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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-K



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FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

|x | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ------------------------------------------------------------------------------------



For the fiscal year ended: December 31, 2004



OR

| ̈ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ----------------------------------------------------------------------------------------



For the transition period from
                     to



Commission file number: 0-21428



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OCCUPATIONAL HEALTH + REHABILITATION INC

(Exact name of registrant as
specified in its charter)



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|                                                                                           |  |                                                
|------------------------------------------------------------------------------------------ |  | -----------------------------------------------
|Delaware (State or other jurisdiction of incorporation or organization)                    |  | 13-3464527 (I.R.S. Employer Identification No.)
|                                                                                           | 
|175 Derby Street, Suite 36 Hingham, Massachusetts (Address of principal executive offices) |  | 02043 (Zip Code)                               



(781) 741-5175

(Registrants telephone number, including area code)



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



|                    |  |                                          
|------------------- |  | -----------------------------------------
|Title of each class |  | Name of each exchange on which registered
|None                |  | Not Applicable                           



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



Common
Stock, $0.001 par value

(Title of Class)



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



Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulations 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 ̈.



Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2)    YES ̈NO  x.



The aggregate market value of
the voting Common Stock held by non-affiliates of the registrant on June 30, 2004 was $3,985,178 based on the closing price of $2.30 per share. The number of shares outstanding of the registrants Common Stock as of March 1, 2005 was 3,093,375.



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##### Table of Contents

OCCUPATIONAL HEALTH + REHABILITATION INC



Annual Report on Form 10-K

For the Fiscal Year Ended December 31, 2004



Table of Contents



|                                                                            |  |                                                                                                              |  |     
|--------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------ |  | ----
|                                                                            |  |                                                                                                              |  | Page
|                                                                            |  | PART I                                                                                                       |  |     
|Item 1.                                                                     |  | Business                                                                                                     |  | 1   
|Item 2.                                                                     |  | Properties                                                                                                   |  | 14  
|Item 3.                                                                     |  | Legal Proceedings                                                                                            |  | 14  
|Item 4.                                                                     |  | Submission of Matters to a Vote of Security Holders                                                          |  | 14  
|                                                                            |  |                                                                                                             
|                                                                            |  | PART II                                                                                                      |  |     
|Item 5.                                                                     |  | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 15  
|Item 6.                                                                     |  | Selected Financial Data                                                                                      |  | 17  
|Item 7.                                                                     |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |  | 18  
|Item 7A.                                                                    |  | Quantitative and Qualitative Disclosures about Market Risk                                                   |  | 29  
|Item 8.                                                                     |  | Financial Statements and Supplementary Data                                                                  |  | 29  
|Item 9.                                                                     |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         |  | 29  
|Item 9A.                                                                    |  | Controls and Procedures                                                                                      |  | 30  
|Item 9B.                                                                    |  | Other Information                                                                                            |  | 30  
|                                                                            |  |                                                                                                             
|                                                                            |  | PART III                                                                                                     |  |     
|Item 10.                                                                    |  | Directors and Executive Officers of the Registrant                                                           |  | 31  
|Item 11.                                                                    |  | Executive Compensation                                                                                       |  | 35  
|Item 12.                                                                    |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  | 38  
|Item 13.                                                                    |  | Certain Relationships and Related Transactions                                                               |  | 41  
|Item 14.                                                                    |  | Principal Accountant Fees and Services                                                                       |  | 41  
|                                                                            |  |                                                                                                             
|                                                                            |  | PART IV                                                                                                      |  |     
|Item 15.                                                                    |  | Exhibits and Financial Statement Schedules                                                                   |  | 42  
|Index to Consolidated Financial Statements and Financial Statement Schedule |  | 44                                                                                                          
|Signatures                                                                  |  | 66                                                                                                          
|Exhibit Index                                                               |  | 67                                                                                                          



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##### Table of Contents

PART I



ITEM 1. BUSINESS



General



Occupational Health + Rehabilitation Inc (the Company), a
leading occupational healthcare provider, specializes in the prevention, treatment, and management of work-related injuries and illnesses, as well as regulatory compliance services. As of March 1, 2005, the Company operates thirty-five occupational
health centers serving over 15,000 employer clients in ten states and also delivers workplace health services at employer locations throughout the United States. The Companys mission is to provide high quality medical care and extraordinary
service, thereby improving the health status of employees, reducing workers compensation costs, and assisting employers in their compliance with state and federal regulations governing workplace health and safety. The Company believes it is
the leading provider of occupational health services in most of its established markets as a result of its commitment to these core values and competencies.



The Company has developed a system of clinical and operating protocols as well as proprietary information systems to track the resulting patient outcomes
(the OH+R System), all focused on reducing the cost of work-related injuries. The OH+R System includes a full array of proven protocols designed to reduce the frequency and severity of work-related injuries, to return injured employees
to full duty in the shortest possible time, and to assure regulatory compliance. Prevention and compliance services include pre-placement examinations, medical surveillance services, fitness for duty and return to work evaluations, drug and alcohol
testing, physical examinations, and work-site safety programs. While most of these services are delivered at the Companys community-based occupational health centers, many of these services may also be delivered on-site at the workplace.



The Companys treatment approach for work-related
injuries and illnesses is based on documented, proprietary clinical protocols which combine state-of-the-art medical, rehabilitation, and care coordination services in an integrated system of care focused on addressing the needs of employers,
employees, and payers. Under this approach, employees receive high quality care, maintain a positive attitude, and have a greatly reduced probability of developing chronic problems or being re-injured. Utilizing the OH+R System, which is being
continually refined, occupational medicine physicians and other clinical staff contracted or associated with the Company have consistently generated substantial documented savings as compared to national averages for both lost work days and medical
costs associated with work-related injuries and illnesses.



In
recent years, the Company has expanded its operations beyond its base in New England into selected major metropolitan markets elsewhere in the United States. In selecting new markets, the Company looks for many factors, including a favorable
regulatory environment, attractive reimbursement levels, fragmented competition and a good industrial base. The Companys strategic plan is to expand its network of service delivery sites throughout the United States, principally through joint
ventures and other contractual agreements with hospitals and health systems, and by development of its workplace health programs. The Company currently has affiliations with twelve health systems.



The Company maintains its principal executive offices at 175 Derby Street,
Suite 36, Hingham, Massachusetts 02043-4058, and its telephone number is (781) 741-5175.



Industry Overview



Work-related injuries and illnesses are a large source of lost productivity and costs for businesses in the United States. In its 2004 Workplace Safety Index, Liberty Mutual Insurance Company reports that the total costs to employers
for workers compensation payments to injured workers and the medical care these workers received were just under $50 billion. Of these costs, just over half were incurred for medical services. The total cost of workers compensation
medical services has been rising approximately 10% a year for the last several years.



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Other workers compensation-related costs incurred by employers include overtime, the costs to
replace injured workers, and reduced productivity as a result of injured employees not being on the job. Employers must also bear certain administrative costs associated with managing their workers compensation programs.



In addition to paying costs associated with workers compensation,
employers must also pay for medical services required by various governmental regulatory bodies. These requirements are usually industry specific and/or exposure specific. Consequently, some industries, such as trucking and chemical handling, are
more impacted than others. The regulations generally require certain physical examinations and/or medical surveillance services to assure employees are capable of safely performing specific jobs or are not being exposed to harmful conditions. The
costs to employers of meeting these regulatory requirements vary greatly by employer, but are often substantial.



While workers compensation medical costs have been rising, the frequency of injuries, especially serious workplace injuries, has been going down.
The Company believes its aggressive return to work philosophy and system of care, which is shared by some other modern occupational health programs, is a major contributor to the reduced frequency of work-related injuries. Functioning as the
gatekeeper, the occupational medicine physician greatly influences both down stream medical costs and when an injured employee returns to work, thereby controlling lost work days which remain a key driver of workers compensation
costs. The National Council of Compensation Insurers reports that workers compensation costs as a percent of payroll have dropped from 2.3% in the 1990s to 1.8% in 2003. The Company has played a role in this success and has garnered strong
relationships with many thousands of customers as a result.



In
recent years, employers have been taking a more active role in preventing and managing workplace injuries. This typically includes the establishment of safety committees, an emphasis on ergonomics in the workplace, drug testing, and other efforts to
reduce the number of injuries, and the establishment of preferred provider relationships to ensure prompt and appropriate treatment of work-related injuries when they do occur. Employer demand for comprehensive and sophisticated healthcare services
to support these programs has been a key factor in the development of the occupational healthcare industry.



The occupational healthcare market is highly fragmented, consisting primarily of individual or small-group practices and hospital-based programs.
Increasing capital requirements, the need for more sophisticated management of both information systems and direct sales and marketing, and changes in the competitive environment, including the formation of larger integrated networks such as the
Companys, have all created increased interest in affiliating with larger, professionally managed organizations. As a result of these factors, the Company believes there is an opportunity to consolidate hospital programs and private practices.



Strategy



The Companys mission is to reduce the cost of work-related injuries
and illnesses and other healthcare costs for employers and payers and to improve the health status of employees through high-quality care and extraordinary service. The Companys strategic objectives are to develop a comprehensive national
network of occupational healthcare delivery sites and to expand its workplace health services to become a leading occupational health provider in selected regional markets.



The Company intends to build its network of delivery sites through:



| |  |  | Joint ventures and other contractual arrangements with health systems designed to augment existing occupational health programs and to create networks of occupational health service
delivery sites throughout the health system and its affiliates.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Acquisitions of existing occupational medicine, physical therapy and other related service practices.
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | Start-up of Company-owned centers in strategic locations.
| | - |  | ---------------------------------------------------------



Subsequent to an acquisition, joint venture or other contractual relationship, new centers are converted to the Companys practice model through
implementation of the OH+R System. New services are added as required



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to provide the Companys comprehensive offering. These additional services may be provided by contracting with affiliates of the newly partnered health
system or with local practitioners. Workplace health services are often delivered at employer locations within the service area of a center and are a natural extension of center operations. The Companys direct sales efforts and word-of-mouth
recommendations from satisfied clients are the source of workplace health opportunities not proximate to a center.



The Companys operating strategy is based upon:



| |  |  | Integration of ServicesPrevention and compliance services provide important baseline information to clinicians, as well as knowledge of the work site, which makes the
treatment of subsequent injuries more effective. Close management and coordination of all aspects of an injured workers care are essential to ensuring the earliest possible return to work. Management and coordination are difficult, if not
impossible, when clinicians are not working within an integrated system. Such a system significantly reduces the number of communications required for a given case and eases the coordination effort, while enhancing the quality of care and patient
convenience.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Quality Care and Extraordinary ServiceFor a number of reasons, injured workers often receive less than optimal care. A lack of quality care is costly to both the
injured/ill worker and the employer. The worker faces longer recovery time and the employer bears the burden of unnecessary lost work-days, including indemnity, lost production and staff replacement costs. The Company is committed to providing
extraordinary serviceto patients, to employers and to third parties. From proactive communications with all parties to custom services addressing an employers specific needs, the Company is dedicated to delivering a level of service that
is expected from companies noted for extraordinary service, but atypical for healthcare providers.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Outcome Tracking and ReportingThe OH+R System is focused on achieving successful outcomes and cost-effectively returning injured workers to the job as quickly as
possible while minimizing the risk of re-injury. Since the inception of its first center, the Company has tracked outcome statistics. The Company believes these extensive outcome statistics demonstrate its ability to return injured workers to the
job faster and for costs substantially lower than the national averages and, typically, those of other local occupational health providers.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Low Cost ProviderThe Company believes that future success in virtually any segment of healthcare services will require delivery of quality care at the lowest possible
price. The Company believes it is a low cost provider, and it is continuously working to further reduce the cost of providing care by streamlining patient processing and other procedures thereby increasing the productivity of clinicians. The Company
routinely refines and revises the OH+R System to increase efficiency and effectiveness.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Provider RelationsThe Company believes there is intense competition for occupational health providers who are interested in community-based practice. Consequently, it
has implemented strategies to attract, recruit, and retain high quality providers who share the Companys goals and culture. These strategies include proactive efforts to involve providers in the development of clinical protocols and policies
through regular provider meetings and electronic communication, provider involvement in the operation of each center, and varieties of practice to suit individual providers interests. The Company uses physician assistants and nurse
practitioners as integral parts of the clinical team.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Best Practices EthicCore to the Companys operating strategy is the belief that best practices in all aspects of occupational healthcare
(clinical protocols and procedures, operations protocols, sales systems, service ethics, outcomes measurement, information systems, new site integration, and training and orientation systems) can be continuously improved. The Company continually
pursues enhancement of best practices in all aspects of its business.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Services



The
Companys services address the diverse healthcare needs and challenges faced by employers in the workplace. Specializing in the prevention, treatment and management of work-related injuries and illnesses, the



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Company is able to meet the needs of single site, regional multi-site or national employers and payers in the regions it serves. The Companys services
are delivered in a variety of venues including the Companys full service centers, in the workplace, and through contractual arrangements with providers or hospitals affiliated with its health system partners.



The Company, in conjunction with its health system partners, provides an
integrated system of care. The Companys full service centers provide primary occupational health services while its health system partners offer after-hours care, specialist services, and diagnostic testing. The integrated system provides a
seamless continuum of services to employees and employers. The Companys occupational health centers are typically staffed with multi-disciplinary teams, including physicians, physician assistants, nurse practitioners, and physical and
occupational therapists, as well as a manager, a client relations director, a care coordinator, and support personnel.



In support of both center operations and workplace health initiatives, the Company also provides an after-hours program to coordinate treatment of second
and third shift injuries through local emergency departments. This program ensures that the injured employee receives immediate medical attention and continuing treatment in the Companys organized system of care. The Company also offers
24-hour nurse triage in selected markets.



The Companys
Medical Policy Board is the focal point for maintaining and enhancing the Companys reputation for clinical excellence. The Medical Policy Board is comprised of physicians and other provider representatives employed by the Company who are
established, recognized leaders in occupational healthcare. The Medical Policy Board oversees the establishment of best practice standards, the development of clinical protocols and quality assurance programs, and the recruitment,
training, and monitoring of clinical personnel.



Specific
services provided by the Company include:



Prevention/Compliance



A safe work environment
is a critical factor impacting costs associated with work-related injuries and illnesses. To optimize workplace safety and productivity, the Company offers a full array of services designed to prevent injuries and to meet regulatory compliance
requirements. The expertise and experience of the Companys occupational health specialists differentiate the Companys prevention and compliance services. Through treating work-related injuries, the Companys clinicians gain
significant insights into employers safety issues, thereby improving the efficacy of prevention programs. The Companys expertise in health and safety regulatory matters provides employers with a critical resource to assist them in
addressing increasingly complex federal and state regulations.



