853,039
                issued and outstanding, respectively; Liquidation preference: $13,978,000
                and $21,326,000 at December 31, 2006 and 2005,
                respectively
            
            
            **1**
            
            
            1Common
                stock - $.001 par value, 100,000,000 shares authorized 36,613,707
                and
                32,818,955 shares issued and outstanding, respectively
            
            
            **35**
            
            
            32Additional
                paid in capital
            
            
            **136,623**
            
            
            134,864Accumulated
                deficit
            
            
            **(70,968**
            **)**
            
            (72,734
            )Total
                stockholders’ equity
            
            
            **65,691**
            
            
            62,163Total
                liabilities and stockholders’ equity
            
            **$**
            **103,387**
            
            $
            98,983








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


42
 Table
          of Contents


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


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


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





**Year
                ended December 31,****2006**
            
            2005
            
            2004Net
                revenue
            
            **$**
            **124,589**
            
            $
            115,887
            
            $
            76,402Costs
                and expensesOperating
                expenses
            
            
            **93,247**
            
            
            88,457
            
            
            58,151Impairment
                of intangible and long-lived assets
            
            
            **--**
            
            
            12,470
            
            
            --Provision
                for loss contracts
            
            
            **--**
            
            
            663
            
            
            --Restructuring
                expenses
            
            
            **--**
            
            
            783
            
            
            --General
                and administrative expenses
            
            
            **26,401**
            
            
            23,130
            
            
            16,585Depreciation
                and amortization
            
            
            **3,259**
            
            
            3,616
            
            
            3,866Total
                costs and expenses
            
            
            **122,907**
            
            
            129,119
            
            
            78,602Operating
                income (loss)
            
            
            **1,682**
            
            
            (13,232
            )
            
            (2,200
            )Other
                expensesInterest
                expense
            
            
            **474**
            
            
            454
            
            
            1,002Amortization
                of financing costs
            
            
            **230**
            
            
            239
            
            
            132Other
                (income) expenses
            
            
            **--**
            
            
            --
            
            
            350Total
                other expenses
            
            
            **704**
            
            
            693
            
            
            1,484Loss
                before provision for income taxes
            
            
            **978**
            
            
            (13,925
            )
            
            (3,684
            )Provision
                for income taxes
            
            
            **511**
            
            
            147
            
            
            253Income
                (loss) from continuing operations
            
            
            **467**
            
            
            (14,072
            )
            
            (3,937
            )Income
                from discontinued operations (see Note 5)
            
            
            **1,299**
            
            
            --
            
            
            --Net
                income (loss)
            
            
            **1,766**
            
            
            (14,072
            )
            
            (3,937
            )Less
                preferred stock dividend
            
            
            **(1,184**
            **)**
            
            (2,049
            )
            
            (1,878
            )Less
                deemed dividends applicable to preferred stockholders
            
            
            **--**
            
            
            --
            
            
            (15,820Net
                income (loss) applicable to common stockholders
            
            **$**
            **582**
            
            $
            (16,121
            )
            $
            (21,635
            )Earnings
                (loss) per common share:BasicFrom
                continuing operations
            
            $
            **(0.02**
            **)**
            $
            (0.54
            )
            $
            (0.96
            )From
                discontinued operations
            
            **$**
            **0.04**
            
            $
            --
            
            $
            --Net
                earnings (loss) per common share
            
            **$**
            **0.02**
            
            $
            (0.54
            )
            $
            (0.96
            )DilutedFrom
                continuing operations
            
            $
            **(0.02**
            **)**
            $
            (0.54
            )
            $
            (0.96
            )From
                discontinued operations
            
            **$**
            **0.03**
            
            $
            --
            
            $
            --Net
                earnings (loss) per common share
            
            **$**
            **0.02**
            
            $
            (0.54
            )
            $
            (0.96
            )Weighted
                average number of shares outstanding, basic
            
            
            **36,039,650**
            
            
            29,716,114
            
            
            22,466,262Weighted
                average number of shares outstanding, diluted
            
            
            **37,614,510**
            
            
            29,716,114
            
            
            22,466,262








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


43
 Table
          of Contents


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


**CONSOLIDATED
      STATEMENT OF STOCKHOLDERS’ EQUITY**


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





Preferred
                Stock
            
            Common
                Stock
            
            Additional
              Paid-in
            
            Accumulated
            
            Total
              Stockholders’Shares
            
            Amount
            
            Shares
            
            Amount
            
            Capital
            
            Deficit
            
            EquityBalances
                at December 31, 2003
            
            
            --
            
            $
            --
            
            
            13,966,817
            
            $
            14
            
            $
            47,276
            
            $
            (38,905
            )
            $
            8,385Reclassification
                of common stock warrants to paid in capital
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            3,110
            
            
            --
            
            
            3,110Issuance
                of common stock in satisfaction of promissory note and other settlement,
                net of costs
            
            
            --
            
            
            --
            
            
            69,165
            
            
            --
            
            
            71
            
            
            --
            
            
            71Issuance
                of common stock upon conversion of debenture and accrued
                interest
            
            
            --
            
            
            --
            
            
            427,106
            
            
            --
            
            
            747
            
            
            --
            
            
            747Issuance
                of common stock upon exercise of warrants
            
            
            --
            
            
            --
            
            
            333,583
            
            
            --
            
            
            52
            
            
            --
            
            
            52Sale
                of preferred stock, net of costs
            
            
            1,000,000
            
            
            1
            
            
            --
            
            
            --
            
            
            23,509
            
            
            --
            
            
            23,510Issuance
                of preferred stock for acquisition of CHD Meridian
            
            
            400,000
            
            
            --
            
            
            --
            
            
            --
            
            
            10,000
            
            
            --
            
            
            10,000Redemption
                of preferred stock
            
            
            (200,000
            )
            
            --
            
            
            --
            
            
            --
            
            
            (5,000
            )
            
            --
            
            
            (5,000
            )Issuance
                of common stock for acquisition of CHD Meridian
            
            
            --
            
            
            --
            
            
            10,000,000
            
            
            10
            
            
            36,290
            
            
            --
            
            
            36,300Conversion
                of preferred stock and accrued dividends on preferred stock into
                common
                stock
            
            
            (129,717
            )
            
            --
            
            
            1,430,147
            
            
            1
            
            
            192
            
            
            --
            
            
            193Preferred
                stock dividend
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            (1,878
            )
            
            --
            
            
            (1,878
            )Deemed
                dividends applicable to issuance of preferred stock
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            15,820
            
            
            (15,820
            )
            
            --Issuance
                of common stock warrants in connection with amendment of senior secured
                credit facility
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            210
            
            
            --
            
            
            210Net
                loss for the year ended December 31, 2004
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            (3,937
            )
            
            (3,937
            )Balances
                at December 31, 2004
            
            
            1,070,283
            
            $
            1
            
            
            26,226,818
            
            $
            25
            
            $
            130,399
            
            $
            (58,662
            )
            $
            71,763





(Continued
      on following page.)


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


44
 Table
          of Contents


**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, 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 3)
            
            
            --
            
            
            --
            
            
            3,859,200
            
            
            4
            
            
            5,592
            
            
            --
            
            
            5,596Conversion
                of preferred stock and accrued dividends on preferred stock into
                common
                stock
            
            
            (217,244
            )
            
            --
            
            
            2,590,779
            
            
            3
            
            
            682
            
            
            
            
            
            685Preferred
                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.