Specific prevention and compliance services include:



| |  |  | Physical Examinations
| | - |  | ---------------------



| |  |  | Pre-placement
| | - |  | -------------



| |  |  | Executive
| | - |  | ---------



| |  |  | Department of Transportation (DOT)
| | - |  | ----------------------------------



| |  |  | Annual
| | - |  | ------



| |  |  | Medical Monitoring/Surveillance
| | - |  | -------------------------------



| |  |  | Screenings
| | - |  | ----------



| |  |  | Drug and Alcohol Testing
| | - |  | ------------------------



| |  |  | Substance Abuse Program Development and Management
| | - |  | --------------------------------------------------



| |  |  | Hazardous Substances Screening/Testing
| | - |  | --------------------------------------



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| |  |  | Pulmonary Function Tests
| | - |  | ------------------------



| |  |  | Audiograms
| | - |  | ----------



| |  |  | Job Specific Work Skills Assessments
| | - |  | ------------------------------------



| |  |  | Safety Programs
| | - |  | ---------------



| |  |  | Ergonomics Consultations
| | - |  | ------------------------



| |  |  | Health Promotion
| | - |  | ----------------



| |  |  | Immunizations
| | - |  | -------------



Treatment/Management



Where an injured worker receives initial treatment for a work-related injury or illness is critical to the eventual outcome of the case. The initial
provider is the medical gatekeeper and single most important player in controlling case costs. When the Company acts as the gatekeeper, whether in a Company center, in the workplace, or through its network providers, it controls the cost of
treatment provided as well as the costs of specialist and ancillary services by ensuring that referrals are appropriate and required. The Companys prevention/compliance efforts support an in-depth understanding of the workplace and the
workforce, facilitating optimal treatment plans and early return to work. Lost work-days are minimized when care is controlled and effectively coordinated.



The Companys treatment protocols, which have been demonstrated to be effective through outcome studies documenting reduced medical costs and fewer
lost work days, are based on a sports medicine philosophy of early intervention and aggressive treatment to maximize a patients recovery while minimizing the ultimate costs associated with the case.



As part of the Companys injury treatment services, the
multi-disciplinary clinical team controls and coordinates all aspects of an injured workers care. This includes referrals to specialists within a network of physicians who understand workers compensation and the special requirements of
treating work-related injuries. In a typical Company full service center, medical and rehabilitation team members work within an integrated system of formal, defined protocols. This approach facilitates superior, ongoing communication among
clinician team members regarding the most appropriate treatment plan, thus eliminating time lost from delays in dealing with several unrelated providers.



Another element to successfully managing work-related injuries is continuous communication to all the key players, including the employer,
employee, and third-party payers. With expectations and treatment plans clearly communicated to all involved, the Companys commitment to goal-oriented, cost-effective, quality care is evident.



When an individual has not been treated within the Companys system of
care, specialty evaluations may be used to bring a case to closure and/or to create return to work programs for both work-related and non-work-related cases. The Companys occupational medicine physicians and therapists bring a unique set of
skills and experiences to these evaluations, including in-depth understanding of the workplace and of the laws and regulations governing work assignments. Referrals for these services typically come from employers, insurers, or lawyers.



Treatment/management services include:



| |  |  | Work-related Injury Treatment
| | - |  | -----------------------------



| |  |  | Physical and Occupational Therapy
| | - |  | ---------------------------------



| |  |  | Specialist Referrals
| | - |  | --------------------



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| |  |  | Care Coordination
| | - |  | -----------------



| |  |  | Specialty Evaluations
| | - |  | ---------------------



| |  |  | Independent Medical Examinations
| | - |  | --------------------------------



| |  |  | Disability Examinations
| | - |  | -----------------------



| |  |  | Fitness-for-Duty and Return-to-Work Examinations
| | - |  | ------------------------------------------------



Workplace Health



The workplace is often the most effective place for the Company to deliver its services for work-related injuries/illnesses as well as to reduce other
employee healthcare costs. Furthermore, many employers recognize the value of medical personnel managing integrated disability management programs that cover both work-related and non-work-related injuries and illnesses. The Company is a leader in
workplace health services. It has assembled a fully integrated continuum of workplace health services that systematically address workplace safety and aim to minimize absenteeism of employees who have work-related and non-work-related injuries and
illnesses. Employers may choose to have all or some of these services delivered at the workplace through staffing contracts or in conjunction with the Companys center resources. The Companys physical and occupational therapists provide
job-specific, individualized treatment at the workplace, utilizing real work as the rehabilitation medium. The Company helps employees remain on the job while they receive therapy. Disability days decrease and return-to-work rates increase using
this model of rehabilitative care.



Consulting/Advisory
Services



Based on its depth of occupational medicine
expertise, the Company provides a variety of consulting/advisory services for clients as follows:



| |  |  | Healthcare Policy Development
| | - |  | -----------------------------



| |  |  | Regulatory Compliance
| | - |  | ---------------------



| |  |  | Americans with Disabilities Act (ADA) Compliance
| | - |  | ------------------------------------------------



| |  |  | Environmental Medicine
| | - |  | ----------------------



| |  |  | Medical Review Officer (MRO)
| | - |  | ----------------------------



Outcomes Measurement and Tracking



The Company has significant experience with data management and outcomes tracking and has created a sophisticated reporting tool that enables employers and third-party payers to track all costs and utilization of
services received within the Companys network of care. In addition, the system measures the Companys return-to-work performance by measuring lost and modified work days per case. The Company believes that its multi-disciplinary clinical
teams have consistently outperformed others by returning injured employees to work more quickly and at lower cost, while maintaining high patient satisfaction. The Company also believes its ability and willingness to measure and be accountable for
its performance to employers and third-party payers significantly differentiate it from its competitors.



Sales and Marketing



The Company markets through a direct sales force primarily to employers, but also to insurers and third-party administrators. Through a sales planning and forecasting process, the Company analyzes markets and allocates and consistently
monitors resources to ensure maximum results. Client Relations Directors (CRD), typically located at each Company center, are responsible for client retention and new client prospecting activities. The personal sales efforts of each CRD
are supported by direct mail, selective advertising, and public



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relations programs focused on reinforcing the Companys position as a leader in occupational health. The successful establishment of partnership
relationships with clients is a key ingredient to the Companys success. During the sales process, the CRD routinely engages the expertise of the local provider team to enhance these efforts.



Agreements with Medical Providers



In most cases, medical and other professional services at the Companys
centers are provided through professional corporations (collectively, the Medical Providers) that enter into management agreements with the Company or with its affiliated joint ventures which then subcontract with the Company. The
Company provides a wide array of business services under these management and sub-management agreements, such as the provision of trained personnel, practice and facilities management, real estate services, billing and collection, accounting, tax
and financial management, human resource management, risk management, insurance, sales, marketing, and information-based services such as process management and outcome analysis. The Company provides services under these management agreements as an
independent contractor, and the medical personnel at the centers, under the direction of the Medical Providers, provide all medical services and retain sole responsibility for all medical decisions. The management agreements grant the Medical
Providers a non-exclusive license to use the Companys service mark Occupational Health + Rehabilitation Inc. These agreements typically have automatically renewing terms and specific termination rights. Management fees payable to
the Company vary depending upon the particular circumstances and applicable legal requirements. These fees may include an assignment of certain accounts receivable, an allocation of a portion of net revenue, or a flat fee for each service provided
by the Company.



Expansion Plan



The Companys objective is to develop regional occupational healthcare
systems in selected areas of the United States with full-service occupational health centers, workplace health sites, and a variety of network providers, typically affiliated with the Companys health system partners. Forming ventures,
alliances and other contractual relationships with hospitals, health systems, and providers in markets in which it operates is a key strategy for the Company. The Companys management team, comprised primarily of seasoned healthcare executives,
is experienced in corporate development as well as the integration and operation of the resulting acquisitions, ventures and alliances. In addition, the OH+R System, with its documented protocols covering all aspects of occupational health services
delivery, facilitates effective assimilation of new operations. The Company believes that occupational health providers, like all other segments of the healthcare industry, have been subjected to the pressure of managed care and other cost
containment efforts from employers and payers. These pressures and the expected continuance of regulatory complexities in the workers compensation and health and safety systems have caused a growing need, in the Companys opinion, for
physicians and hospitals with occupational health programs to seek affiliations with larger, professionally managed organizations, such as the Company, that specialize in occupational healthcare. However, because of the many factors involved in
building such a network, there can be no assurance that the Company will be successful in meeting its expansion goals.



Health System Joint Ventures, Affiliations, and Network Service Agreements



The Companys intended principal method of expansion is by entering into joint ventures, affiliations, service
agreements, or other contractual arrangements with health systems to develop and operate comprehensive occupational health programs based upon networks of delivery sites, including full-service centers, satellite locations and/or contract providers.
There are about 3,200 hospital-owned occupational health programs in the United States. Approximately half of these programs are affiliated with one of the 270 multi-hospital health systems that offer occupational health services while the rest are
operated by non-health system affiliated hospitals.



Most
hospital occupational health programs have developed by default. Employers and injured employees have naturally looked to the local hospital for treatment of work-related injuries. In addition, as Occupational



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Safety and Health Administration (OSHA) and other safety and health regulations came into existence, hospitals again were the logical, and often
only, place for employers to turn for service. The majority of the occupational health services offered by hospitals are delivered by functional departments where occupational health is a small percentage of the services rendered. Management of
care, employer communications and, ultimately, successful outcomes are extremely difficult to accomplish. Because of their relatively small size in the context of the total hospital system, occupational health departments generally receive
insufficient management attention, operate at a loss, and require constant funding. Consequently, many health systems are looking to acknowledged experts in the field, such as the Company, for effective outsourcing of their hospital-based
occupational health programs.



By affiliating or contracting
with the Company, health systems benefit from:



| |  |  | The Companys expertise in profitably delivering high quality care and extraordinary service at the center level
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | Minimization of capital requirements
| | - |  | ------------------------------------



| |  |  | The OH+R Systema proven clinical and operating system
| | - |  | ------------------------------------------------------



| |  |  | Retention of occupational health, and the resultant downstream services, as a service affiliated with the hospital, while transferring the operational responsibilities to an
organization totally focused on successful operation of occupational health programs
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Increased ability to recruit qualified providers and integrate them into an established network
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | The clinical expertise of the Companys Medical Policy Board which helps ensure that the health systems patients are receiving best practice care
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Companys entrepreneurial work environment that provides incentives for performance
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | The Companys expertise in sales and marketing to increase market share, occupational health revenues, and referrals for other health system services
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Access to the Companys regional network of multi-location clients
| | - |  | ------------------------------------------------------------------



| |  |  | Enhanced relationships with employers, many of whom are becoming directly involved in contracting with health systems to provide healthcare for their employees
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



Health system relationships allow the Company to
leverage the name and position of the institution within a community to expedite building market share. Moreover, as healthcare reform continues, many hospitals and health systems are re-thinking the scope of their activities. As a result, health
systems are concentrating more of their effort and capital on core services and are more open to outsourcing important yet ancillary services such as occupational health. It is strategically important for the Company to have links to these systems
in order to be well positioned to become the occupational health provider for a system.



Under these health system affiliations, the Company typically provides all necessary personnel and assumes management responsibility for the day-to-day operation of the occupational health entity. In return for such
services, the Company will receive fees customarily including a component based upon the net revenue attained by the entity and its operating profit performance, as well as reimbursement of all of the Companys personnel costs and other
expenses incurred. Moreover, in a typical joint venture, the Company will own 51% or more of the occupational health entity with the health system owning the remainder. The Company is continuously exploring potential health system affiliations, but
there can be no assurance that it will be successful in these efforts.



Acquisitions, Strategic Alliances, and Selective Start-ups



By acquiring private practices that provide occupational medicine, physical therapy, or related services, the Company can enter a new geographical area or consolidate its position within an existing market. Therapy



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practices receive referrals of injured workers from local specialty physicians, which can complement the Companys direct marketing to employers.
Alternatively, occupational medicine practices, including medical consulting practices focused on occupational and environmental health issues, have established relationships with employers to whom the Company may provide its more comprehensive
services.



In January 2002, the Company entered into an
affiliation with a hospital system in New Jersey to operate its employee health and occupational health programs. In February 2002, the Company purchased two occupational health clinics located in New Jersey and transferred the hospital
systems occupational health programs to these centers. The combined purchase price of these entities was $610,000, of which $70,000 was in cash and the balance in the form of a subordinated note payable in varying installments through February
2005. The Company recognized goodwill of $621,000 on these transactions. In January 2005, the Company renegotiated the payment terms for the $140,000 then outstanding on the subordinated note. Under the terms of the amended agreement, the Company
will pay the outstanding amount in varying installments between February 1, 2005 and May 1, 2005. Effective July 1, 2002, the Company assumed the 40% ownership interest of its joint venture partner in its Rochester, New York center, and
recognized $193,000 in goodwill on the transaction.



Effective
January 31, 2003, the Company terminated its long-term management contract with Eastern Rehabilitation Network (ERN), an affiliate of Hartford Hospital, Hartford, Connecticut, in exchange for transfer of title to the Company of
ERNs four occupational health centers in Connecticut which the Company had previously managed for ERN. In addition, ERN agreed to terminate its network provider agreement with Hartford Medical Group (HMG), also an affiliate of
Hartford Hospital, under which the Company had managed seven occupational health centers owned by HMG. The Company agreed to pay ERN $25,000 for its share of the networks assets. There will be a final settlement between the parties after the
Company has collected all amounts owed to, and paid all amounts owed by, the network as of the termination date. Final settlement will occur during 2005.



In 2002, the Company recognized revenue of $2,286,000 for the seven occupational health centers owned by HMG which it no longer manages. Because a
significant portion of the revenue was paid to third party providers for services rendered to the Companys patients, the loss of revenue did not have a material impact on its operating profit.



On April 1, 2003, the Company purchased an occupational health practice in
Murfreesboro, Tennessee and consolidated the operations into its existing center. The Company recognized $493,000 in goodwill and other intangible assets on the transaction.



Effective April 30, 2003, the Company terminated its long-term management contract with a hospital system in Nashville,
Tennessee and concurrently purchased five centers which it had previously managed for a total consideration of $1,700,000, payable in cash of $300,000 at closing, and $400,000, $500,000 and $500,000 on October 1, 2003, 2004 and 2005, respectively.
In September 2004, the Company renegotiated the payment terms with the seller for the $1,000,000 then outstanding. Under the terms of the amended agreement, the Company will pay a total of $1,029,000 in fifteen approximately equal monthly
installments beginning October 1, 2004. However, the balance outstanding on September 30, 2005 of $201,000 will be payable in full on October 1, 2005 if such payment will not cause an immediate default under the Companys line of credit, or if
the Company reasonably believes, based on its historical financial performance, that it would not cause such a default within three months of the date such payment was made.



In connection with the purchase of the five centers in Tennessee, the seller forgave the loan payable balance of $1,200,000
(before discount) due under the long-term management contract. Accordingly, the Company offset against the purchase price the net deferred credit previously recorded on the management contract which amounted to $550,000. This deferred credit
represented the net difference between payments made by the hospital system for working capital deficiencies and the discounted value of the non-interest bearing loan payable to the hospital system. The net of the aforementioned items resulted in
the recognition of $98,000 in fixed assets and $35,000 in goodwill and other intangible assets and had no impact on the Companys statement of operations.



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The Company will also consider establishing start-up centers when appropriate. This approach is most
suitable for geographic areas proximate to existing Company centers or where a significant source of patients can be assured through arrangements with large employers and third-party administrators. Often, start-ups can be developed in concert with
a local provider, enabling the Company to minimize its investments, particularly during the early growth phase of the site. The Company will continue to explore opportunities such as these when conditions warrant such an approach. However, there can
be no assurance the Company will be successful in these efforts.



Competition



Most organizations providing care
for work-related injuries and illnesses in the eastern part of the United States are local providers or hospitals. The fundamental difference between the Company and these providers is the Companys focused expertise in combining multiple
disciplines to address the needs of a single market segmentwork-related injuries and illnesses, and prevention and compliance services. Other providers are generally organized to provide services, such as physical therapy, to a wide variety of
market segments with differing needs, regardless of the source of the injury or type of patient.



Most of the Companys competitors are local operations and typically provide only some of the services required to successfully resolve work-related
injuries and illnesses, and reduce employers costs. Hospitals typically provide most of the required services but not as part of a tightly integrated, formal care system. Injured workers tend to be a small segment of the patients seen by the
individual hospital departments involved, and department personnel tend not to have any particular training or expertise in work-related injuries and illnesses.



Concentra, Inc. is the nations largest company providing occupational healthcare services followed by U.S. HealthWorks, Inc. and the Company. The
Company is in direct competition with these companies in approximately half the markets in which it operates. While the Company believes it can compete effectively with these companies on the basis of quality and service, there can be no assurance
that these competitors will not establish similar services to those offered by the Company in all its markets. These companies are larger than the Company and have greater financial resources.



Laws and Regulations



General



As a participant in the healthcare industry, the Companys operations and relationships are subject to extensive and increasing regulation by a
number of governmental entities at the federal, state, and local levels. The Company is also subject to laws and regulations relating to business corporations in general. The Company believes that its operations are in material compliance with
applicable laws. Nevertheless, many aspects of the Companys business operations, especially those related to the special nature of the Companys relationship with the Medical Providers, have not been the subject of state or federal
regulatory interpretation, and there can be no assurance that a review of the Companys or the Medical Providers businesses by courts or regulatory authorities will not result in a determination that could adversely affect the operations
of the Company or the Medical Providers or that the healthcare regulatory environment will not change so as to restrict the Companys or the Medical Providers existing operations or their expansion.



Workers Compensation Legislation



Each state in which the Company operates has workers compensation
programs requiring employers to cover medical expenses, lost wages, and other costs resulting from work-related injuries, illnesses, and disabilities. Medical costs are paid to healthcare providers through the employers purchase of insurance
from private workers compensation carriers, participation in a state fund, or by self-insurance. Changes in workers compensation laws or regulations may create a greater or lesser demand for some or all of the Companys services,
require the Company to develop new or modified services or ways of doing business to meet the needs of the marketplace and compete effectively, or modify the fees that the Company may charge for its services.



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Many states are considering or have enacted legislation reforming their workers compensation laws.
These reforms generally give employers greater control over who will provide medical care to their employees and where those services will be provided, and attempt to contain medical costs associated with workers compensation claims. Some
states have implemented procedure-specific fee schedules that set maximum reimbursement levels for healthcare services. The federal government and certain states provide for a reasonableness review of medical costs paid or reimbursed by
workers compensation.



When not governed by a fee
schedule, the Company adjusts its charges to the usual and customary levels authorized by the payer.



Corporate Practice of Medicine and Other Laws



Most states limit the practice of medicine to licensed individuals or professional organizations which are themselves comprised of licensed individuals
and prohibit physicians and other licensed individuals from splitting professional fees with non-licensed persons. Many states also limit the scope of business relationships between business entities such as the Company and licensed professionals
and professional corporations, particularly with respect to non-physicians exercising control over physicians engaged in the practice of medicine. Many states require regulatory approval, including certificates of need, before establishing certain
types of healthcare facilities, offering certain services or making expenditures in excess of statutory thresholds for healthcare equipment, facilities or programs.



Laws and regulations relating to the corporate practice of medicine, the sharing of professional fees, certificates of need,
and similar issues vary widely from state to state, are often vague, and are seldom interpreted by courts or regulatory agencies in a manner that provides guidance with respect to business operations such as those of the Company. Although the
Company attempts to structure all of its operations so that they comply with the relevant state statutes and believes that its operations and planned activities do not violate any applicable medical practice, fee-splitting, certificates of need, or
similar laws, there can be no assurance that (i) courts or governmental officials with the power to interpret or enforce these laws and regulations will not assert that the Company or certain transactions in which it is involved are in violation of
such laws and regulations, and (ii) future interpretations of such laws and regulations will not require structural and organizational modifications of the Companys business. In addition, the laws and regulations of some states could restrict
expansion of the Companys operations into those states.



Federal regulations aimed at standardizing the format in which certain types of healthcare information is exchanged electronically and establishing standards for the security and privacy of protected healthcare information have been issued
pursuant to the administrative simplification provisions of the Health Insurance Portability and Accountability Act of 1996 (HIPAA). Further regulations under HIPAA, as well as modifications to and interpretations of existing
regulations, are expected. Compliance with these regulations became effective beginning April 14, 2003 and at various dates thereafter for Covered Entities (as defined). Based principally upon the composition of its business on that date, most
notably the elimination of its urgent care services in March 2003, and because it does not engage in Covered Transactions (as defined) through electronic means, the Company has determined that it does not currently fall directly under the purview of
HIPAA. However, the Company recognizes that a number of the standards established by HIPAA represent best practices for its own business and it intends to phase in those procedures over time in addition to maintaining its compliance with
state privacy laws applicable to its business. The Company may also be expected to comply with some limited HIPAA standards under future contracts with healthcare providers and insurers. Moreover, there can be no assurance that the Company will not
be required at some future time to comply fully with HIPAA in which event the Company may be called upon to devote substantial management effort and expenditures to achieving such compliance.



Fraud and Abuse Laws



A federal law (the Anti-Kickback Statute) prohibits any offer,
payment, solicitation, or receipt of any form of remuneration to induce, or in return for, the referral of Medicare or other governmental health program



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patients or patient care opportunities, or in return for the purchase, lease or order of, or arranging for, items or services that are covered by Medicare or
other governmental health programs. Violations of the statute can result in the imposition of substantial civil and criminal penalties. In addition, certain anti-referral provisions (the Stark Amendments) prohibit a physician with a
financial interest in an entity from referring a patient to that entity for the provision of certain designated health services, some of which are provided by the Medical Providers that engage the Companys management
services.



Most states have statutes, regulations or
professional codes that restrict a physician from accepting various kinds of remuneration in exchange for making referrals, some of which are similar to the Anti-Kickback Statute and are applicable to non-governmental programs. Several states are
considering legislation that would prohibit referrals by a physician for certain types of healthcare services to an entity in which the physician has a specified financial interest.



All of the foregoing laws are subject to modification and interpretation, have not often been interpreted by appropriate
authorities in a manner directly relevant to the Companys business, and are enforced by authorities vested with broad discretion. The Company has attempted to structure all of its operations so that they comply with applicable federal and
state anti-kickback and anti-referral prohibitions. The Company also monitors developments in this area. If these laws are interpreted in a manner contrary to the Companys interpretation, or are reinterpreted or amended, or if new legislation
is enacted with respect to healthcare fraud and abuse or similar issues, the Company will seek to restructure any affected operations so as to maintain compliance with applicable law. No assurance, however, can be given that such restructuring will
be possible, or, if possible, will not adversely affect the Companys business.



Antitrust Laws



Federal, and many state, laws prohibit anti-competitive conduct, including price fixing, improper exercise of monopoly power, concerted refusals to deal, and division of markets. Violations of the Sherman Act, the primary federal antitrust
statute, are felonies punishable by significant fines. While the Company believes that it is in compliance with relevant antitrust laws, no assurance can be given that the Companys business practices will be interpreted by federal and state
enforcement agencies to comply with such laws, and any violation of such laws could have a material adverse effect on the Company and its business.



Uncertainties Related to Changing Healthcare Environment



Over the last several years, the healthcare industry has experienced change. Although managed care has yet to become a major factor in occupational
healthcare, the Company anticipates that managed care programs may play an increasing role in the delivery of occupational healthcare services. Further, competition in the occupational healthcare industry may shift from individual practitioners to
specialized provider groups such as those managed by the Company, insurance companies, health maintenance organizations and other significant providers of managed care products. To facilitate the Companys managed care strategy, the Company is
offering risk-sharing products for the workers compensation industry that will be marketed to employers, insurers and managed care organizations. However, no assurance can be given that the Company will prosper in the changing healthcare
environment or that the Companys strategy to develop managed care programs will succeed in meeting employers and workers occupational healthcare needs.



Other changes in the healthcare environment may result from an Internal Revenue Service ruling and recent cases related to
whole-hospital joint ventures with tax-exempt organizations. The Company currently does not believe that this specific ruling will be extended to joint ventures concerning ancillary services such as occupational health for tax-exempt hospitals;
however, if so extended, the Companys structure for joint ventures with tax-exempt hospitals may differ from the Companys typical model so as not to jeopardize the tax-exempt status of these hospitals.



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##### Table of Contents

Environmental



The Company and the Medical Providers are subject to various federal, state, and local statutes and ordinances regulating
the disposal of infectious waste. If any environmental regulatory agency finds the Companys facilities to be in violation of waste laws, penalties and fines may be imposed for each day of violation, and the affected facility could be forced to
cease operations. The Company believes that its waste handling and discharge practices are in material compliance with the applicable law; however, any future claims or changes in environmental laws could have an adverse effect on the Company and
its business.



Use of Provider Networks



The Companys provision of comprehensive healthcare management and cost
containment services depends in part on its ability to contract with or create networks of healthcare providers which share its objectives. For some of its clients, the Company offers injured workers access to networks of providers who are selected
by the Company or its joint venture partners for quality of care and willingness to follow the OH+R System. Laws regulating the operation of managed care provider networks have been adopted by a number of states. These laws may apply to managed care
provider networks having contracts with the Company or to provider networks that the Company may develop or acquire. To the extent these regulations apply to the Company, the Company may be subject to additional licensing requirements, financial
oversight and procedural standards for beneficiaries and providers.



Background



The Company was incorporated in
Delaware in 1988. On June 6, 1996, Occupational Health + Rehabilitation Inc (OH+R) merged with and into (the Merger) Telor Opthalmic Pharmaceuticals, Inc. (Telor). Pursuant to the terms of the Merger, Telor was
the surviving corporation. Concurrent with the Merger, Telors name was changed to Occupational Health + Rehabilitation Inc, and the business of the surviving corporation was changed to the business of OH+R. The Merger was accounted for as a
reverse acquisition whereby OH+R was deemed to have acquired Telor for financial reporting purposes.



Economic Conditions



The Companys success is influenced by a number of economic factors, principally employment levels and the rate of change thereof, and the general
level of business activity. Adverse changes in these economic conditions may negatively affect the Companys growth and profitability.



Seasonality



The Company is subject to the seasonal fluctuations that impact the various employers and their employees it serves. Historically, the Company has noticed
these impacts in portions of the first and fourth quarters. Traditionally, revenues are lower during these periods since patient visits decrease due to the occurrence of plant closings, vacations, holidays, a reduction in new employee hires, and
inclement weather. These activities also cause a decrease in drug and alcohol tests, medical monitoring services and pre-employment examinations. Similar fluctuations occur during the summer months, but typically to a lesser degree than during the
first and fourth quarters. The Company attempts to ameliorate the impact of these fluctuations through adjusting staff levels.



Employees



As of March 1, 2005, the Company employed 516 individuals on a full and part-time basis. The total clinical professionals contracted or associated with
the Company as of March 1, 2005 were 270, including physicians, physician assistants, nurse practitioners, nurses, medical assistants, physical and occupational therapists, and assistant physical and occupational therapists. None of the
Companys employees are covered by collective bargaining agreements. The Company has not experienced any work stoppages and considers its relations with its employees to be good.



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Important Factors Regarding Forward-Looking Statements



Statements contained in this Annual Report on Form 10-K, including in
Managements Discussion and Analysis of Financial Condition and Results of Operations, contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934, which statements are intended to be subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements are based on managements current expectations and are
subject to many risks and uncertainties which could cause actual results to differ materially from such statements. Such statements include statements regarding the Companys objective to develop a network of regional occupational healthcare
systems providing integrated services through multi-disciplinary teams. In addition, when used in this report, the words anticipate, plan, believe, estimate, expect, and similar expressions
as they relate to the Company or its management are intended to identify forward-looking statements. Among the risks and uncertainties that will affect the Companys actual results are locating and identifying suitable partnership candidates;
the ability to consummate operating agreements on favorable terms; the success of such ventures, if completed; the costs and delays inherent in managing growth; the ability to attract and retain qualified professionals and other employees to expand
and complement the Companys services; the availability of sufficient financing; the attractiveness of the Companys capital stock to finance its ventures; strategies pursued by competitors; the restrictions imposed by government
regulation; changes in the industry resulting from changes in workers compensation laws and regulations and in the healthcare environment generally; and other risks described in this Annual Report on Form 10-K and the Companys other
filings with the Securities and Exchange Commission. The forward-looking statements speak only as of the date on which such statements are made. The Company undertakes no obligation to publicly update or revise any forward-looking statements, based
on new information, future events or otherwise.



ITEM 2. PROPERTIES



The Company
rents approximately 7,000 square feet of office space for its corporate offices in Hingham, Massachusetts.



The Companys centers range in size from 750 square feet to approximately 15,000 square feet and generally have lease terms of between three years
and seven years with varying renewal or extension rights. Some leases are subject to an annual escalation in rent either of a fixed percentage or based upon the increase in the Consumer Price Index over the prior year. A typical center ranges in
size from approximately 4,000 to 10,000 square feet and has four to eight rooms used for examination and trauma, a laboratory, an x-ray room, and ancillary areas for reception, drug testing collection, rehabilitation, client education, and
administration. Most centers are open from nine to ten hours each day for five days a week.



The Company believes that its facilities are adequate for its reasonably foreseeable needs.



ITEM 3. LEGAL PROCEEDINGS



The
Company is not a party to any material legal proceedings and is not aware of any threatened litigation that could have a material adverse effect upon its business, operating results, or financial condition.



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



None.



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PART II



|ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|------- | ------------------------------------------------------------------------------------------------------------



The Companys Common Stock is traded on the OTC Bulletin Board. The
Company trades under the symbol OHRI. The following table sets forth the high and low bid quotations for the Companys Common Stock as reported by the OTC Bulletin Board during the periods shown below.



|                                 |  |      |      |     |   |     
|-------------------------------- |  | ---- | ---- | --- | - | ----
|                                 |  | High |      | Low
|Quarter ended March 31, 2003     |  | $    | 1.60 |     | $ | 1.30
|Quarter ended June 30, 2003      |  |      | 1.85 |     |   | 0.73
|Quarter ended September 30, 2003 |  |      | 1.35 |     |   | 1.25
|Quarter ended December 31, 2003  |  |      | 1.90 |     |   | 1.25
|Quarter ended March 31, 2004     |  |      | 2.80 |     |   | 1.25
|Quarter ended June 30, 2004      |  |      | 2.25 |     |   | 1.40
|Quarter ended September 30, 2004 |  |      | 2.60 |     |   | 1.55
|Quarter ended December 31, 2004  |  |      | 4.40 |     |   | 1.90



The foregoing
represent inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. As of March 1, 2005, the Companys Common Stock was held by 75 stockholders of record and approximately 350
beneficial stockholders whose shares were held in street name.



The Company has never paid any cash dividends on its Common Stock. The Company currently intends to retain earnings, if any, for use in its business and does not anticipate paying any cash dividends in the foreseeable
future. The payment of future dividends will be at the discretion of the board of directors of the Company and will depend, among other things, upon the Companys earnings, capital requirements, and financial condition. The Company is subject
to a covenant with one of its lenders that prohibits the payment of dividends.