45
 Table
          of Contents





**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
            
            Equity**Balances
                at December 31, 2005**
            
            
            **853,039**
            
            **$**
            **1**
            
            
            **32,818,955**
            
            **$**
            **32**
            
            **$**
            **134,864**
            
            $
            **(72,734**
            **)**
            **$**
            **62,163**Warrant
                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
            
            
            1,766**Balances
                at December 31, 2006**
            
            
            **559,101**
            
            **$**
            **1**
            
            
            **36,613,707**
            
            **$**
            **35**
            
            **$**
            **136,623**
            
            $
            **(70,968**
            **)**
            **$**
            **65,691**




















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


46
 Table
          of Contents


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


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


***(in
      thousands)***





**Year
                ended December 31****2006**
            
            2005
            
            2004Operating
                activities:Net
                income (loss)
            
            **$**
            **1,766**
            
            $
            (14,072
            )
            $
            (3,937
            )Adjustments
                to reconcile net income (loss) to net cash provided
              by/(used
                in) operating activities:Discontinued
                operations
            
            
            (1,299
            )
            
            --
            
            
            --Impairment
            
            
            **--**
            
            
            12,470
            
            
            --Modification
                of warrants
            
            
            **57**
            
            
            --
            
            
            --Issuance
                of stock below market value
            
            
            **130**
            
            
            --
            
            
            --Stock
                based compensation
            
            
            **1,268**
            
            
            --
            
            
            --Loss
                on disposal of assets
            
            
            **651**
            
            
            --
            
            
            --Accrued
                restructuring charges
            
            
            **--**
            
            
            828
            
            
            --Accrued
                loss on contracts
            
            
            **--**
            
            
            663
            
            
            --Depreciation
                and amortization
            
            
            **3,259**
            
            
            3,616
            
            
            3,866Employee
                stock purchase
            
            
            **--**
            
            
            34
            
            
            --Options
                issued below market value
            
            
            **--**
            
            
            25
            
            
            --Accretion
                of discount on notes payable charged to interest expense
              and
                beneficial conversion value of debenture
            
            
            **--**
            
            
            --
            
            
            573Issuance
                of warrants for services
            
            
            **100**
            
            
            31
            
            
            --Issuance
                of warrants related to senior credit facility
            
            
            **--**
            
            
            --
            
            
            210Other
                non-cash items
            
            
            **--**
            
            
            --
            
            
            (46
            )Increase
                in fair value of common stock warrants
            
            
            **--**
            
            
            --
            
            
            350Amortization
                of financing costs
            
            
            **230**
            
            
            240
            
            
            132Changes
                in operating assets and liabilities, net of effects of
                acquisition:Accounts
                receivable
            
            
            (6,214
            )
            
            (3,874
            )
            
            (600
            )Deferred
                tax asset
            
            
            **--**
            
            
            1,198
            
            
            (919
            )Other
                current assets
            
            
            **373**
            
            
            54
            
            
            (793
            )Other
                long term assets
            
            
            **--**
            
            
            20
            
            
            --Accounts
                payable
            
            
            **2,306**
            
            
            1,951
            
            
            (939
            )Accrued
                payroll and benefits
            
            
            **483**
            
            
            65
            
            
            (609
            )Accrued
                loss contracts
            
            
            (419
            )
            
            (244
            )
            
            **--**Accrued
                restructuring charges
            
            
            (209
            )
            
            (502
            )
            
            **--**Other
                current liabilities
            
            
            (223
            )
            
            2,801
            
            
            761Deferred
                tax liability
            
            
            **--**
            
            
            (1,526
            )
            
            1,526Other
                long term liabilities
            
            
            (370
            )
            
            (18
            )
            
            (437
            )Net
                cash provided by/(used in) operating activities
            
            
            **1,889**
            
            
            3,760
            
            
            (862
            )Investing
                activities:Purchases
                of property and equipment
            
            
            (1,506
            )
            
            (2,548
            )
            
            (3,070
            )Acquisition
                of intangible assets
            
            
            (25
            )
            
            (113
            )
            
            (185
            )Acquisition
                of CHD Meridian, net of acquired cash
            
            
            **--**
            
            
            --
            
            
            (18,440
            )Proceeds
                from sale of equipment
            
            
            **--**
            
            
            --
            
            
            4Net
                cash used in investing activities
            
            
            (1,531
            )
            
            (2,661
            )
            
            (21,691
            )Financing
                activities:Principal
                payments on capital leases
            
            
            **--**
            
            
            (9
            )
            
            (38
            )Proceeds
                from option exercises
            
            
            **148**
            
            
            --
            
            
            --Proceeds
                from private placement of common stock
            
            
            **107**
            
            
            --
            
            
            --Proceeds
                from warrant exercises
            
            
            **22**
            
            
            --
            
            
            --(Repayment
                to)/proceeds from related parties
            
            
            **--**
            
            
            --
            
            
            (280
            )Repayment
                of note payable
            
            
            (55
            )
            
            --
            
            
            (618
            )Proceeds
                from exercise of warrants
            
            
            **--**
            
            
            --
            
            
            52Proceeds
                from bank credit facility
            
            
            **592**
            
            
            341
            
            
            8,158Proceeds
                from sale of stock and exercise of warrants
            
            
            **--**
            
            
            150
            
            
            --Proceeds
                from sale of preferred stock, net of issuance costs
            
            
            **--**
            
            
            --
            
            
            23,510Redemption
                of preferred stock
            
            
            **--**
            
            
            --
            
            
            (5,000
            )Net
                cash provided by financing activities
            
            
            **814**
            
            
            482
            
            
            25,784Net
                increase in cash and cash equivalents
            
            
            **1,172**
            
            
            1,581
            
            
            3,231Cash
                and cash equivalents at beginning of year
            
            
            **5,386**
            
            
            3,805
            
            
            574Cash
                and cash equivalents at end of year
            
            **$**
            **6,558**
            
            $
            5,386
            
            $
            3,805





(Continued
      on following page.)


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


47
 Table
          of Contents


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


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


***(in
      thousands)***





(Continued
      from previous page.)





**Year
                ended December 31,****2006**
            
            2005
            
            2004Supplemental
                disclosure of cash flow information:Cash
                paid during the year for:Interest
            
            **$**
            **673**
            
            $
            649
            
            $
            543Income
                taxes
            
            **$**
            **650**
            
            $
            312
            
            $
            285Schedule
                of non-cash investing and financing activities:Issuance
                of warrants for services
            
            **$**
            **100**
            
            $
            31
            
            $
            --Reclassification
                of common stock warrants to paid in capital
            
            **$**
            **--**
            
            $
            --
            
            $
            3,110Issuance
                of common stock in connection with conversion of
              promissory
                note and other settlement
            
            **$**
            **--**
            
            $
            --
            
            $
            71Issuance
                of common stock in connection with conversion of
              debenture
                payable
            
            **$**
            **--**
            
            $
            --
            
            $
            747Deemed
                dividends applicable to issuance of preferred stock
            
            **$**
            **--**
            
            $
            --
            
            $
            15,820Issuance
                of common and preferred stock in connection with the
              acquisition
                of CHD Meridian
            
            **$**
            **--**
            
            $
            --
            
            $
            46,300Accrued
                purchase price (see Note 3)
            