The transfer agent and registrar for the Companys Common Stock is American Stock Transfer & Trust Company.



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##### Table of Contents

Securities Authorized for Issuance Under Equity Compensation Plans



The following table sets forth certain information with respect to
compensation plans (including individual compensation arrangements) under which the Companys equity securities are authorized for issuance, as of December 31, 2004.



EQUITY COMPENSATION PLAN INFORMATION



|                                                              |  |                                                                                          |  |                                                                          |      |                                                                                                                                        |        
|------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------ | ---- | -------------------------------------------------------------------------------------------------------------------------------------- | -------
|Plan Category                                                 |  | Number of SecuritiesTo Be Issued Upon Exercise ofOutstandingOptions, Warrants and Rights |  | Weighted-averageExercise Price ofOutstanding Options,Warrants and Rights |      | Number of SecuritiesRemaining Available ForFuture Issuance UnderEquity Compensation Plans(Excluding SecuritiesReflected in
Column (a))
|                                                              |  | (a)                                                                                      |  | (b)                                                                      |      | (c)                                                                                                                                   
|Equity compensation plans approved by security holders (1)(2) |  | 1,367,547                                                                                |  | $                                                                        | 2.27 |                                                                                                                                        | 105,766
|Equity compensation plans not approved by security holders    |  |                                                                                         |  |                                                                          |     |                                                                                                                                        |       
|                                                              |  |                                                                                          |  |                                                                          |      |                                                                                                                                        |        
|Total                                                         |  | 1,367,547                                                                                |  | $                                                                        | 2.27 |                                                                                                                                        | 105,766

---

|(1) | Includes the Companys 1993, 1996 and 1998 Stock Plans. The 1998 Stock Plan, as approved by the Companys stockholders, reserved 150,000 shares of the Companys
Common Stock for the granting of non-qualified stock options, incentive stock options, and stock appreciation rights. The Companys board of directors has subsequently approved, without stockholder approval, the reservation of an additional
870,000 shares of the Companys Common Stock under the 1998 Stock Plan for the granting of non-qualified stock options and stock appreciation rights.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Each of the Companys Stock Plans expires ten years from inception, after which no new options may be granted from them. Since the expiration of the 1993 Stock Plan in February
2003, options to purchase 52,052 shares under the 1993 Stock Plan have been forfeited by former employees and are no longer available for re-issuance.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



On March 24, 2003, the Company paid a cash amount of $2,699,740, and issued 1,608,247 shares of its Common Stock and
promissory notes in the aggregate principal amount of $2,699,740 to repurchase 1,416,667 shares of its Series A Convertible Preferred Stock, from certain venture capital funds and other accredited investors (the Sellers) in reliance upon
the exemption from the registration requirements of the Securities Act under Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder.



In claiming the exemption under Section 4(2) and Rule 506, the Company relied in part on the following facts: (1) each of
the Sellers represented that such Seller (a) had the requisite knowledge and experience in financial and business matters to evaluate the merits and risk of an investment in the Company; (b) was able to bear the economic risk of an investment in the
Company; (c) had access to or was furnished with the kinds of information that registration under the Securities Act would have provided; (d) acquired the shares for the Sellers own account in a transaction not involving any general
solicitation or general advertising, and not with a view to the distribution thereof; and (e) is an accredited investor as defined in Rule 502 of Regulation D; and (2) a restrictive legend was placed on each certificate or other
instrument evidencing the shares and notes.



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ITEM 6. SELECTED FINANCIAL DATA



The consolidated statement of operations data set forth below with respect to the years ended December 31, 2004, 2003 and 2002 and the consolidated balance sheet data as of December 31, 2004 and 2003 are derived from, and are qualified by
reference to, the audited consolidated financial statements included elsewhere in this report and should be read in conjunction with those financial statements and notes thereto. The consolidated statement of operations data for the years ended
December 31, 2001 and 2000 and the consolidated balance sheet data at December 31, 2002, 2001 and 2000 are derived from financial statements not included herein. Certain prior year amounts reported in the consolidated statements of operations have
been reclassified to conform to the 2004 presentation. The Company has reclassified its financial statements in order to present its center operating profit and has reallocated depreciation expense between center operating expenses and general and
administrative expenses, as applicable. Historical results should not be taken as necessarily indicative of the results that may be expected for any future period.



|                                                                       |  |                                                 |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|---------------------------------------------------------------------- |  | ----------------------------------------------- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | - |  | ---- | --------- | - |  | - | --------- | -
|                                                                       |  | Years ended December 31,                        |          
|                                                                       |  | 2004                                            |           |   | 2003 |   |           | 2002 |  |   | 2001      |   |  | 2000 |          
|                                                                       |  | (In thousands, except share and per share data) |          
|Consolidated Statement of Operations Data:                             |  |                                                 |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Net revenue                                                            |  | $                                               | 57,088    |   |      | $ | 53,538    |      |  | $ | 56,949    |   |  | $    | 57,017    |   |  | $ | 43,683    |  
|Center operating expenses                                              |  |                                                 | 48,938    |   |      |   | 47,570    |      |  |   | 50,680    |   |  |      | 49,516    |   |  |   | 37,559    |  
|                                                                       |  |                                                 |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Center operating profit                                                |  |                                                 | 8,150     |   |      |   | 5,968     |      |  |   | 6,269     |   |  |      | 7,501     |   |  |   | 6,124     |  
|General and administrative expenses                                    |  |                                                 | 5,150     |   |      |   | 4,772     |      |  |   | 4,967     |   |  |      | 4,967     |   |  |   | 4,423     |  
|Amortization of intangibles                                            |  |                                                 | 75        |   |      |   | 69        |      |  |   | 51        |   |  |      | 354       |   |  |   | 352       |  
|                                                                       |  |                                                 |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Income from operations                                                 |  |                                                 | 2,925     |   |      |   | 1,127     |      |  |   | 1,251     |   |  |      | 2,180     |   |  |   | 1,349     |  
|Interest expense, net                                                  |  |                                                 | (821      | ) |      |   | (642      | )    |  |   | (397      | ) |  |      | (462      | ) |  |   | (499      | )
|Minority interest and contractual settlements, net                     |  |                                                 | (729      | ) |      |   | (815      | )    |  |   | (496      | ) |  |      | (329      | ) |  |   | 105       |  
|Recovery of note receivable                                            |  |                                                 |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   | 248       |  
|                                                                       |  |                                                 |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Income (loss) before income taxes                                      |  |                                                 | 1,375     |   |      |   | (330      | )    |  |   | 358       |   |  |      | 1,389     |   |  |   | 1,203     |  
|Tax provision (benefit)                                                |  |                                                 | 586       |   |      |   | (99       | )    |  |   | 215       |   |  |      | (2,695    | ) |  |   | 34        |  
|                                                                       |  |                                                 |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Net income (loss)                                                      |  | $                                               | 789       |   |      | $ | (231      | )    |  | $ | 143       |   |  | $    | 4,084     |   |  | $ | 1,169     |  
|                                                                       |  |                                                 |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Net income (loss) available to common shareholders - basic             |  | $                                               | 789       |   |      | $ | (377      | )    |  | $ | (537      | ) |  | $    | 3,390     |   |  | $ | 473       |  
|                                                                       |  |                                                 |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Weighted average common shares outstanding - basic                     |  |                                                 | 3,088,111 |   |      |   | 2,726,806 |      |  |   | 1,479,864 |   |  |      | 1,479,591 |   |  |   | 1,479,510 |  
|                                                                       |  |                                                 |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Net income (loss) per common share                                     |  | $                                               | 0.26      |   |      | $ | (0.14     | )    |  | $ | (0.36     | ) |  | $    | 2.29      |   |  | $ | 0.32      |  
|                                                                       |  |                                                 |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Net income (loss) available to common shareholders - assuming dilution |  | $                                               | 789       |   |      | $ | (377      | )    |  | $ | (537      | ) |  | $    | 3,402     |   |  | $ | 485       |  
|                                                                       |  |                                                 |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Weighted average common shares outstanding - assuming dilution         |  |                                                 | 3,212,008 |   |      |   | 2,726,806 |      |  |   | 1,479,864 |   |  |      | 3,161,331 |   |  |   | 2,935,745 |  
|                                                                       |  |                                                 |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Net income (loss) per common share - assuming dilution                 |  | $                                               | 0.25      |   |      | $ | (0.14     | )    |  | $ | (0.36     | ) |  | $    | 1.08      |   |  | $ | 0.17      |  
|                                                                       |  |                                                 |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  



|                                       |  |                |        |   |      |   |        |      |  |      |        |      |   |        |  |   |        |  
|-------------------------------------- |  | -------------- | ------ | - | ---- | - | ------ | ---- |  | ---- | ------ | ---- | - | ------ |  | - | ------ | -
|                                       |  | December 31,   |       
|                                       |  | 2004           |        |   | 2003 |   |        | 2002 |  | 2001 |        | 2000 |  
|                                       |  | (In thousands) |       
|Consolidated Balance Sheet Data:       |  |                |        |   |      |   |        |      |  |      |        |      |   |        |  |   |        |  
|Working capital                        |  | $              | (1,960 | ) |      | $ | (3,132 | )    |  | $    | 4,049  |      | $ | 4,453  |  | $ | 1,935  |  
|Total assets                           |  |                | 23,913 |   |      |   | 24,099 |      |  |      | 24,397 |      |   | 24,198 |  |   | 22,148 |  
|Long-term debt, less current portion   |  |                | 604    |   |      |   | 1,705  |      |  |      | 1,982  |      |   | 1,229  |  |   | 1,614  |  
|Redeemable convertible preferred stock |  |                |       |   |      |   |       |      |  |      | 10,653 |      |   | 9,973  |  |   | 9,279  |  
|Stockholders equity (deficit)         |  |                | 6,603  |   |      |   | 5,814  |      |  |      | 896    |      |   | 1,433  |  |   | (1,957 | )



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QUARTERLY RESULTS (UNAUDITED)



Set forth below is certain summary information with respect to the Companys operations for the last eight fiscal
quarters.



|                                   |  |                                       |        |   |            |   |        |            |  |   |            |   |  |   |       
|---------------------------------- |  | ------------------------------------- | ------ | - | ---------- | - | ------ | ---------- |  | - | ---------- | - |  | - | ------
|                                   |  | 2004                                 
|                                   |  | 1stQuarter                            |        |   | 2ndQuarter |   |        | 3rdQuarter |  |   | 4thQuarter
|                                   |  | (In thousands, except per share data)
|Net revenue                        |  | $                                     | 14,105 |   |            | $ | 14,395 |            |  | $ | 14,961     |   |  | $ | 13,627
|Income from operations             |  |                                       | 734    |   |            |   | 818    |            |  |   | 966        |   |  |   | 407   
|Net income                         |  |                                       | 201    |   |            |   | 221    |            |  |   | 319        |   |  |   | 48    
|                                   |  |                                       |        |  
|Net income per common share        |  |                                       |        |   |            |   |        |            |  |   |            |   |  |   |       
|Basic                              |  | $                                     | 0.07   |   |            | $ | 0.07   |            |  | $ | 0.10       |   |  | $ | 0.02  
|Assuming dilution                  |  | $                                     | 0.06   |   |            | $ | 0.07   |            |  | $ | 0.10       |   |  | $ | 0.01  
|                                   | 
|                                   |  | 2003                                 
|                                   |  | 1stQuarter                            |        |   | 2ndQuarter |   |        | 3rdQuarter |  |   | 4thQuarter
|                                   |  | (In thousands, except per share data)
|Net revenue                        |  | $                                     | 13,472 |   |            | $ | 13,150 |            |  | $ | 13,430     |   |  | $ | 13,486
|Income from operations             |  |                                       | 440    |   |            |   | 137    |            |  |   | 31         |   |  |   | 519   
|Net income (loss)                  |  |                                       | 68     |   |            |   | (100   | )          |  |   | (242       | ) |  |   | 43    
|                                   |  |                                       |        |  
|Net (loss) income per common share |  |                                       |        |   |            |   |        |            |  |   |            |   |  |   |       
|Basic and diluted                  |  | $                                     | (0.05  | ) |            | $ | (0.03  | )          |  | $ | (0.08      | ) |  | $ | 0.02  



Data may not aggregate
to annual amounts due to rounding.



The Companys
quarterly results of operations are not necessarily indicative of results for any future period.



ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Overview



The Company is a leading provider of occupational healthcare services to employers and their employees specializing in the prevention, treatment, and
management of work related injuries and illnesses. The Company develops and operates multidisciplinary outpatient healthcare centers and contracts with other healthcare providers to develop integrated occupational healthcare delivery systems. The
Company typically operates the centers under management and submanagement agreements with professional corporations that practice exclusively through such centers. Additionally, the Company has entered into joint ventures and long-term management
agreements with health systems to provide management and related services to the centers and networks of providers established by the joint ventures.



The Companys operations have been funded primarily through venture capital investments, the Merger, and lines of credit. The Companys growth
has resulted predominantly from the formation of joint ventures, long-term management agreements, acquisitions, and development of businesses principally engaged in occupational healthcare.



The Company derives its revenue from three principal sources: treatment of
work-related injuries, including the provision of rehabilitation services necessary to speed the patients post-injury recovery, injury prevention and regulatory compliance services such as pre-placement physical examinations and drug and
alcohol tests, and workplace health and rehabilitation services where the Company provides on-site delivery of its services for work-related injuries, generally to regional locations of major corporations. Medical treatment of injuries and the
associated rehabilitation services account for nearly two-thirds of the Companys revenue, prevention and



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compliance services for about 25%, and workplace health and rehabilitation services for about 10%. The Company operates 35 centers, of which 26 are in the
northeast of the United States, five are in Tennessee, and four are in Missouri. The Company manages workplace health contracts not only at sites close to its centers but also in many other areas of the country.



The level of economic activity in the regions of the country in which the
Companys centers are located impacts its profitability. Certain classifications of employment have higher injury rates than others. For example, manufacturing, transportation, healthcare delivery, and construction tend to have high injury
rates and therefore high utilization of the types of services offered by the Company. Consequently, changes in the employment levels in these market sectors impact the volume of business available to the Company. The Company also provides more
services when employment levels rise. The stronger the employment market, the greater the demand for pre-placement examinations and drug and alcohol tests. Higher levels of economic activity also result in more work-related injuries requiring
treatment. In recent years, when employment levels have been soft and economic growth modest, the Company has focused on increasing its market share in a still very fragmented industry through aggressive marketing, offering high levels of service to
its clients and maintaining a tight control on its costs.



In
many states in which the Company operates, the prices it charges for its injury treatment of work-related injuries are determined by state specific fee schedules established by state agencies pursuant to the workers compensation programs in
that state. Such fee schedules are reviewed by the regulatory bodies from time to time, but changes in the rates tend to lag the increase in the cost of delivering medical services. Moreover, reimbursement rates vary widely from state to state. In
those states not governed by a fee schedule, the Company charges the usual and customary rates which are based on the average fees paid by workers compensation insurers and accepted by healthcare providers. The Company uses the services of
third party consultants to assist it in keeping abreast of the frequently complex and often changing workers compensation fee schedules and the appropriate usual and customary fees.