            **$**
            **--**
            
            $
            1,346
            
            $
            7,294Preferred
                stock dividend
            
            **$**
            **1,184**
            
            $
            2,049
            
            $
            1,878Conversion
                of accrued dividends to common stock
            
            **$**
            **1,115**
            
            $
            685
            
            $
            195Purchase
                of all capital stock of CHD Meridian and assumption of
              liabilities
                in the acquisition as follows:Fair
                value of non-cash tangible assets acquired
            
            **$**
            **--**
            
            $
            --
            
            $
            17,256Goodwill
            
            
            **--**
            
            
            --
            
            
            52,966Customer
                list
            
            
            **--**
            
            
            --
            
            
            22,235Other
                intangibles
            
            
            **--**
            
            
            --
            
            
            1,167Cash
                paid, net of cash acquired (includes $85 of transaction
              costs
                incurred in a prior period)
            
            
            **--**
            
            
            --
            
            
            (18,525
            )Accrued
                purchase price (see Note 3)
            
            
            **--**
            
            
            --
            
            
            (7,294
            )Common
                stock issued
            
            
            **--**
            
            
            --
            
            
            (36,300
            )Preferred
                stock issued
            
            
            **--**
            
            
            --
            
            
            (10,000
            )Liabilities
                assumed
            
            **$**
            **--**
            
            $
            --
            
            $
            21,505





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





48
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          of Contents


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




**1.
      Organization**




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 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.




**2.
      Summary of Significant Accounting Policies**




**Principles
      of Consolidation**




The
      accompanying consolidated financial statements include the accounts of the
      I-trax, Inc. and its direct and indirect subsidiaries, which include CHD
      Meridian LLC, Green Hills Insurance Company (see Note 13, *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, 2006 and 2005.




The
      results of operations for the year ended December 31, 2004 do not include the
      operations of CHD Meridian from January 1, 2004 through March 31, 2004, even
      though the merger was consummated on March 19, 2004. We began consolidating
      CHD
      Meridian’s results of operations effective as of April 1, 2004.






49
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          of Contents


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




**Accounts
      Receivable**




We
      use
      the allowance method for determining the collectibility of our accounts
      receivable. The allowance method recognizes bad debt expense following a review
      of the individual accounts outstanding in light of the surrounding facts.
      Accounts receivable are reported at their outstanding unpaid principal balances
      reduced by an allowance for doubtful accounts based on historical bad debts,
      factors related to specific customers’ ability to pay and economic trends. We
      write off accounts receivable against the allowance when a balance is determined
      to be uncollectible. 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:




December
                31, 2004
            $
                598Charged
                to expense
            21Deductions
            (14
            )December
                31, 2005
            $
                605Charged
                to expense
            --Deductions
            (4
            )December
                31, 2006
            $
                601




**Property
      and Equipment**




Property
      and equipment are recorded at cost. Depreciation is calculated using the
      straight-line method over the estimated useful life of the assets. Leasehold
      improvements are amortized using the straight-line method over the term of
      the
      lease or the useful life of the improvements, whichever is shorter. Accelerated
      depreciation methods are generally used for income tax purposes. Repairs and
      maintenance costs are charged directly to expense as incurred.




In
      accordance with the provisions of AICPA Statement of Position No. 98-1,
*Accounting for the Costs of Computer Software Developed or Obtained for
      Internal Use*, 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. In connection with our restructuring
      during 2005 (see Note 4, *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.




Property
      and equipment consists of the following at December 31:




**Estimated
                Useful Life**
            
            **2006**
            
            **2005**Furniture,
                fixtures and equipment
            1-7
                years
            
            $
                5,771
            
            $
                10,698Leasehold
                improvements
            5-7
                years
            
            477
            
            701Buildings
                and improvements
            Varies
            
            --
            
            1086,248
            
            11,507Accumulated
                depreciation
            
            
            (2,871
            )
            (7,465
            )$
                3,377
            
            $
                4,042




50
 Table
          of Contents


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




Depreciation
      expense was $1,519, $1,538, and $1,183 in 2006, 2005 and 2004, 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.




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.




**Goodwill
      and Intangible Assets**




***Goodwill***




Goodwill
      is the excess of the purchase price over the fair value of identifiable net
      assets acquired in business combinations accounted for under the purchase method
      as described in SFAS No. 142, *Goodwill
      and Other Intangible Assets* .
      We do
      not amortize goodwill but test it for impairment annually, or when indications
      of potential impairment exist, utilizing a fair value approach.




We
      determine fair values utilizing widely accepted valuation techniques, including
      discounted cash flows and market multiple analyses. During the fourth quarter
      of
      2006, we completed our annual impairment testing of our goodwill using these
      valuation techniques, and determined there was no impairment.




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




Balance
                at December 31, 2003
            
            $
            8,424Acquisition
                of CHD Meridian
            
            52,966Balance
                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
            
            $
            51,620




51
 Table
          of Contents


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




***Customer
      List and Other Intangible Assets***




Our
      customer list represents the value attributable to contracts acquired through
      the Company’s acquisition of CHD Meridian using a third-party valuation based on
      guidance prescribed in SFAS No. 141, *Business
      Combinations* .
      The
      customer list is amortized on a straight-line basis over 15 years. Other
      intangible assets represent technology and deferred marketing costs, which
      are
      amortized on a straight-line basis over the expected periods to be benefited,
      generally 3 to 5 years. We evaluated the customer list and other intangible
      assets for impairment during the fourth quarter of 2006 using widely accepted
      valuation techniques and determined there was no impairment.




Amortization
      of intangible assets for the years ended December 31, 2006, 2005 and 2004
      amounted to $1,740, $2,078, and $2,683, respectively.




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




2007
            $
                1,7392008
            1,5472009
            1,4822010
            1,4822011
            1,482




**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 $230, $239 and $132 during 2006,
      2005, and 2004, respectively.




**Income
      Taxes**




We
      account for income taxes in accordance with SFAS No. 109, “Accounting for Income
      Taxes,” which requires an asset and liability approach for financial accounting
      and reporting of income taxes. Accordingly, deferred tax liabilities and assets
      are determined based on the difference between the financial statement and
      tax
      basis of assets and liabilities, using enacted tax rates in effect for the
      year
      in which the differences are expected to reverse. Current income taxes are
      based
      on the respective periods’ taxable income for federal and state income tax
      reporting purposes. See Note 8, *Provision
      for Income Taxes* ,
      for
      additional information related to the provision for income taxes.




**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.






52
 Table
          of Contents


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




**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, 2006 approximates its principal amount of
      $9,057. 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. Our revenue from contractual client
      obligations for occupational health, primary care, pharmacy and corporate health
      services are performed on a fixed fee or a cost-plus basis. For fixed fee
      contracts, revenue is recorded on a straight-line basis as services are
      rendered. For cost-plus contracts, revenue is recorded as costs are incurred,
      with the management fee component recorded as earned based upon the method
      of
      calculation stipulated in the 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.




Pass
      through pharmaceutical purchases for the years ended December 31, 2006, 2005
      and
      2004 were approximately $152,721, $133,127, and $72,235, respectively. Purchases
      commenced on April 1, 2004, upon our consummation of the CHD Meridian merger. (See
      Note
      3, *Business
      Combination.* )




**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.






53
 Table
          of Contents




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




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 for 2006 was $1,268. In accordance
      with the modified prospective transition method of SFAS 123R, financial results
      for prior periods have not been restated.




**Net
      Earnings (Loss) Per Share**




We
      present both basic and diluted earnings (loss) per share on the face of the
      consolidated statements of operations. As provided by SFAS No. 128, *Earnings
      per Share* ,
      basic
      earnings (loss) per share is calculated as income available to common
      stockholders divided by the weighted average number of shares outstanding during
      the period. Diluted earnings (loss) per share reflects the potential dilution
      that could occur from common shares issuable through stock options, warrants
      and
      convertible preferred stock. 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:




**2006**
            
            **2005**
            
            **2004**Series
                A Convertible Preferred Stock
            5,591,010
            
            8,530,390
            
            10,702,830Warrants
            1,316,638
            
            3,069,514
            
            3,394,894Stock
                options
            1,593,092
            
            3,841,652
            
            1,753,159Restricted
                shares
            104,840
            
            --
            
            --Anti-dilutive
                shares
            8,605,580
            
            15,441,556
            
            15,850,883




**Reclassifications**




To
      maintain consistency and comparability, certain amounts from prior years have
      been reclassified and combined, where appropriate, to conform to the
      current-year financial statement presentation.




**New
      Accounting Pronouncements**




In
      July
      2006, the Financial Accounting Standards Board issued FASB Interpretation No.
      48
      ( **“FIN
      48”** ), *Accounting
      for Uncertainty in Income Taxes -- an interpretation of FASB Statement No.
      109* .
      FIN 48
      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. FIN 48 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. FIN 48 also
      provides guidance on derecognition, classification, interest and penalties,
      accounting in interim periods, disclosures, and transition. FIN 48 is effective
      for years beginning after December 15, 2006. We are currently in the process
      of
      evaluating the impact of FIN 48 on our financial position and results of
      operations.






54
 Table
          of Contents


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




In
      September 2006, the FASB issued SFAS No. 157, *Fair
      Value Measurements* .
      SFAS
      No. 157 defines fair value, establishes a framework for measuring fair value
      in
      generally accepted accounting principles and expands disclosures about fair
      value measurements. SFAS No. 157 applies under other accounting pronouncements
      that require or permit fair value measurements and accordingly, does not require
      any new fair value measurements. SFAS No. 157 is effective for fiscal years
      beginning after November 15, 2007. We are currently assessing the impact of
      SFAS
      No. 157 on our consolidated financial statements.




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.




**3.
      Business Combination**




On
      March
      19, 2004, we acquired Meridian Occupational Healthcare Associates, Inc., which
      did business as CHD Meridian Healthcare ( **“CHD
      Meridian”** ),
      a
      privately held company and a major provider of outsourced, employer-sponsored
      healthcare services.




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




We
      funded
      the cash portion of the merger consideration by (1) selling 1,000,000 shares
      of
      Series A Convertible Preferred Stock at $25.00 per share for gross proceeds
      of
      $25,000, and (2) drawing $12,000 under a new senior secured credit facility
      with
      a national lender. (See Note 7, *Long
      Term Debt* .)




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




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


55
 Table
          of Contents
 
 **I-TRAX,
          INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 ( ***in
          thousands, except per share data*** **)**


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




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




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 2006 and 2005 actual and 2004 unaudited pro forma results
      of
      operations giving effect to the acquisition of CHD Meridian as though the
      transaction occurred on January 1, 2004. The 2004 unaudited pro forma results
      exclude transaction costs of $1,938 and transaction related bonuses and
      termination pay of $832 included in the statements of operations of CHD Meridian
      and I-trax, Inc., respectively. The 2004 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.




**2006**
              **(actual)**
            
            **2005**
              **(actual)**
            
            **2004**
              **(pro
                forma, unaudited)**Net
                revenue
            
            $
            124,589
            
            $
            115,887
            
            $
            99,757Operating
                income (loss)
            
            $
            1,682
            
            $
            (13,232
            )
            $
            (759
            )Net
                income (loss)
            
            $
            1,766
            
            $
            (14,072
            )
            $
            (2,647
            )Earnings
                (loss) per share, basic
            
            $
            0.02
            
            $
            (0.54
            )
            $
            (0.11
            )Earnings
                (loss) per share, diluted
            
            $
            0.02
            
            $
            (0.54
            )
            $
            (0.11
            )






56
 Table
          of Contents
 
 **I-TRAX,
          INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 ( ***in
          thousands, except per share data*** **)**


**4.
      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:




**Balance
                at December 31, 2004**
            
            **Accrual**
            
            **Cash
                Payments**
            
            **Balance
                at December 31, 2005**
            
            **Cash
                Payments**
            
            **Balance
                at December 31, 2006**RestructuringOne-time
                termination benefits
            
            $
            --
            
            
            542
            
            
            (357
            )
            
            185
            
            
            (181
            )
            $
            4Contract
                termination costs
            
            
            --
            
            
            217
            (1)
            
            (76
            )
            
            141
            
            
            (27
            )
            
            114Other
                associated costs
            
            
            --
            
            
            69
            
            
            (69
            )
            
            --
            
            
            --
            
            
            --Restructuring
                total
            
            $
            --
            
            
            828
            
            
            (502
            )
            
            326
            
            
            (208
            )
            $
            118Provision
                for loss contracts
            
            $
            --
            
            
            663
            (2)
            
            (244
            )
            
            419
            
            
            (419
            )
            $
            --


____________________


(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 o f $1,453
                  of
                  the provision for loss contracts.




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




**5.
      Discontinued Operations**




In
      2001,
      prior to the merger discussed in Note 3, *Business
      Combination* ,
      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.


57
 Table
          of Contents
 
 **I-TRAX,
          INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 ( ***in
          thousands, except per share data*** **)**


**6.
      Other Current Liabilities**




At
      December 31, 2006 and 2005, the following amounts were included in other current
      liabilities in the consolidated balance sheet:




**2006**
            
            **2005**Dividends
                payable
            $
                3,116
            
            $
                3,048Reserve
                for unpaid losses
            3,362
            
            1,905Accrued
                health insurance incurred but not reported
            642
            
            800Accrued
                insurance deductible
            759
            
            1,362Deferred
                revenue
            357
            
            526Other
                (none in excess of 5% of current liabilities)
            3,391
            
            4,141Total
            $
                11,627
            
            $
                11,782




**7.
      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. At December 31, 2006, $1,000 of the facility
      is outstanding as a standby letter of credit, which reduces the amount available
      under the facility for borrowings. The facility expires on January 1, 2008.




At
      December 31, 2006 and 2005, we had $9,057 and $8,649, respectively, of debt
      outstanding under the credit facility. At December 31, 2006, the interest rate
      applicable under the facility was 8.35%. Availability under the credit facility
      was $4,943 and $4,896 at December 31, 2006 and 2005, respectively. As of
      December 31, 2006, we were in compliance with our facility covenants, including
      covenants measuring: (1) our fixed charges coverage ratio, (2) our ratio of
      funded indebtedness to earnings before income, taxes, depreciation and
      amortization, (3) our funded indebtedness to capitalization, and (4) minimum
      EBITDA and stockholders’ equity amounts.