Accounts receivable is the Companys largest asset on its balance sheet. The Company closely monitors its days sales
outstanding, a measure computed by dividing its annual average revenue per day into its current accounts receivable balance. By reducing its days sales outstanding, the Company can increase its cash inflow and use the additional funds to pay down
its debt or for general corporate purposes. Conversely, an increase in its days sales outstanding results in less liquidity for the Company and restricts managements operating flexibility. The Company days sales outstanding were 68, 60
and 62 in 2004, 2003 and 2002, respectively.



The
Companys major focus is building its revenue base. Once a center has covered its fixed costs, which account on average for approximately 55% of its revenue and consist primarily of employee-related expenses and rent and occupancy charges, each
additional dollar of revenue generates a high variable profit margin. A new injury visit, for example, generates about $770 in net revenue through follow up visits and referrals to rehabilitation treatment.



The discussion and analysis of the financial condition and results of
operations of the Company are based on the Companys consolidated financial statements, included elsewhere within this report, which have been prepared in accordance with accounting principles generally accepted in the United States of America.
The preparation of these financial statements requires the use of estimates and judgments that affect the reported amounts and related disclosures of commitments and contingencies. The Company relies on historical experience and on various other
assumptions that it believes to be reasonable under the circumstances to make judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates.



Critical Accounting Policies



Revenue Recognition



Revenue is recorded at estimated net amounts to be received from third-party
payers, employers and others for services rendered. The Company operates in certain states that regulate the amounts which the Company can charge for its services associated with work-related injuries and illnesses.



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Goodwill and Other Intangible Assets



The Company has adopted the Financial Accounting Standards Board
(FASB) Statement of Financial Accounting Standard (SFAS) No. 142, Goodwill and Other Intangible Assets, which was effective January 1, 2002. SFAS 142 requires, among other things, the discontinuance of goodwill amortization.



The Company performs an impairment test on goodwill on an
annual basis or on an interim basis if an event or circumstance indicates that it is more likely than not that an impairment loss has been incurred. Impairment is determined by comparing the fair value to the carrying value of the reporting units.
The fair value of each reporting unit is determined based on its discounted future cash flows using a discount reflecting the Companys average cost of funds. If impairment were determined to have occurred, the Company would make the
appropriate adjustment to goodwill to reduce the assets carrying value. No such impairment existed at December 31, 2004 or 2003.



Other intangible assets are comprised of non-compete agreements and deferred financing costs which are being amortized using the straight-line method over
periods of three to five years. The Company performs an impairment test on such definite-lived intangibles when facts and circumstances exist which would suggest that the intangibles may be impaired. If impairment were determined to have occurred,
the Company would make the appropriate adjustment to the intangible asset to reduce the assets carrying value to fair value. No such impairment existed at December 31, 2004 or 2003.



Professional Liability Coverage



The Company maintains entity professional liability insurance coverage on a claims-made basis in all states in which it has
operating centers. The Company also maintains shared professional liability insurance coverage in the name of its full-time physicians on a claims-made basis. At December 31, 2004, the Company recorded an actuarially determined liability equal to
the estimated required reserves for future payments for claims that have been reported and claims that have occurred but have not been reported. The Company intends to renew its existing professional liability insurance policies and is not aware of
any reason it will not be able to do so; nor is it aware of any claims that may result in a loss in excess of amounts covered by its existing insurance.



Reserves for Employee Medical Benefits



The Company retains a significant amount of self-insurance risk for its employee medical benefits. The Company maintains stop-loss insurance which limits
the Companys liability for medical insurance payments on both an individual and total group basis. At the end of each quarter, the Company records an accrued expense for estimated medical benefit claims incurred but not reported at the end of
such period. The Company estimates this accrual based on various factors including historical experience, industry trends and recent claims history. This accrual is by necessity based on estimates and is subject to ongoing revision as conditions
change and as new data present themselves. Adjustments to estimated liabilities are recorded in the accounting period in which the change in estimate occurs.



Recent Accounting Pronouncements



In December 2004, the FASB issued SFAS No. 123R, Share-Based Payment. SFAS 123R is a revision of SFAS No. 123, Accounting for Stock-Based Compensation,
and supersedes Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the
financial statements based on their fair values. The provisions of SFAS 123R are effective for interim or annual periods beginning after June 15, 2005. The Company is currently evaluating the provisions of this revision to determine the impact on
its financial statements. It is, however, expected to have a negative effect on net income.



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As permitted by SFAS 123, the Company currently accounts for share-based payments to employees using the
intrinsic value method permitted by APB 25 and accordingly does not recognize any compensation cost for employee stock options. Accordingly, adoption of the fair value method required by SFAS 123R will have an impact on the Companys results of
operations, although it will have no impact on its overall financial position. The impact of the modified prospective adoption of SFAS 123R cannot be estimated at this time because it will depend on levels of share-based payments granted in the
future. However, had the Company adopted SFAS 123R in prior periods, the impact of that standard would have approximated the impact of SFAS 123 as described in the disclosure of pro forma net income and earnings per share.



In December 2004, the FASB decided to defer issuance of their final standard
on earnings per share (EPS) entitled Earnings per Share, an Amendment to SFAS 128. The final standard will be effective in 2005 and will require retrospective application for all prior periods presented. The significant proposed changes
to the EPS computation are changes to the treasury stock method and contingent share guidance for computing year-to-date diluted EPS, removal of the ability to overcome the presumption of share settlement when computing diluted EPS when there is a
choice of share or cash settlement and inclusion of mandatorily convertible securities in basic EPS. The Company is currently evaluating the proposed provisions of this amendment to determine the impact on its consolidated financial statements.



The following table sets forth, for the periods indicated, the
relative percentages which certain items in the Companys consolidated statements of operations bear to revenue. The following information should be read in conjunction with the consolidated financial statements and notes thereto included
elsewhere in this report. Historical results and percentage relationships are not necessarily indicative of the results that may be expected for any future period.



|                                                   |  |                          |   |  |       |    |  |       |  
|-------------------------------------------------- |  | ------------------------ | - |  | ----- | -- |  | ----- | -
|                                                   |  | Years Ended December 31, |  
|                                                   |  | 2004                     |   |  | 2003  |    |  | 2002  |  
|Net revenue                                        |  | 100.0                    | % |  | 100.0 | %  |  | 100.0 | %
|Center operating expenses                          |  | (85.7                    | ) |  | (88.9 | )  |  | (89.0 | )
|General and administrative expenses                |  | (9.0                     | ) |  | (8.9  | )  |  | (8.7  | )
|Amortization of intangibles                        |  | (0.1                     | ) |  | (0.1  | )  |  | (0.1  | )
|Interest expense, net                              |  | (1.5                     | ) |  | (1.2  | )  |  | (0.7  | )
|Minority interest and contractual settlements, net |  | (1.3                     | ) |  | (1.5  | )  |  | (0.9  | )
|Tax (provision) benefit                            |  | (1.0                     | ) |  | 0.2   |    |  | (0.4  | )
|                                                   |  |                          |   |  |       |    |  |       |  
|Net income (loss)                                  |  | 1.4                      | % |  | (0.4  | )% |  | 0.2   | %
|                                                   |  |                          |   |  |       |    |  |       |  



RESULTS OF OPERATIONS (dollar
amounts in thousands)



Years Ended December 31, 2004 and 2003



Net Revenue



Net revenue in 2004 increased by $3,550, or 6.6%, to $57,088 from $53,538 in
2003. Net revenue at centers open for comparable periods in both years increased by $4,214, or 8.0%, primarily due to growth in revenue per visit as a result of price increases. A new center start-up in late 2003 generated $249 in additional revenue
during the period in 2004 prior to the anniversary date of its opening. Same center prevention and regulatory compliance services revenue increased 3.1% in 2004 compared to the prior year and workplace health and rehabilitation services revenue,
which relates to the provision of work-related healthcare services at employer sites, increased 25.4%, primarily due to new contracts. Same center new injury initial visits decreased 5.9% in 2004 compared to 2003, primarily due to a soft fourth
quarter.



The increase in net revenue in 2004 at centers open
for comparable periods in both years was partially offset by the closure or elimination of certain unprofitable centers and lines of business which generated $913 of



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revenue during the three months ended March 31, 2003. Of the total revenue eliminated, $782 was attributable to the reorganization of the Companys
operations in Tennessee, including the closure of a center and the cessation of urgent care services, and $131 was attributable to the termination of management contracts in Connecticut.



Center Operating Expenses



Center operating expenses in 2004 increased $1,368, or 2.9%, to $48,938 from $47,570 in 2003. The principal expense increases were for the additional
costs associated with the revenue gains during the year, charges in connection with the Companys employee bonus program and other employee-related expenses, costs incurred for the ongoing rollout of the Companys upgrade to its practice
management system and consulting fees tied to revenue growth resulting from implementation of recommended improvements to the Companys billing practices. These increases were partially offset by the elimination of costs relating to the
provision of urgent care services in Tennessee and to centers no longer under management, primarily in Connecticut. As a percentage of net revenue, center operating expenses decreased to 85.7% in 2004 from 88.9% in 2003, reflecting the
Companys ability to leverage its fixed costs on its revenue growth.



General and Administrative Expenses



General and administrative expenses in 2004 increased $378 or 7.9%, to $5,150 in 2004 from $4,772 in 2003, primarily due to increases in regional management expenses and amounts accrued for management bonuses. As a
percentage of net revenue, general and administrative expenses increased to 9.0% in 2004 from 8.9% in 2003.



Interest Expense, net



Interest expense in 2004 increased $179, to $829 from $650 in 2003. Of the total increase, $150 was attributable to a combination of an increase in
borrowings under, and the rate of interest on, the Companys line of credit. The Company has drawn down on its credit line primarily in order to make installment payments on its long-term debt and is charged interest on its borrowings at the
prime rate plus 1.00%. Interest expense in 2004 was $87 more than in 2003 due to an increase in the interest rate on the Companys Notes to 15.00% from 8.00% because the Company did not pay the full principal amount when due. Interest expense
on other debt obligations decreased $58, primarily due to the lower outstanding balances on the Companys long-term debt instruments. Interest income was $8 in both 2004 and 2003. As a percentage of net revenue, interest expense, net increased
to 1.5% in 2004 from 1.2% in 2003.



Minority Interest and
Contractual Settlements



Minority interest represents the
share of (profits) and losses of joint venture investors with the Company. In 2004, the minority interest in pre-tax profits of the joint ventures was $(729) compared to $(853) in 2003, reflecting a reduction in the aggregate profits of the joint
venture operations as compared to the prior year. Contractual settlements represent payments to, or receipts from, the Companys partners under the Companys management contracts in respect of the partners share of operating
(profits) or losses, respectively. There were no contractual settlements in 2004, since the Company terminated its management contracts with its former partners in Connecticut and Tennessee during the first six months of 2003. In 2003, the Company
recorded receipt of funded operating losses of $38.



Tax
Provision (Benefit)



There was a tax provision of $586 in
2004. In 2003, there was a net tax benefit of $(99) because the Company reported a loss for the year. The effective tax rate in 2004 was 42.6% compared to (30.2%) in 2003. The Company computes its effective tax rate based on its level of
profitability, adjusted for certain expenses which are not deductible, and applying its blended federal and state income tax rates. Since the Company



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recorded a significant pre-tax profit in 2004 compared to a small loss in 2003, the upward impact of the permanent tax differences on the effective tax rate
in 2004 is not as significant as it was in 2003.



Years Ended December 31,
2003 and 2002



Net Revenue



Net revenue in 2003 decreased by $3,411, or 6.0%, to $53,538 from $56,949 in
2002. The decrease in net revenue was primarily due to measures implemented by management to eliminate unprofitable operations or lines of business, partially offset by increases in revenue at centers open for more than one year. The termination of
management contracts in Connecticut in January 2003 resulted in the elimination of $2,423 of revenue compared to 2002, and the reorganization of the Companys operations in Tennessee, including the closure of two centers and the cessation of
urgent care services, reduced revenue by an additional $3,579.



Net revenue at centers in operation for comparable periods in both years increased by $2,453, or 4.9%, primarily due to a growth in revenue per visit as a result of price increases. Same center new injury initial visits were down 1.5% for
the year but were ahead of the prior year during the second half of 2003, reflecting both the capture of market share by the Company and the positive effects of a slowly recovering economy. Prevention services in 2003 were flat. Additional revenue
of $138 in 2003 was primarily attributable to a new center start-up late in the year.



Center Operating Expenses



Center operating expenses decreased $3,110, or 6.1%, to $47,570 in 2003 from $50,680 in 2002. The decrease was primarily due to the reduction in the number of centers under management, principally in Connecticut where a majority of the
costs related to payments to third party providers for services rendered to the Companys patients, and the elimination of urgent care services in Tennessee after March 31, 2003. These cost reductions were partially offset by consulting fees
tied to the increase in revenue resulting from implementation of recommended improvements to the Companys billing practices, increases in professional and general liability insurance premiums, and costs relating to an upgrade to the
Companys practice management system. As a percentage of net revenue, center operating expenses decreased to 88.9% in 2003 from 89.0% in 2002.



General and Administrative Expenses



General and administrative expenses decreased $195, or 3.9%, to $4,772 in 2003 from $4,967 in 2002, with a decrease in corporate employee-related costs
being partially offset by an increase in regional management expenses. As a percentage of net revenue, general and administrative expenses increased to 8.9% in 2003 from 8.7% in 2002.



Interest Expense, net



Interest expense increased to $650 in 2003 from $423 in 2002. The increase was attributable to the Companys repurchase of its preferred stock in
March 2003 in connection with which it increased its borrowings under its line of credit by $2,805 in order to pay $2,700 in cash to its preferred stockholders as well as the legal costs associated with the transaction, and issued $2,700 of 8.00%
subordinated promissory notes. Interest income decreased to $8 in 2003 from $26 in 2002. As a percentage of net revenue, interest expense, net increased to 1.2% in 2003 from 0.7% in 2002.



Minority Interest and Contractual Settlements



Minority interest represents the share of (profits) and losses of joint venture investors with the Company. In 2003, the
minority interest in pre-tax profits of subsidiaries decreased to $(853) from $(891) in 2002, reflecting a



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reduction in the aggregate profits of the joint venture operations as compared to the prior year. Contractual settlements represent payments to, or receipts
from, the Companys partners under the Companys management contracts in respect of the partners share of operating (profits) or losses, respectively. In 2003, the Company recorded receipt of $38 of funded operating losses compared
to $395 in 2002.



Tax (Benefit) Provision



There was a net tax benefit of $(99) in 2003 compared to a tax
provision of $215 in 2002 because the Company reported a net loss for the year ended December 31, 2003. The effective tax rate for 2003 was (30.2%). The tax provision for 2002 includes $52 relating to an adjustment to the previously provided
deferred tax benefit, and to state income taxes. These charges resulted in an increase in the Companys effective tax rate in 2002 to 60.1% from the normalized rate of 45.5%.



Off Balance Sheet Arrangements



The Company does not currently have any off balance sheet arrangements.