**8.
      Provision for Income Taxes**




Income
      tax expense is comprised of the following for the year ended December 31,
      2006:




Current:Federal
            
            $
            71State
            
            
            162Deferred:
            
            
            278Income
                tax expense
            
            $
            511




58
 Table
          of Contents


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


At
      December 31, 2006 and 2005, we had a cumulative net operating loss ( **“NOL”** )
      carryforward for federal income tax purposes of $39,098 and $37,500,
      respectively, which expires between 2011 and 2025. Federal NOL carryforwards
      may
      be subject to certain limitations under Section 382 of the Internal Revenue
      Code. Of the $39,098 NOL available at December 31, 2006, $27,798 was subject
      to
      this limitation. Because of this limitation we might not be able to fully
      recognize the value of this NOL before it expires.




At
      December 31, 2006 and 2005, we had a cumulative NOL carryforward for state
      income tax purposes of $21,500 and $25,000, respectively, which expires between
      2006 and 2026.




For
      financial reporting purposes, a valuation allowance of $7,578 was recorded
      against these carryforwards and other deferred tax assets. During 2006, the
      valuation allowance decreased by approximately $916.




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:




**2006**
            
            **2005**Deferred
                tax assets:Net
                operating loss carryforwards
            
            $
            13,146
            
            $
            14,013Allowance
                for doubtful accounts
            
            
            219
            
            
            236Accrued
                expenses
            
            
            1,838
            
            
            1,958Other
            
            
            91
            
            
            18Total
                gross deferred tax assets
            
            
            15,294
            
            
            16,225Less:
                Valuation allowance
            
            
            (7,578
            )
            
            (8,494
            )Total
                deferred tax assets
            
            
            7,716
            
            
            7,731Deferred
                tax liabilities:Depreciation
            
            
            (402
            )
            
            (706
            )Amortization
            
            
            (7,314
            )
            
            (7,025
            )Net
                deferred tax asset (liability)
            
            
            (7,716
            )
            
            (7,731
            )Total
                deferred tax liability
            
            $
            --
            
            $
            --




As
      discussed in Note 5, *Discontinued
      Operations* ,
      in 2006
      we determined that the likelihood of loss related to discontinued operations
      was
      remote and reversed the related reserve of $1,299. As a result of the tax
      treatment of this reserve at the time of the acquisition of CHD Meridian, we
      reduced our NOL by this amount in 2006. As such, we have not allocated any
      tax
      provision to discontinued operations.




59
 Table
          of Contents
 
 **I-TRAX,
          INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 ( ***in
          thousands, except per share data*** **)**




The
      provision for income taxes from continuing operations for the years ended
      December 31, 2006 and 2005 differs from the amount computed by applying the
      statutory rate of 34% due to the following:


**2006**
            
            **2005**Tax
                at federal statutory rate
            
            
            34.0
            %
            
            (34.0
            )%State
                income taxes
            
            
            (0.39
            )
            
            0.38Nondeductible
                amortization
            
            
            0.00
            
            
            30.45Stock
                compensation
            
            
            16.72
            
            
            0.00Other
                nondeductible items
            
            
            4.69
            
            
            0.00Change
                in valuation allowance
            
            
            (39.35
            )
            
            4.96Prior
                year true-up
            
            
            11.95
            
            
            0Other
            
            
            (5.66
            )
            
            (0.73
            )Income
                tax provision (benefit)
            
            
            21.96
            %
            
            1.06
            %




In
      2006
      we corrected a tax item related to a federal income tax deduction that resulted
      in tax expense in the current year. This item is reflected as a prior year
      true-up in the reconciliation of our actual rate to the statutory rate.




**9.
      Stockholders’ Equity**




**Preferred
      Stock**




We
      have
      2,000,000 authorized shares of preferred stock. As of December 31, 2006 and
      2005, we had issued and outstanding 559,101 and 853,039 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 $3,116 and $3,048 in accrued dividends
      at
      December 31, 2006 and 2005, respectively, which is included in other current
      liabilities on the consolidated balance sheet.




During
      2006 and 2005, 293,938 and 217,244 shares, respectively, of Series A Convertible
      Preferred Stock were converted into 2,939,375 and 2,172,445 shares of common
      stock, and 417,016 and 418,334 shares of common stock, respectively, were issued
      to satisfy the dividends accrued on the converted shares.




Between
      January 17, 2007 and March 6, 2007, 265,750 shares of Series A Convertible
      Preferred Stock were converted into 2,657,500 shares of common stock, and
      424,158 shares of common stock were issued to satisfy the dividends accrued
      on
      the converted shares.


60
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          of Contents
 
 **I-TRAX,
          INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 ( ***in
          thousands, except per share data*** **)**


**Warrants**




We
      issued
      warrants to acquire 492,000 shares of common stock exercisable at $2.50 per
      share to an affiliate of the placement agent that assisted us in the sale of
      Series A Convertible Preferred Stock. The warrants expire on March 19, 2009.
      Such warrants were valued at $1,506 utilizing the Black-Scholes valuation model,
      which amount was classified as a cost of equity in the consolidated statement
      of
      stockholders’ equity.




In
      an
      offering closed at October 31, 2003, the Company sold 1,400,000 shares of common
      stock, at $2.50 per share, and granted warrants to purchase 700,000 additional
      shares, exercisable at $3.00 per share, for net proceeds of $3,038 after
      expenses. In accordance with EITF No. 00-19, *Accounting
      for Derivative Financial Instruments Indexed To, and Potentially Settled in
      a
      Company’s Own Stock* ,
      the
      fair value of the warrants on the grant date using the Black-Scholes valuation
      model was $2,459. Upon issuance and until registration for resale under the
      Securities Act of 1933, the warrants were accounted for as a liability, with
      an
      offsetting reduction to additional paid-in capital. The fair value of the
      warrants at December 31, 2003 was approximately $2,760, which reflected an
      increase in fair value of $301 from the time the warrants were granted. This
      amount was charged to operations as increase in common stock warrants. The
      fair
      value of the warrants increased by an additional $350 from January 1, 2004
      to
      February 17, 2004, the effective date of the registration statement. This amount
      was also charged to operations. The warrant liability was reclassified to equity
      at February 17, 2004.




On
      October 27, 2004, in connection with an amendment of our senior secured credit
      facility (see Note 7, *Long-Term
      Debt* ),
      we
      issued to our creditor a warrant to purchase 100,000 shares of our common stock
      at an exercise price of $.01 per share. The warrant was valued at $210 and
      recorded as debt issuance costs and is included in amortization of financing
      costs in our statements of operations.




On
      September 12, 2005, we issued a warrant to purchase 55,000 shares of our common
      stock at an exercise price of $1.26 per share to an investor relations
      consultant. The warrant vested over six months and was exercised in September
      2006. The warrant was valued at $41. We included $31 and $10 as general and
      administrative expense in the accompanying consolidated statements of operations
      as of December 31, 2006 and 2005, respectively.




On
      March
      12, 2006, we issued a warrant to purchase 100,000 shares of our common stock
      at
      an exercise price of $2.70 per share to an investor relations consultant. The
      warrant vests over 15 months and expires on March 12, 2009. The warrant was
      valued at $140, with $90 included in general and administrative expenses in
      the
      accompanying consolidated statements of operations as of December 31,
      2006.




On
      May
      17, 2006, our board of directors voted to extend the expiration date of certain
      warrants previously issued to an executive. The original expiration date of
      June
      25, 2006 was extended to June 25, 2007 in consideration or the executive’s
      contribution to our performance. This resulted in a charge of $57 which has
      been
      included in general and administrative expenses in 2006.


61
 Table
          of Contents
 
 **I-TRAX,
          INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 ( ***in
          thousands, except per share data*** **)**




The
      following table summarizes our warrant activity:




**Shares
                Underlying Warrants**Outstanding
                at December 31, 2003
            
            
            3,351,372Granted
            
            
            592,000Exercised
            
            
            (548,478
            )Outstanding
                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
            
            
            2,508,611




At
      December 31, 2006, all outstanding warrants were exercisable at a weighted
      average exercise price of $2.84 per share.




**10.
      Share Based Compensation**




The
      2000
      Equity Compensation Plan and the Amended and Restated 2001 Equity Compensation
      Plan ( **“Plans”** )
      authorize us to grant or issue up to 4,800,000 stock options or restricted
      stock
      shares as of December 31, 2006. The number of shares authorized for issuance
      under the 2001 plan increases automatically on the first day of each year by
      300,000 shares. Under the terms of the Plans, awards may be granted to our
      employees, officers, directors, and certain consultants and advisors. At
      December 31, 2006, a total of 480,648 shares were available for future grants
      under the Plans.




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,
      2006, 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. See Note 2, *Summary
      of Significant Accounting Policies* .




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




62
 Table
          of Contents
 
 **I-TRAX,
          INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 ( ***in
          thousands, except per share data*** **)**




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)******
            ****
            **2006**
            
            **2005**
            
            **2004**Risk-free
                interest rate(2)
            
            4.8%
            
            4.0%
            
            4.0%Expected
                dividend yield
            
            0.0%
            
            0.0%
            
            0.0%Expected
                stock price volatility(3)
            
            62.0%
            
            79.7%
            
            112%Expected
                life of non-qualified stock options (in years)(4)
            
            6.0
            
            5.0
            
            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
                  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.




Stock
      option activity during 2006, 2005 and 2004 was as follows:




****
            ****
            **Stock
                Options**
            
            **Weighted-
                Average Exercise Price**
              **per Share**
            
            **Weighted-
                Average Remaining Contractual
                Term (in years)**
            
            **Aggregate
                Intrinsic Value**
            ****Outstanding
                on December 31, 2003
            
            2,127,914
            
            
            $
            2.91Granted
            
            70,921
            
            
            4.42Exercised
            
            --
            
            
            --Forfeited(1)
            
            (620,509
            )
            
            3.24Expired
            
            --
            
            
            --Outstanding
                on December 31, 2004
            
            1,578,326
            
            
            $
            2.85Granted
            
            3,231,000
            
            
            1.44Exercised
            
            --
            
            
            --Forfeited(2)
            
            (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
            
            
            $
            2.02
            
            
            8.09
            
            
            $
            4,827Vested
                and exercisable on December 31, 2006
            
            2,267,335
            
            
            $
            1.77
            
            
            8.09
            
            
            $
            3,227




(1)
              During
                  2006, we determined that three former executives retained 174,833
                  stock
                  options that should have been forfeited per contractual arrangements
                  in
                  2004. These options were never exercised and the impact to the
                  financial
                  statements was deemed immaterial.(2)
              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.




63
 Table
          of Contents


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




The
      weighted-average grant-date fair value of stock options granted during 2006,
      2005 and 2004 was $1.87, $0.96 and $3.58 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 2006 was $376. Net cash proceeds from the exercise of stock
      options were $148 for 2006. No tax benefit has been recognized due to
      accumulated net losses. There were no stock option exercises in 2005 and 2004.




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




**Number
                of Shares**
            
            **Weighted-Average**
              **Grant
                Date**
              **Fair
                Value**Non-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
            
            $1.45




At
      December 31, 2006, there was $2,445 of unrecognized compensation expense related
      to stock options that is expected to be recognized over a weighted-average
      period of 0.99 years. Our assumptions used in estimating forfeiture rates are
      reviewed each reporting period and the total value of the awards is adjusted
      accordingly.






For
      stock
      options granted prior to the adoption of SFAS 123R, the table below illustrates
      the effect on net earnings and earnings per share as if we had applied the
      fair
      value recognition provisions of SFAS 123 to stock-based compensation for 2005
      and 2004.




**2005**
            
            **2004**Net
                loss, as reported
            
            $
            (14,072
            )
            $
            (3,937
            )Add:
                Intrinsic value of the options issued to employee
              and
                charged to operations
            
            
            25
            
            
            --Deduct:
                Stock-based compensation expense
              determined
                under fair value method for all awards
            
            
            (1,261
            )
            
            (741
            )Net
                loss, pro forma
            
            $
            (15,308
            )
            $
            (4,678
            )Loss
                per share:Basic
                and diluted — as reported
            
            $
            (0.54
            )
            $
            (0.96
            )Basic
                and diluted — pro forma
            
            $
            (0.58
            )
            $
            (1.00
            )









64
 Table
          of Contents
 
 **I-TRAX,
          INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 ( ***in
          thousands, except per share data*** **)**


Information
      regarding options outstanding at December 31, 2006 was as follows:




**Options
                Outstanding**
            
            **Options
                Exercisable****Range
                of**
              **Exercise**
              **Price**
            
            **Number
                Outstanding**
            
            **Weighted**
              **Average**
              **Remaining**
              **Contractual
                Life**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**
            
            **Number
                Exercisable**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**$0.01-$2.00
            
            2,784,710
            
            7.99
            
            $1.42
            
            1,857,775
            
            $1.41$2.01-$4.00
            
            1,422,663
            
            8.44
            
            $3.01
            
            344,863
            
            $2.93$4.01-$6.00
            
            39,361
            
            4.87
            
            $4.76
            
            37,997
            
            $4.77$6.01-$8.00
            
            16,100
            
            5.04
            
            $6.19
            
            16,100
            
            $6.19$8.01-$10.00
            
            10,600
            
            4.10
            
            $10.00
            
            10,600
            
            $10.004,273,434
            
            8.09
            
            $2.02
            
            2,267,335
            
            $1.77




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.




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




**Number
                of**
              **Shares**
            
            **Weighted-Average**
              **Grant
                Date**
              **Fair
                Value**Outstanding
                at December 31, 2005
            --
            
            --Granted
            107,630
            
            $3.08Forfeited
            (2,790
            )
            $3.09Non-vested
                at December 31, 2006
            104,840
            
            $3.08




At
      December 31, 2006, there was $279 of unrecognized compensation expense related
      to restricted stock options that is expected to be recognized over a
      weighted-average period of 1.28 years.




**11.
      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 $79 to $313.




**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 13, *Professional
      Liability and Related Reserves* ,
      for
      further details.






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


**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.




**Significant
      Customers**




As
      of
      December 31, 2006, one customer represented 24% of our accounts receivable
      as
      reflected on the consolidated balance sheet. As of December 31, 2005, two
      customers represented 13% and 12% of our total accounts receivable.




During
      2006, one customer accounted for 11% of our revenue as reflected on the
      consolidated statements of operations. For the year ended December 31, 2005,
      one
      customer accounted for 13% of our revenue. For the year ended December 31,
      2004,
      two customers accounted for 13% and 10% 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.




We
      estimated that $320 of revenue was at risk at December 31, 2004. During 2005,
      we
      deferred additional at risk fees of $301. As a result of the restructuring
      discussed in Note 4, *Restructuring
      and Related Activities* ,
      we
      satisfied contractual obligations related to most of our risk sharing contracts
      allowing the recognition of $621of at risk fees during 2005. At risk fees as
      of
      December 31, 2006 and 2005 were immaterial.