Significant Accounting Contractual Obligations



The following summarizes the Companys contractual obligations at December 31, 2004, and the effect such obligations
are expected to have on its liquidity and cash flows in future periods.



|                               |  |                        |        |                 |   |          |  |          |       |                  |   |       |  |   |    
|------------------------------ |  | ---------------------- | ------ | --------------- | - | -------- |  | -------- | ----- | ---------------- | - | ----- |  | - | ---
|                               |  | Payments Due by Period
|                               |  | Total                  |        | Less Than1 Year |   | 1-3Years |  | 3-5Years |       | More Than5 Years
|Contractual Obligations        |  |                        |        |                 |   |          |  |          |       |                  |   |       |  |   |    
|Long-term debt obligations (1) |  | $                      | 7,265  |                 | $ | 7,148    |  | $        | 117   |                  | $ |      |  | $ |   
|Capital lease obligations      |  |                        | 1,236  |                 |   | 749      |  |          | 324   |                  |   | 163   |  |   |   
|Operating lease obligations    |  |                        | 12,288 |                 |   | 3,562    |  |          | 5,022 |                  |   | 2,786 |  |   | 918
|Purchase obligations           |  |                        |       |                 |   |         |  |          |      |                  |   |      |  |   |   
|Other long-term liabilities    |  |                        |       |                 |   |         |  |          |      |                  |   |      |  |   |   
|                               |  |                        |        |                 |   |          |  |          |       |                  |   |       |  |   |    
|Total contractual obligations  |  | $                      | 20,789 |                 | $ | 11,459   |  | $        | 5,463 |                  | $ | 2,949 |  | $ | 918
|                               |  |                        |        |                 |   |          |  |          |       |                  |   |       |  |   |    

---

|(1) | As of December 31, 2004, the amount available to the Company under the borrowing base formula for its line of credit was $6,933, of which $5,407 was drawn down. See Note 4 in the
consolidated notes to the financial statements.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Liquidity and
Capital Resources



At December 31, 2004, the Company had
negative working capital of $1,960 compared to negative working capital of $3,132 in 2003 and positive working capital of $4,049 in 2002. The reduction of $1,172 in the negative working capital in 2004 compared to 2003 was primarily due to an
increase in accounts receivable, net of allowances, of $1,806, partially offset by a decrease in cash and cash equivalents of $662 and an increase in total current liabilities of $168. Of the $7,181 decrease in working capital in 2003 compared to
2002, $5,672 related to the repurchase by the Company of its Series A Convertible Preferred Stock (the Preferred Stock). The Company increased its borrowings under its line of credit by $2,805 in order to pay $2,700 in cash to the
preferred stockholders and $105 of legal costs associated with the transaction. It has also recognized as a current liability $2,867 of notes payable, inclusive of accrued interest, issued to the preferred stockholders. The Companys principal
sources of liquidity at December 31, 2004 consisted of (i) cash and cash equivalents aggregating $1,082, (ii) uncollateralized accounts receivable of $2,137 and (iii) $1,526 available under its asset-based line of credit.



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Net cash provided by operating activities in 2004 was $3,233 compared to $2,959 in 2003 and $2,606 in
2002. The increase of $274 in 2004 compared to 2003 was due to an increase in profitability of $1,507, after adjusting for non-cash charges, partially offset by a negative net change in operating assets and liabilities of $1,233. The increase of
$353 in 2003 compared to 2002 was due to a positive net change in operating assets and liabilities of $759, partially offset by a decrease in profitability of $406, after adjusting for non-cash charges.



Accounts receivable, net of allowances, increased by $1,806 in 2004 to
$10,577 from $8,771 in 2003 and $9,736 in 2002. Of the increase in 2004, $1,251 was due to an increase in days sales outstanding and the balance to revenue growth. Days sales outstanding in accounts receivable, net of allowances were 68 at December
31, 2004 compared to 60 at December 31, 2003 and 62 at December 31, 2002. The increase in days sales outstanding in 2004 was due primarily to the temporary negative effect of the conversion to the Companys upgraded practice management system
with its related changes in center operating processes and to staff shortages at the central billing office.



The decrease in accounts receivable in 2003 as compared to 2002 was attributable in part to the decrease in the Companys revenue over the period
resulting from the reduction in the number of centers under management and the elimination of urgent care services, and in part to a reduction in days sales outstanding.



Accounts payable and accrued expenses increased $1,515 in 2004 to $7,421 from $5,906 in 2003. Of the total increase, $426
was attributable to an increase in the accrual for bonuses under the Companys employee incentive programs, $303 to an increase in the number of days of accrued payroll and $205 to an increase in the amount due a third party administrator,
primarily for claims incurred in the three months ended December 31, 2004 under the Companys self-insured employee medical program. The balance of the increase in accounts payable was primarily due to a growth in the Companys business
and timing differences on the payment of obligations.



Accounts
payable and accrued expenses decreased $44 in 2003 to $5,906 from $5,950 in 2002. Amounts due to third-party providers decreased $768, primarily due to the termination of a long-term management contract in Connecticut and conversion to in-center
rehabilitation services upon the purchase of five centers in Tennessee. Effective January 1, 2003, the Company reduced the amount of earned but unused vacation time an employee may carry over to the following year, resulting in a decrease of $242 in
the accrued vacation liability. Accounts payable increased $348 due to normal variances in the payment cycle. An increase of $293 in accrued professional fees related primarily to consulting fees tied to the increase in revenue resulting from
implementation of recommended improvements to the Companys billing practices. Accrued interest expense increased $180, primarily relating to the notes issued in connection with the repurchase of the Preferred Stock in March 2003. The
professional liability accrual increased $163, primarily to recognize the actuarially determined liability for future payments for claims that have been reported and claims that have occurred but have not been reported.



Net cash used in investing activities was $380, $1,160 and $1,006 in 2004,
2003 and 2002, respectively. The Companys investing activities included fixed asset additions of $380, $678 and $891 in 2004, 2003 and 2002, respectively, primarily related to information systems equipment. The fixed asset additions in 2002
and 2003 primarily related to the Companys upgrade of its practice management system.



In 2003, net cash used in investing activities included $482, primarily relating to the purchase of an occupational health practice in Murfreesboro, Tennessee with an initial cash outlay of $150, and the purchase of
five centers in Nashville, Tennessee previously managed by the Company with an initial cash outlay of $300. In 2002, net cash used in investing activities included $115, primarily relating to the purchase of two occupational health centers in New
Jersey.



Net cash used by financing activities was $3,515,
$1,729 and $1,533 in 2004, 2003 and 2002, respectively. In 2004, the Company increased its borrowings, after repayments, under its asset-based line of credit by $450,



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primarily to pay down its long-term debt obligations. In 2003, the Company increased its net borrowings under its line of credit by $3,061, primarily in
connection with the repurchase of its Preferred Stock in March 2003. In 2002, the Company paid down $198, net of advances, under its line of credit.



Under lease arrangements with certain leasing companies, the Company accumulates its fixed asset purchases until the value of those purchases reaches a
certain minimum amount before requesting a draw down from its lease lines. In 2004, 2003 and 2002, cash proceeds of $217, $139 and $766, respectively, were received under its lease lines, primarily to fund information systems equipment. The Company
used funds of $3,395, $1,181 and $1,205 in 2004, 2003 and 2002, respectively, for the payment of long-term debt and capital lease obligations. The use of funds in 2004 included the repayment of $2,025 of its subordinated promissory notes issued in
connection with the Companys repurchase of its Preferred Stock in 2003.



During the twelve months ended December 31, 2004, 2003 and 2002, the Company paid cash of $773, $845 and $886, respectively, relating to distributions to its joint venture partners. Distributions of cash in joint
ventures to the Company and its joint venture partners allow the Company access to its share of cash accumulated by the joint ventures which it can then use for general corporate purposes. The Company expects to continue to make distributions when
the cash balances in the joint ventures permit.



Subordinated Promissory Notes



In 2003, net
cash used by financing activities included $2,805 in connection with the Companys repurchase on March 24, 2003 of all of its outstanding Preferred Stock, namely 1,416,667 shares, for (i) $2,700 in cash at closing, (ii) subordinated promissory
notes (the Notes) in the aggregate principal amount of $2,700, and (iii) 1,608,247 shares of the Companys common stock. The Company incurred $105 of legal expenses in connection with this transaction. The Notes bore interest at
8.00% and were payable in three equal principal installments, together with interest accrued thereon, 12, 15, and 18 months after the date of issuance. In the event a principal payment is not made when due, the interest rate on the unpaid principal
and interest amount increases to 15.00% until the default is cured. A default under the Notes permits the Note holders to accelerate payment of all unpaid principal and interest. However, under the CapitalSource Credit Line, no amounts can be paid
to the Note holders if CapitalSource objects.



On March 24,
2004, the Company paid $450 of the $900 principal amount due together with accrued interest thereon of $36. The Company elected to enter into such default in order to conserve its cash resources for operating purposes. The Company has determined
that this default, under the terms of the Notes, does not constitute a cross default with respect to third party contractual obligations of the Company other than CapitalSource.



The default under the Notes created a cross default under the CapitalSource Credit Line. Accordingly, the Company obtained a
waiver from CapitalSource on March 30, 2004 which waives any similar cross default that occurs as a result of any additional partial payment of the Notes by the Company through March 31, 2005. Also on March 30, 2004, the Note holders agreed in
writing to not pursue any remedies related to the failure to make a full installment payment on the Notes through March 31, 2005.



On each of May 5, 2004 and June 18, 2004, the Company paid an additional $225 of principal, being the balance of the amount due on its Notes as of March
24, 2004, together with accrued interest thereon of $22 and $27, respectively. After the payment on June 18, 2004, the Company was no longer in default on the Notes. However, the Company elected not to pay $900 due on the Notes on June 24, 2004 and
so reverted to default, at which time the Company again began to accrue interest at 15.00% on the sum of the outstanding principal and the accrued interest to date.



On July 23, 2004, the Company paid $243 on the Notes, being the total interest accrued thereon as of that date. On each of
August 27, September 30, October 29, November 30 and December 22, 2004 the Company paid



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an additional $225 of principal together with accrued interest thereon of $26, $22, $16, $15 and $8, respectively. At December 31, 2004, the total amount
outstanding on the Notes was $678, of which $3 represented accrued interest.



In January 2005, the Company determined that, due primarily to a deterioration in the days sales outstanding in its accounts receivable and a consequent reduction in liquidity, it should conserve its cash and not pay
the balance outstanding on the Notes by March 31, 2005, the expiration date of the waiver granted by CapitalSource. Accordingly, effective March 7, 2005, the Company obtained from CapitalSource an extension of its waiver through December 31, 2005.
Also effective March 7, 2005, the Note holders agreed in writing to extend their original agreement dated March 24, 2004 to not pursue any remedies related to the failure to pay the Notes when due from March 31, 2005 to December 31, 2005.



Secured Credit Facility



On December 15, 2003, the Company entered into an agreement with
CapitalSource for a new three-year revolving line of credit (the CapitalSource Credit Line) of up to $7,250. The CapitalSource Credit Line is collateralized by present and future assets of certain operations of the Company. The borrowing
base consists of a certain percentage of eligible accounts receivable (as defined in the agreement). Under the terms of the agreement, the Company pays a commitment fee of 0.6% of the unused portion of the CapitalSource Credit Line and certain other
fees. The interest rate under the CapitalSource Credit Line is the prime rate plus 1.00%, subject to a floor of 4.00% on the prime rate.



The financial covenants under the CapitalSource Credit Line consist of a fixed charge ratio (defined as the ratio, for a defined period, of earnings
before interest, taxes, depreciation, amortization, and other non-cash charges and non-recurring gains and losses to the sum of payments on long-term debt, exclusive of the Notes, and capital leases, accrued interest and dividends, and capital
expenditures and income taxes paid in cash) of not less than 1.20 to 1.00, tested monthly on a trailing six months basis and minimum liquidity (defined as the sum of unrestricted cash on hand, the Companys pro rata share of cash on hand
in its joint ventures, and the unborrowed availability under the CapitalSource Credit Line) of $1,000. During the term of the agreement, the Company may enter into new capital lease obligations of up to $1,000, must obtain the prior approval of
CapitalSource before acquiring any new business, and is prohibited from the payment of dividends. The Company was in compliance with its financial covenants through December 31, 2004. As of and for the trailing six months ended December 31, 2004,
the Companys minimum liquidity was $2,166 and its fixed charge ratio was 1.68.



Based on its projections, the Company expects to be in compliance during 2005 with its covenants under the CapitalSource Credit Line, as amended by the waiver effective March 7, 2005. However, there can be no
assurance that the Company will meet its projections and, if it does not, it may not be in compliance with its covenants in the future.



Lease Lines



In March 2001, the Company entered into an agreement for an equipment facility (the Equipment Facility) of $750 to provide secured financing.
Borrowings under the facility are repayable over 42 months. The interest rate was based upon the 31-month Treasury Note (T-Note) plus a spread and fluctuated with any change in the T-Note rate up until the time of payment commencement
for each draw down.At December 31, 2004, the Company had utilized all of its Equipment Facility.



In August 2002, the Company entered into an agreement for collateralized equipment lease financing in the approximate amount of $1,600 (the
Collateralized Line). Borrowings under the facility are repayable over 36 months. The lease-rate factors were based upon the 36-month Treasury Note yield ten days prior to payment commencement for each draw down. At the end of the lease
term, the Company may purchase the equipment for



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its fair market value, renew the lease on a year-to-year basis at its then fair market value, or return the equipment with no further obligation. The Company
has utilized this lease line primarily to fund its equipment needs relating to the upgrade of its practice management system. At December 31, 2004, the Company had utilized all of its Collateralized Line.



In December 2003, the Company entered into an agreement for collateralized
equipment lease financing of approximately $330 (the Lease Line). The Company drew down $346 on the Lease Line during the six months ended June 30, 2004. In June 2004, the Lease Line was increased by $250 (the Lease Line
Extension), for a combined lease line of $596. The Lease Line Extension was available for equipment purchases made during the balance of 2004. Borrowings under both facilities are repayable over 60 months. The interest rate on the Lease Line
was initially set at certain percentage points above the Five Year Interest Rate Swap rate and subsequently changed to certain percentage points above the most recent weekly average rate of the Five Year Treasuries, both rates being struck at the
time of funding. The weighted average interest rate on the Lease Line is 8.90%. The interest rate on the Lease Line Extension is set at a fixed 5.05 percentage points above the most recent weekly average rate of the Five Year Treasuries at the time
of funding. In December 2004, the Company drew down $134 under the Lease Line Extension with an effective interest rate of 8.65%. At December 31, 2004, the Company had utilized $479 of the combined lease line.



The Company expects that its principal use of funds in the foreseeable future
will be for the repayment of the Notes, and for acquisitions and the formation of joint ventures, working capital requirements, other debt repayments, and purchases of property and equipment. The Company believes that the funds available to it under
the CapitalSource Credit Line together with cash generated from operations and other sources of funds it anticipates will be available to it, will be adequate to meet these projected needs. However, the Company recognizes that the level of financial
resources available to it is an important competitive factor and it will consider additional financing sources as appropriate, including raising additional equity capital on an on-going basis as market factors and its needs suggest, since additional
resources may be necessary to fund its expansion efforts.



Treasury Stock



On December 17, 2003, the
Company retired 100,502 shares of common stock being held as treasury stock, with the effect that such shares resumed the status of authorized but unissued shares of common stock of the Company.



Inflation



The Company does not believe that inflation had a significant impact on its results of operations during the last two years.
Further, inflation is not expected to adversely affect the Company in the future unless it increases substantially and the Company is unable to pass through the increases in its billings.