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




**Operating
      Leases**




Future
      minimum cash lease commitments under all non-cancelable leases in effect at
      December 31, 2006 were as follows:




**Cash
                Lease Commitments**
            
            **Client
                Reimbursements**
            
            **Total**2007
            
            $
            1,896
            
            $
            (585
            )
            $
            1,3112008
            
            
            1,275
            
            
            (62
            )
            
            1,2132009
            
            
            1,237
            
            
            (28
            )
            
            1,2092010
            
            
            566
            
            
            (3
            )
            
            5632011
            
            
            151
            
            
            (1
            )
            
            150Thereafter
            
            
            154
            
            
            --
            
            
            154Total
            
            $
            5,279
            
            $
            (679
            )
            $
            4,600




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 $3,225, $2,977, and $2,284 for 2006, 2005, and 2004,
      respectively.




**12.
      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.




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




We
      maintain professional liability reserves as follows:




**Total**Reserve
                at December 31, 2004
            
            $
            4,341Payments
            
            
            (390
            )Charged
                to operating expenses
            
            
            1,317Reserve
                at December 31, 2005
            
            
            5,268Payments
            
            
            (598
            )Charged
                to operating expenses
            
            
            1,517Adjustment(1)
            
            
            (428
            )Reserve
                at December 31, 2006
            
            $
            5,759




(1)  Represents
      changes in estimates of outstanding reported claims and unreported claims.




**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 in
      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, 2006 and 2005, reported claims included
      in
      other current liabilities on our consolidated balance sheet were $1,745 and
      $1,281, 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, 2006 and 2005, unreported claims reserves were $4,014 and $3,987,
      respectively. Of these amounts, unreported claims exposure not transferred
      to GHIC of $1,638 and $2,000, respectively, were included in other
      long-term liabilities on our consolidated balance sheets. The remaining amounts
      are classified as other current liabilities.




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




**13.
      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
      $663
      and $613 in 2006 and 2005, respectively. We did not make matching contributions
      in 2004.














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




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






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




Our
      management, under the supervision and with the participation
      of the principal executive officer and principal financial officer, has
      evaluated the effectiveness of our controls and procedures related to our
      reporting and disclosure obligations as of December 31, 2006, 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
      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, 2006 that have materially affected, or
      are
      reasonably likely to materially affect, our internal controls over financial
      reporting.




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




By
      letterdated December 21, 2006, Bank of America, N.A., our
      senior secured creditor, extended the maturity date of our senior secured credit
      facility until January 1, 2008.




Effective
      March 15, 2006, our Compensation Committee determined the amount of the cash
      and
      stock bonuses awarded to our named executive officers for services rendered
      in
      2006 and such officers’ 2007 base salaries. The amounts are as
      follows:





**2006
                Bonus****(1)**
            
            **2007
                Salary****(2)****Executive
                Officer**
            
            **Cash**
            
            **Shares
                of**
              **common
                stock**
            
            **Cash**Frank
                A. Martin, Chairman
            
            $
            125,000
            
            
            --
            
            $
            275,000R.
                Dixon Thayer, Chief Executive Officer
            
            $
            100,000
            
            
            20,000
            
            $
            375,000Dr.
                Raymond J. Fabius, President and Chief Medical Officer
            
            $
            75,000
            
            
            13,500
            
            $
            350,000David
                R. Bock, Executive Vice President and Chief Financial
                Officer
            
            $
            100,000
            
            
            --
            
            $
            250,000Yuri
                Rozenfeld, Senior Vice President, General Counsel and
                Secretary
            
            $
            58,500
            
            
            --
            
            $
            200,850




(1)
              The
                  bonus awarded to Dr. Fabius was determined with reference to the
                  terms of
                  the Employment Agreement between I-trax and Dr. Fabius dated April
                  15,
                  2005. Bonuses for the balance of the executive officers were
                  discretionary. The payment of the bonuses indicated above will
                  not impact
                  I-trax’s 2007 financial results because I-trax accrued for a bonus pool
                  in
                  2006 for the benefit of the named executives and other employees.(2)
              Increases
                  in base salaries are effective on April 1, 2007 for all officers
                  other
                  than Dr. Fabius. Dr. Fabius’s increase is effective on April 15, 2007,
                  pursuant to the terms of Mr. Fabius’s Employment Agreement.




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**PART
      III**






**Item
                10.**
            **Directors,
                Executive Officers and Corporate
                Governance**




See
      the
      information set forth in the section entitled “Proposal No. 1 Election of
      Directors” in I-trax’s Proxy Statement for the 2007 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, 2006, which is incorporated
      herein by reference.






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




The
      information required under this Item is incorporated herein by reference to
      our
      Proxy Statement for the 2007 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, 2006.






**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 2007 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, 2006.






**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 2007 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, 2006.






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




The
      information required under this Item is incorporated herein by reference to
      our
      Proxy Statement for the 2007 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, 2006.




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**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, 2001 through December 31, 2006. The graph assumes an initial investment
      of
      $100 and the reinvestment of dividends.














**Cumulative
      Total Return**





**12/31/2001**
            
            **12/31/2002**
            
            **12/31/2003**
            
            **12/31/2004**
            
            **12/30/2005**
            
            **12/29/2006**I-trax,
                Inc.
            
            $
            100.00
            
            $
            37.93
            
            $
            61.93
            
            $
            26.07
            
            $
            28.28
            
            $
            42.76Hemscott
                Group Index - Specialized Health Services
            
            
            100.00
            
            
            82.12
            
            
            116.89
            
            
            154.21
            
            
            209.28
            
            
            225.74AMEX
                Market Index
            
            
            100.00
            
            
            96.01
            
            
            130.68
            
            
            149.65
            
            
            165.03
            
            
            184.77





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**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,
                2004.3.1
            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 year ended
                December 31, 2003, filed on April 8, 2004.4.3
            Form
                of warrant certificate of I-trax, Inc. issued to private placement
                participants in private placement closed on October 31, 2003.
            Exhibit
                4.1 to I-trax, Inc.’s Registration Statement on Form S-3, Registration No.
                333-110891, filed on December 3, 2003.