Seasonality



The Company is subject to the seasonal fluctuations that impact the various employers and their employees it serves. Historically, the Company has noticed
these impacts in portions of the first and fourth quarters. Traditionally, revenues are lower during these periods since patient visits decrease due to the occurrence of plant closings, vacations, holidays, a reduction in new employee hires, and
inclement weather. These activities also cause a decrease in drug and alcohol tests, medical monitoring services, and pre-employment examinations. Similar fluctuations occur during the summer months, but typically to a lesser degree than during the
first and fourth quarters. The Company attempts to ameliorate the impact of these fluctuations through adjusting staff levels.



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Professional Liability Insurance Risk



The Company maintains entity professional liability insurance coverage on a claims-made basis, shared professional liability
insurance coverage in the name of its full-time physicians, also on a claims-made basis, and an umbrella policy to supplement those coverages. In recent years, the Company, in line with the healthcare industry in general, has experienced significant
increases in the cost of such insurance. The annual cost to the Company for its professional liability and umbrella insurance increased 125% to $772 from $343 between 2002 and 2004 with similar coverage, despite the Companys assuming more of
the risk itself. In early 2005, however, the Company observed a softening in the market for such insurance coverage as new carriers entered the market, attracted in part by the higher premiums. Whether or not this moderately favorable climate
represents the beginning of a longer term trend or is merely a brief aberration is unknown. Maintenance of an appropriate level of professional liability insurance coverage is critical to the Company in order to attract and retain competent clinical
staff, the core of its business. While the Company currently believes that it will continue to be able to purchase such insurance, there can be no assurance that the cost of doing so will not have a serious negative effect on its operating results
since the price it can charge for many of its services is dependent upon fee schedules set by the states in which it operates and changes in those schedules generally lag the increase in medical-related costs.



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



The Company has considered the provisions of Financial Reporting Release No. 48, Disclosure of Accounting Policies for Derivative Financial Instruments
and Derivative Commodity Instruments, and Disclosure of Quantitative and Qualitative Information about Market Risk Inherent in Derivative Financial Instruments, Other Financial Instruments and Derivative Commodity Instruments. The Company had no
holdings of derivative financial or commodity-based instruments or other market risk sensitive instruments entered into for trading purposes at December 31, 2004. As described in the following paragraph, the Company believes that it currently has no
material exposure to interest rate risks in its instruments entered into for other than trading purposes.



Interest rates



The Companys balance sheet includes a revolving credit facility and lease lines which are subject to interest rate risk. The revolving credit
facility is priced at a floating rate of interest while the interest rates on the lease lines are subject to market fluctuations until a draw down is effected. As a result, at any given time a change in interest rates could result in either an
increase or decrease in the Companys interest expense. The Company performed a sensitivity analysis as of December 31, 2004 to assess the potential effect of a 100 basis point increase or decrease in interest rates and concluded that near-term
changes in interest rates should not materially affect the Companys consolidated financial position, results of operations, or cash flows.



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



The auditors reports, consolidated financial statements and financial statement schedule that are listed in the Index to the Consolidated Financial Statements and Financial Statement Schedule on page 44 hereof
are incorporated herein by reference.



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE



None.



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ITEM 9A. CONTROLS AND PROCEDURES



At the end of the period covered by this report, an evaluation of the effectiveness of the design and operation of the Companys disclosure controls and procedures was conducted under the supervision and with the participation of the
Chief Executive Officer and Chief Financial Officer. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Companys disclosure controls and procedures were adequate and designed to ensure
that information required to be disclosed by the Company in this report is recorded, processed, summarized and reported in a timely manner, including that such information is accumulated and communicated to management, including the Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.



There were no significant changes in internal controls or in other factors that could significantly affect internal controls, including any corrective
actions with regard to significant deficiencies and material weaknesses in internal controls, subsequent to the evaluation described above.



Reference is made to the Certifications of the Chief Executive Officer and Chief Financial Officer about these and other matters that are filed as
exhibits to this report.



ITEM 9B. OTHER INFORMATION



None.



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PART III



ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT



As of March 1, 2005, the executive officers and directors of the Company were:



|                              |  |     |  |                                                
|----------------------------- |  | --- |  | -----------------------------------------------
|Name                          |  | Age |  | Position with the Company                      
|                              |  |    
|John C. Garbarino             |  | 52  |  | President, Chief Executive Officer and Director
|                              |  |    
|Lynne M. Rosen                |  | 43  |  | Chief Operating Officer                        
|                              |  |    
|H. Nicholas Kirby             |  | 56  |  | Senior Vice President, Sales and Development   
|                              |  |    
|Keith G. Frey                 |  | 65  |  | Chief Financial Officer and Secretary          
|                              |  |    
|William B. Patterson, MD, MPH |  | 56  |  | Chief Medical Officer                          
|                              |  |    
|Edward L. Cahill              |  | 51  |  | Director                                       
|                              |  |    
|Kevin J. Dougherty            |  | 58  |  | Director                                       
|                              |  |    
|Angus M. Duthie               |  | 65  |  | Director                                       
|                              |  |    
|Steven W. Garfinkle           |  | 47  |  | Director                                       
|                              |  |    
|Donald W. Hughes              |  | 54  |  | Director                                       
|                              |  |    
|Frank H. Leone                |  | 60  |  | Director                                       



John C. Garbarino, a
founder of OH+R, was its President and Chief Executive Officer and a director since its formation in July 1992 and has been President, Chief Executive Officer and a director of the Company since the Merger. From February 1991 through June 1992, Mr.
Garbarino served as President and Chief Executive Officer of Occupational Orthopaedic Systems, Inc., a management company that operated Occupational Orthopaedic Center, Inc., a company which was the initial acquisition of OH+R. From 1985 to January
1991, Mr. Garbarino was associated in various capacities with Foster Management Company (Foster), a private investment company specializing in developing businesses to consolidate fragmented industries. In his association with Foster,
Mr. Garbarino was a general partner and consultant and held various senior executive positions (including Chief Executive Officer, Chief Operating Officer and Chief Financial Officer) in Chartwell Group Ltd., a Foster portfolio company
organized to consolidate through acquisitions the highly fragmented premium priced segment of the interior furnishings industry. Previously, Mr. Garbarino participated in the venture capital industry as a founder and general partner of Fairfield
Venture Partners, L.P. and as vice president and treasurer of Business Development Services, Inc., a venture capital subsidiary of General Electric Company. Mr. Garbarino is a Certified Public Accountant and previously worked at Ernst & Whinney
(a predecessor to Ernst & Young LLP).



Lynne M. Rosen, a
founder of OH+R, was appointed Chief Operating Officer of the Company in October 2001. She had served as Senior Vice President, Operations of the Company since March 1999. From 1997 to 1999, Ms. Rosen served as Senior Vice President, Planning and
Development. Ms. Rosen had previously held the positions of Vice President and Assistant Secretary since the Merger. From April 1988 through June 1992, Ms. Rosen held various positions with Occupational Orthopaedic Center, Inc., including
general manager. Ms. Rosen was an athletic trainer at the University of Pennsylvania Sports Medicine Center from 1986 to March 1988 and at the University of Rhode Island from 1985 to 1986.



H. Nicholas Kirby was appointed Senior Vice President, Sales and Development
of the Company in September 2003. Prior to that he served as Senior Vice President, Corporate Development from January 1998 and as Vice President, Corporate Development from June 1996. From August 1994 to June 1996, he was OH+Rs Director of
Operations in Maine. Mr. Kirby was a founder and President of LINK Performance and Recovery Systems, Inc. (LINK) from January 1986 until the sale of the company to OH+R in August 1994. LINK was an occupational health company
headquartered in Portland, Maine.



Keith G. Frey joined the
Company as Vice President, Administration in 2000 and was appointed Chief Financial Officer and Secretary in October 2000. Prior to joining the Company, Mr. Frey served as a part-time



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consultant to the Company from September 1999. From 1991 until its sale in 1998, he was a principal in IL International Inc., a contemporary lighting
company, and served as President of its North American operations. From 1987 to 1991, Mr. Frey was Chief Financial Officer of Chartwell Group Ltd., an interior furnishings company. From 1981 to 1987, he served as chief financial officer of two
start-up operations. Mr. Frey also spent thirteen years with General Mills, Inc. in senior financial positions in various consumer products divisions both in England and the United States. He is a Chartered Accountant.



William B. Patterson, MD, MPH, FACOEM was appointed Chief Medical Officer of
the Company in January 2003. He has also served as Chair of the Companys Medical Policy Board since September 1998. He served as Medical Director of the Companys Massachusetts operations from August 1997 when New England Health Center, a
company of which he was the founder and president was acquired by the Company, until June, 2000. Dr. Patterson is board certified in both internal medicine and occupational/environmental medicine. He has served as President of the New England
College of Occupational and Environmental Medicine and is on its Board of Directors. Dr. Patterson is as an assistant professor at the Boston University School of Public Health. He has a teaching appointment at the Harvard School of Public Health
and has been a consultant to many large corporations and government agencies in occupational and environmental medicine.



Edward L. Cahill has served as a director of the Company since November 1996. Mr. Cahill is a Managing Partner of HLM Venture Partners, a venture capital
firm specializing in healthcare companies. He was a founding partner of Camden Partners and its predecessor entity Cahill, Warnock & Co., LLC (Cahill, Warnock), a private equity firm. Prior to founding Cahill Warnock in July 1995,
Mr. Cahill had been a Managing Director at Alex. Brown & Sons Incorporated where, from 1986 through 1995, he headed the firms Health Care Investment Banking Group. Mr. Cahill is also a director of Animas Corporation, Johns Hopkins
Medicine, and several private companies.



Kevin J. Dougherty
served as a director of OH+R from July 1993 and has been a director of the Company since the Merger. Mr. Dougherty is currently a General Partner of The Venture Capital Fund of New England, a venture capital firm he joined in April 1986, and a
director of several private companies. Previously, he participated in the venture capital industry as Vice President of 3i Capital Corporation from 1985 to 1986, and as Vice President of Massachusetts Capital Resource Company from 1981 to 1985.
Prior to that, Mr. Dougherty served as a commercial banker at Bankers Trust Company and the First National Bank of Boston.



Angus M. Duthie served as a director of OH+R from June 1992 and has been a director of the Company since the Merger. Mr. Duthie is currently a General
Partner of Prince Ventures, L.P., a venture capital firm he co-founded in 1978, and a director of several private companies. Mr. Duthie has over 30 years of experience involving portfolio company management.



Steven W. Garfinkle has served as a director of the Company since July 1998.
Since November 2003, Mr. Garfinkle has served as Chief Executive Officer of Prism Education Group, Inc. an operator of post-secondary career schools. From January 2002 to October 2003, Mr. Garfinkle served as Chairman and Chief Executive
Officer of Advanced Care Solutions, Inc., a start-up medical staffing company. From November 1999 to December 2001, he served as President and Chief Executive Officer of Maestro Learning, Inc. From September 1998 to November 1999, he was a principal
in NorthStar Health Advisors LLC, a private healthcare consultancy group. Mr. Garfinkle served as Chairman and Chief Executive Officer of Prism Health Group Inc. (Prism) from 1992 until Prism was sold to Mariner Health, Inc. in 1997 and
from 1991 to 1992 was President of New England Health Strategies. From 1982 to 1991, Mr. Garfinkle served as Chief Operating Officer and in several other senior management positions for the Mediplex Group, Inc.



Donald W. Hughes has served as a director of the Company since December 1997
and is a General Partner and Chief Financial Officer of Cahill, Warnock. Prior to joining Cahill, Warnock in February 1997, Mr. Hughes had served as Vice President, Chief Financial Officer and Secretary of Capstone Pharmacy Services, Inc. (Nasdaq:
DOSE) from December 1995, and as Executive Vice President and Chief Financial Officer of Broventure Company Inc., a closely-held investment management company from July 1984 to November 1995. Mr. Hughes is also a director of Touchstone Applied
Science Associates, Inc. (OTCBB: TASA) and several private companies.



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Frank H. Leone has served as a director of the Company since July 1998. In 1985, Mr. Leone founded and
has since served as President/Chief Executive Officer of RYAN Associates, and he is the founder and Executive Director of the National Association of Occupational Health Professionals (N.A.O.H.P.). Mr. Leone is also the executive editor of four
leading occupational health periodicals: VISIONS, Partners, the Workers Compensation Managed Care Bulletin, and the Clinical Care Update.



The directors are elected to three-year terms or until their successors have
been duly elected and qualified. The terms of Angus M. Duthie, John C. Garbarino and Steven W. Garfinkle expire at the 2005 Annual Meeting of Stockholders. The terms of Edward L. Cahill and Donald W. Hughes expire in 2006. The terms of Kevin J.
Dougherty and Frank H. Leone expire in 2007.



Pursuant to the
terms of an Amended and Restated Stockholders Agreement (the Stockholders Agreement) dated as of March 24, 2003, certain of the Companys stockholders have agreed to vote all of their shares of Common Stock to elect
certain nominees to the Companys board of directors. The Stockholders Agreement provides that such nominees are to be determined as follows: (a) the Chief Executive Officer of the Company (presently, John C. Garbarino); (b) a person
designated by the OH+R Principal Stockholders, as defined in the Stockholders Agreement (presently, Kevin J. Dougherty); (c) two persons designated by Cahill, Warnock Strategic Partners Fund, L.P. (presently, Edward L. Cahill and Donald W.
Hughes); (d) a person designated by the Chief Executive Officer (presently, Angus M. Duthie); and (e) two persons unaffiliated with the management of the Company (the Independent Directors) and mutually agreeable to all of the other
directors (presently, Steven W. Garfinkle and Frank H. Leone).



Executive officers serve at the discretion of the Companys board of directors. There are no family relationships among the executive officers and directors nor are there any arrangements or understandings between any executive officer
and any other person pursuant to which the executive officer was selected.



Other Key Officers



As of March 1, 2005, other
key contributing officers of the Company were:



|                  |  |     |  |                                              
|----------------- |  | --- |  | ---------------------------------------------
|Name              |  | Age |  | Position with the Company                    
|Mark S. Flieger   |  | 48  |  | Senior Vice President, Information Services  
|                  |  |    
|Janice M. Goguen  |  | 41  |  | Vice President, Finance and Controller       
|                  |  |    
|Patti E. Walkover |  | 50  |  | Vice President, Reimbursement and Contracting
|                  |  |    
|Mary E. Kenney    |  | 56  |  | Vice President, Operations                   



Mark S. Flieger joined
the Company as Vice President, Information Services in July 2000 and in December 2001 was appointed Senior Vice President, Information Services. From 1995 to 2000, he held leadership positions with Harvard Pilgrim Health Care, including Senior
Director, Information Technology Project Office, Y2K Program Manager, and Manager, IT Services for a five center primary care practice in Rhode Island. From 1992 to 1995, Mr. Flieger served as Director of Information Systems and Claims for Health
Advantage of Rhode Island, Inc., a Preferred Provider Organization of 2,000 providers and 13 hospitals serving over 60,000 members in Southern New England. Other prior positions include Programmer Analyst and then Manager of Computer Training and
Support at Health Systems, Inc. from 1987 to 1992. From 1983 to 1987 he served as a Systems Analyst for the Center for Health Promotion and Environmental Disease Prevention within the Massachusetts Department of Public Health.