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4.4
            Financial
                Advisor’s Warrant Agreement between Westminster Securities Corporation and
                I-trax, Inc. dated as of May 23, 2003, with a form of warrant attached.
            Exhibit
                4.2 to I-trax, Inc.’s Registration Statement on Form S-3, Registration No.
                333-110891, filed on December 3, 2003.4.5
            Financial
                Advisor’s Warrant Agreement between Westminster Securities Corporation and
                I-trax, Inc. dated as of October 31, 2003, with a form of warrant
                attached.
            Exhibit
                4.3 to I-trax, Inc.’s Registration Statement on Form S-3, Registration No.
                333-110891, filed on December 3, 2003.4.6
            Financial
                Advisor’s Warrant Agreement between Westminster Securities Corporation and
                I-trax, Inc. dated as of December 11, 2003, with a form of warrant
                attached.
            Exhibit
                4.4 to I-trax, Inc.’s Registration Statement on Form S-3, Amendment No. 1,
                Registration No. 333-110891, filed on February 2, 2004.4.7
            Form
                of warrant certificate of I-trax, Inc. issued as of March 19, 2004
                to
                placement agents of Series A Convertible Preferred Stock.
            Exhibit
                4.7 to I-trax, Inc.’s Annual Report on Form 10-KSB for the year ended
                December 31, 2003, filed on April 8, 2004.4.8
            Form
                of Common Stock Warrant Certificate of I-trax, Inc. issued effective
                November 1, 2004 to Bank of America, N.A.
            Exhibit
                10.1 to I-trax, Inc.’s Current Report on Form 8-K filed on October 29,
                2004.4.9
            Form
                of 2000 and 2001 Plan Stock Option Agreement - Employee.
            Exhibit
                4.3 to I-trax, Inc.’s Registration Statement on Form S-8, Registration No.333-125685,
                filed on June 10, 2005.4.10
            Form
                of 2000 and 2001 Plan Stock Option Agreement - Director.
            Exhibit
                4.4 to I-trax, Inc.’s Registration Statement on Form S-8, Registration No.333-125685,
                filed on June 10, 2005.4.11
            Form
                of Nonqualified Stock Option Agreement with schedule of option holders
                subject to such Nonqualified Stock Option Agreement.
            Exhibit
                4.8 to I-trax, Inc.’s Registration Statement on Form S-8, Registration No.333-125685,
                filed on June 10, 2005.10.1
            Lease
                Agreement dated January 2002, between Burton Hills IV Partnership
                and
                Meridian Occupational Healthcare Associates, Inc., d/b/a CHD Meridian
                Healthcare.
            Exhibit
                10.1 to I-trax, Inc.’s Quarterly Report Form 10-QSB for the quarter ended
                March 30, 2004, filed on May 14, 2004.10.2
            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 Form 10-Q for the quarter ended
                June 30, 2005, filed on August 15, 2005.10.3
            Lease
                Agreement made as on August 12, 2004, by and between Henderson Birmingham
                Associates and I-trax Health Management Solutions, Inc.
            Exhibit
                10.1 to I-trax, Inc.’s Quarterly Report Form 10-QSB for the quarter ended
                September 30, 2004, filed on November 15, 2004.






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10.4
            Guarantee
                and Suretyship Agreement made as on August 12, 2004, by I-trax, Inc.
                for
                the benefit of Henderson Birmingham Associates.
            Exhibit
                10.2 to I-trax, Inc.’s Quarterly Report Form 10-QSB for the quarter ended
                September 30, 2004, filed on November 15, 2004.10.5
            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, 2000.10.6
            I-trax,
                Inc. Amended and Restated 2001 Equity Compensation Plan.
            Exhibit
                I to I-trax, Inc.’s 2005 Proxy Statement filed on April 15, 2005.10.7
            Employment
                Agreement effective as of December 29, 2000, between I-trax Health
                Management Solutions, Inc. (f/k/a I-Trax.com, Inc.) and Frank A.
                Martin.
            Exhibit
                10.17 to I-Trax.com, Inc.’s Annual Report on Form 10-KSB for the fiscal
                year ended December 31, 2000, filed on April 2, 2001.10.8
            Employment
                Agreement dated November 17, 2004, between I-trax, Inc. and David
                R. Bock.
            Exhibit
                10.1 to I-trax, Inc.’s Current Report on Form 8-K, filed on November 22,
                2004.10.9
            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,
                2004.10.10
            Amendment
                to Employment Agreement effective as of July 5, 2005, between and
                I-trax,
                Inc. and Yuri Rozenfeld.
            Exhibit
                10.3 to I-trax, Inc.’s Quarterly Report Form 10-Q for the quarter ended
                June 30, 2005, filed on August 15, 2005.10.11
            Employment
                Agreement dated March 14, 2005, between I-trax, Inc. and R. Dixon
                Thayer.
            Exhibit
                10.13 to I-trax, Inc.’s Annual Report on Form 10-KSB for the fiscal year
                ended December 31, 2004, filed on March 30, 2005.10.12
            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,
                2005.10.13
            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, 2004.10.14
            First
                Amendment to Credit Agreement dated as of June 1, 2004, by and among
                I-trax, Inc., all subsidiaries of I-trax, Inc. that are parties to
                the
                Credit Agreement, and Bank of America, N.A.
            Exhibit
                10.1 to I-trax, Inc.’s Quarterly Report Form 10-QSB for the quarter ended
                June 30, 2004, filed on August 18, 2004.






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10.15
            Second
                Amendment to Credit Agreement dated as of July 1, 2004, by and among
                I-trax, Inc., all subsidiaries of I-trax, Inc. that are parties to
                the
                Credit Agreement, and Bank of America, N.A.
            Exhibit
                10.2 to I-trax, Inc.’s Quarterly Report Form 10-QSB for the quarter ended
                June 30, 2004, filed on August 18, 2004.10.16
            Third
                Amendment to Credit Agreement dated as of August 12, 2004, by and
                among
                I-trax, Inc., all subsidiaries of I-trax that are parties to the
                Credit
                Agreement, and Bank of America, N.A.
            Exhibit
                10.3 to I-trax, Inc.’s Quarterly Report Form 10-QSB for the quarter ended
                June 30, 2004, filed on August 18, 2004.10.17
            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,
                2004.10.18
            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,
                2005.10.19
            Sixth
                Amendment to Credit Agreement and Limited Waiver dated June 29, 2005
                by
                and among I-trax, Inc., all subsidiaries of I-trax, Inc. that are
                parties
                to the Credit Agreement and Bank of America, N.A.
            Exhibit
                10.1 to I-trax, Inc.’s Current Report on Form 8-K filed on August 3,
                2005.10.20
            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 filed on May 16,
                2005.10.21
            Letter
                dated December 21, 2006, from Bank of America,
                N.A.10.22
            Non-Employee
                Directors Compensation Policy.
            Exhibit
                10.1 to I-trax, Inc.’s Current Report on Form 8-K filed on May 23,
                2005.21
            Subsidiaries
                of I-trax, Inc.23
            Consent
                of Goldstein Golub Kessler
                LLP.31.1
            Certification
                Pursuant to 18 U.S.C. Section 1350, as
                Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002.






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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.





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**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 16, 2007.





I-TRAX,
      INC.





By:  /s/
      R.
      Dixon Thayer


R.
      Dixon
      Thayer, Chief Executive Officer


(Principal
      Executive Officer)








By:  /s/
      David R. Bock


David
      R.
      Bock, Executive Vice President and Chief Financial Officer


(Principal
      Financial and Accounting Officer)





Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the registrant and in the
      capacities and on the dates indicated.





Signature
            Title
            Date/s/
                Haywood D. Cochrane, Jr.
              Haywood
                D. Cochrane, Jr.
            Vice-Chairman
                and Director
            March
                16, 2007/s/
                Dr. Raymond J. Fabius
              Dr.
                Raymond J. Fabius
            Director
            March
                16, 2007/s/
                Philip D. Green
              Philip
                D. Green
            Director
            March
                16, 2007/s/
                Gail F. Lieberman
              Gail
                F. Lieberman
            Director
            March
                16, 2007/s/
                Frank A. Martin
              Frank
                A. Martin
            Chairman
                and Director
            March
                16, 2007/s/
                Gerald D. Mintz
              Gerald
                D. Mintz
            Director
            March
                16, 2007/s/
                Dr. David Nash
              Dr.
                David Nash
            Director
            March
                16, 2007/s/
                Jack A. Smith
              Jack
                A. Smith
            Director
            March
                16, 2007/s/
                R. Dixon Thayer
              R.
                Dixon Thayer
            Chief
                Executive Officer and Director
            March
                16, 2007