Janice M. Goguen has served Vice President, Finance and Controller of the
Company since May 2000. Previously, she had served as Corporate Controller since joining the Company in October 1997. From November 1992 through October 1997, Ms. Goguen was Corporate Controller for AdvantageHEALTH Corporation, which merged with
HEALTHSOUTH Corporation. From August 1985 to November 1992, Ms. Goguen was employed by Ernst & Young, LLP where she planned, managed and executed audits of publicly held, privately owned, and non-profit companies. Ms. Goguen is a Certified
Public Accountant.



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Patti E. Walkover was appointed Vice President, Reimbursement and Contracting of the Company in January
2003. She joined the Company in March 1999 as Vice President, Network Operations. From April 1996 to February 1999, Ms. Walkover served as Vice President, New Markets and Vice President of Operations, respectively, for Healthcare First, a regionally
based workers compensation managed care company, where she was responsible for network development and operations in New England and New York. Healthcare First was acquired by Gates McDonald in October 1998. Ms. Walkover was Director of
Occupational Health and Workers Compensation Managed Care at VHA East in Philadelphia from February 1993 to March 1996 where she developed the TeamWorks occupational health plan. Her prior positions include Program Director for the
Occupational Health Center at Chester County Hospital (January 1992 to January 1993), and Administrative Director at the Crozier Center for Occupational Health (November 1989 to December 1991), a multi-site occupational health program in greater
Philadelphia.



Mary E. Kenney was appointed Vice President,
Operations of the Company in October 2004. Prior to that she served as Vice President, Northeast Operations from October 2001. She joined the Company in January 1995 as Manager of Clinical Services, Maine, and served as Regional Operations Director,
Maine from May 1998 through September 2001. From May 1990 through December 1994, Ms. Kenney served as Executive Director for the Center for Health Promotion, a division of Maine Medical Center, the largest single provider of occupational medical
services in the state of Maine. Other leadership positions included Program Director for Health Promotion and Cardiac Rehabilitation for Geisinger Medical Center in Pennsylvania. In these positions, Ms. Kenney was responsible for the start-up and
development of the programs, as well as financial and operational oversight.



Audit Committee Financial Expert



The board of
directors of the Company has determined that the chair of the audit committee, Donald W. Hughes, has the attributes of an audit committee financial expert pursuant to the regulations of the SEC. However, Mr. Hughes may not be considered
independent pursuant to the listing standards of the Nasdaq Stock Market, if the Companys securities were so listed (which they are not), since Mr. Hughes is a general partner of a stockholder of the Company that owns in excess of
10% of the Companys Common Stock. Stockholders should understand that this designation is a disclosure requirement of the SEC related to Mr. Hughes experience and understanding with respect to certain accounting and auditing
matters. The designation does not impose on Mr. Hughes any duties, obligations or liability that are greater than are generally imposed on him as a member of the audit committee and board of directors, and his designation as an audit committee
financial expert pursuant to this SEC requirement does not affect the duties, obligations or liability of any other member of the audit committee or board of directors.



Code of Ethics



The Company has a code of conduct applicable to all employees, including all officers and its independent directors who are not employees of the company,
with respect to their Company-related activities. Among other directives, this code of conduct contains guidelines designed to deter wrongdoing and to promote honest and ethical conduct and compliance with applicable laws and regulations. The full
text of the Companys code of conduct may be obtained without charge by an oral or written request to the Companys chief financial officer at the Companys principal executive offices.



Section 16(a) Beneficial Ownership Reporting Compliance



Section 16(a) of the Securities Exchange Act of 1934, as amended (the
Act), requires the Companys executive officers, as defined for the purposes of Section 16(a) of the Act, and directors and persons who beneficially own more than ten percent of the Companys Common Stock to file reports of
ownership and changes in ownership with the SEC. Except for the late filing of Forms 4 with respect to the purchase of Common Stock by H. Nicholas Kirby in June 2004 and the sale of Common Stock in June, August, September and November 2004 by
William B. Patterson, and based solely on reports and other information submitted by the executive officers, directors and such beneficial owners, the Company believes that during the fiscal year ended December 31, 2004, all such reports were timely
filed.



34



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##### Table of Contents

ITEM 11. EXECUTIVE COMPENSATION



Summary
Compensation



The following table sets forth certain
information regarding the compensation paid by the Company to the Companys Chief Executive Officer, and the other executive officers whose salary and bonus exceeded $100,000 in 2004 (together the Named Executive Officers) for
services rendered in all capacities to the Company and its subsidiaries for the fiscal years ended December 31, 2004, 2003 and 2002.



SUMMARY COMPENSATION TABLE



|                                                                                |  |              |  |                     |                       |                                 |   |                           |  |                     |  |   |                   
|------------------------------------------------------------------------------- |  | ------------ |  | ------------------- | --------------------- | ------------------------------- | - | ------------------------- |  | ------------------- |  | - | ------------------
|                                                                                |  |              |  |                     |                       | Long TermCompensationAwards     |   |                          
|Name and Principal Position                                                     |  | Year         |  | Annual Compensation |                       | SecuritiesUnderlyingOptions (#) |   | All OtherCompensation (1)
|                                                                                |  | Salary       |  | Bonus               |                       |                                
|John C. Garbarino President and Chief Executive Officer                         |  | 200420032002 |  | $                   | 232,000226,646230,000 |                                 | $ | 27,84010,000             |  | 28,31926,200100,000 |  | $ | 14,07713,48313,037
|Lynne M. Rosen Chief Operating Officer                                          |  | 200420032002 |  |                     | 187,000182,685185,000 |                                 |   | 22,44010,000             |  | 22,08039,500       |  |   | 6,1464,4613,786   
|William B. Patterson, MD, MPH Chief Medical Officer, Chair-Medical Policy Board |  | 200420032002 |  |                     | 187,000182,685185,000 |                                 |   | 22,44010,000             |  | 5,00010,000        |  |   | 10,3159,6508,515  
|H. Nicholas Kirby Senior Vice President, Sales and Development                  |  | 200420032002 |  |                     | 162,000158,262160,000 |                                 |   | 19,44010,000             |  | 28,49610,000       |  |   | 5,1994,2244,473   
|Keith G. Frey Chief Financial Officer and Secretary                             |  | 200420032002 |  |                     | 162,000158,262160,000 |                                 |   | 19,44010,000             |  | 5,00015,00020,000   |  |   | 11,5069,7469,741  



---

|(1) | Consists of the Companys matching contributions under its 401(k) Plan, car allowances, and group life and disability insurance premiums.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------



35



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##### Table of Contents

Option Grants



The following table sets forth information with respect to non-qualified stock options granted to the Named Executive Officers during the fiscal year
ended December 31, 2004.



OPTIONS GRANTED DURING THE YEAR
ENDED DECEMBER 31, 2004



|                              |  |                                                 |  |                                                                                                  |   |    |                        |      |                |          |  |   |        |  |   |        
|----------------------------- |  | ----------------------------------------------- |  | ------------------------------------------------------------------------------------------------ | - | -- | ---------------------- | ---- | -------------- | -------- |  | - | ------ |  | - | -------
|                              |  | Individual Grants                               |  | Potential Realizable Value atAssumed Annual Rates of Stock Price Appreciation For Option
Term(2)
|                              |  | Number ofSecuritiesUnderlyingOptions Granted(1) |  | % of TotalOptionsGranted toEmployeesin 2004                                                      |   |    | ExercisePricePer Share |      | ExpirationDate |         
|Name                          |  |                                                 |  |                                                                                                  |   | 5% |                        | 10% 
|John C. Garbarino             |  | 28,319                                          |  | 21.0                                                                                             | % |    | $                      | 3.90 |                | 12/16/14 |  | $ | 69,458 |  | $ | 176,019
|                              |  |                                                 |  |                                                                                                  |   |   
|Lynne M. Rosen                |  | 10,000                                          |  | 7.4                                                                                              |   |    |                        | 1.30 |                | 2/03/14  |  |   | 8,176  |  |   | 20,719 
|                              |  |                                                 |  |                                                                                                  |   |   
|                              |  | 12,080                                          |  | 9.0                                                                                              |   |    |                        | 3.90 |                | 12/16/14 |  |   | 29,628 |  |   | 75,084 
|                              |  |                                                 |  |                                                                                                  |   |   
|William B. Patterson, MD, MPH |  |                                                |  |                                                                                                 |   |    |                        |     |                |         |  |   |       |  |   |       
|                              |  |                                                 |  |                                                                                                  |   |   
|H. Nicholas Kirby             |  | 5,000                                           |  | 3.7                                                                                              |   |    |                        | 1.30 |                | 2/03/14  |  |   | 4,088  |  |   | 10,359 
|                              |  |                                                 |  |                                                                                                  |   |   
|                              |  | 23,496                                          |  | 17.4                                                                                             |   |    |                        | 3.90 |                | 12/16/14 |  |   | 57,628 |  |   | 146,042
|                              |  |                                                 |  |                                                                                                  |   |   
|Keith G. Frey                 |  | 5,000                                           |  | 3.7                                                                                              |   |    |                        | 3.90 |                | 12/16/14 |  |   | 12,263 |  |   | 31,078 

---

|(1) | Options granted vest ratably over 4 years on each of the first four anniversary dates of the grant date.
|--- | --------------------------------------------------------------------------------------------------------

|(2) | The dollar amounts under these columns are the result of calculations assuming 5% and 10% growth rates as set by the Securities and Exchange Commission and, therefore, are not
intended to forecast future price appreciation, if any, of the Companys Common Stock.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Option Exercises and Year-End Values



The following table sets forth information concerning option holdings as of December 31, 2004 with respect to the Named Executive Officers.



AGGREGATED OPTIONS EXERCISED DURING THE YEAR ENDED DECEMBER 31, 2004

AND VALUE OF UNEXERCISED OPTIONS AT DECEMBER 31, 2004



|                               |  |                              |             |               |               |                                                                 |             |                                                         |               |  |   |         |  |   |        
|------------------------------ |  | ---------------------------- | ----------- | ------------- | ------------- | --------------------------------------------------------------- | ----------- | ------------------------------------------------------- | ------------- |  | - | ------- |  | - | -------
|Name                           |  | SharesAcquiredOnExercise (#) |             | ValueRealized |               | Number of SecuritiesUnderlying UnexercisedOptions at FY-End (#) |             | Value of Unexercised In-The-Money Options at FY-End (1)
|                               |  |                              | Exercisable |               | Unexercisable |                                                                 | Exercisable |                                                         | Unexercisable
|John C. Garbarino              |  |                             |             | $             |              |                                                                 | 213,619     |                                                         | 104,219       |  | $ | 549,322 |  | $ | 257,549
|                               |  |                              |             |               |               |                                                                
|Lynne M. Rosen                 |  |                             |             |               |              |                                                                 | 96,830      |                                                         | 46,830        |  |   | 254,543 |  |   | 116,923
|                               |  |                              |             |               |               |                                                                
|William B. Patterson, MD, MPH. |  |                             |             |               |              |                                                                 | 27,313      |                                                         | 6,437         |  |   | 54,400  |  |   | 19,125 
|                               |  |                              |             |               |               |                                                                
|H. Nicholas Kirby              |  |                             |             |               |              |                                                                 | 54,746      |                                                         | 34,246        |  |   | 97,366  |  |   | 48,473 
|                               |  |                              |             |               |               |                                                                
|Keith G. Frey                  |  |                             |             |               |              |                                                                 | 68,750      |                                                         | 31,250        |  |   | 172,338 |  |   | 82,813 

---

|(1) | Based on the fair market value of the Companys common stock as of December 31, 2004 of $4.50 minus the exercise price of options.
|--- | ----------------------------------------------------------------------------------------------------------------------------------



36



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##### Table of Contents

Employment Agreements



John C. Garbarino has an employment agreement with the Company dated June 6, 1996. The term of the agreement is two years from such date and renews
automatically for successive one-year periods until terminated. The agreement provides for an annual salary of $180,000, subject to increase on an annual basis in the discretion of the board of directors, and bonus as may be determined by the
Compensation Committee of the board of directors. Mr. Garbarino is subject to a covenant not to compete with the Company for six months after the termination of his employment. If the Company terminates the agreement without cause (as
defined in the agreement), or if Mr. Garbarino becomes incapacitated, or if Mr. Garbarino resigns from the Company for just cause (as defined in the agreement), then the Company is obligated to pay to Mr. Garbarino six months base
salary in consideration of his covenant not to compete.



Director
Compensation



Except for the Independent Directors and,
commencing January 1, 2004, Angus M. Duthie, the Companys directors do not receive any cash compensation for service on the Companys board of directors or any committee thereof, but all directors are reimbursed for expenses actually
incurred in connection with attending meetings of the Companys board of directors and any committee thereof. In 2004, each of the Independent Directors and Angus M. Duthie received $2,000 for each meeting of the Companys board of
directors he attended.



Upon election to the Companys
board of directors, each Independent Director was granted a non-qualified stock option to purchase 20,000 shares of the Companys Common Stock.



The following table sets forth the non-qualified stock options granted by the Company during the fiscal year ended December 31, 2004 to each director who
was not an employee.



|                     |  |                                                           |  |                        |      |                |         
|-------------------- |  | --------------------------------------------------------- |  | ---------------------- | ---- | -------------- | --------
|Name                 |  | Number of SecuritiesUnderlying OptionsGranted in 2004 (1) |  | ExercisePricePer Share |      | ExpirationDate
|Edward L. Cahill     |  | 3,200                                                     |  | $                      | 3.90 |                | 12/16/14
|                     |  |                                                           | 
|Kevin J. Dougherty   |  | 3,200                                                     |  |                        | 3.90 |                | 12/16/14
|                     |  |                                                           | 
|Angus M. Duthie      |  | 6,200                                                     |  |                        | 3.90 |                | 12/16/14
|                     |  |                                                           | 
|Steven W. Garfinkle. |  | 5,000                                                     |  |                        | 3.90 |                | 12/16/14
|                     |  |                                                           | 
|Donald W. Hughes     |  | 2,000                                                     |  |                        | 3.90 |                | 12/16/14
|                     |  |                                                           | 
|Frank H. Leone       |  | 5,000                                                     |  |                        | 3.90 |                | 12/16/14

---

|(1) | The exercise price of all such option grants was the fair market value of the Companys Common Stock on the date of grant. All such options vest ratably over four years on each
of the first four anniversary dates of the dates of grant and are exercisable for a period of ten years.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



37



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##### Table of Contents

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS



The following table sets forth certain information regarding beneficial ownership of the Companys Common Stock as of March 1, 2005 by (i) each
person known by the Company to own beneficially more than five percent of the Common Stock of the Company, (ii) each director and nominee for director of the Company, (iii) each Executive Officer of the Company named in the Summary Compensation
Table and (iv) all directors and executive officers of the Company as a group. Except as otherwise indicated, all shares are owned directly. Except as indicated by footnote, and subject to community property laws where applicable, the Company
believes that the persons named in the table have sole voting and investment power with respect to all shares of Common Stock indicated.



|                                                                                                                          |  |                         |  |                            |  
|------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- |  | -------------------------- | -
|Name and Address of Beneficial Owner                                                                                      |  | SharesBeneficiallyOwned |  | Percent ofTotalVotingPower |  
|Cahill, Warnock Strategic Partners Fund, L.P. (1) (2) One South Street, Suite 2150 Baltimore, MD 21202                    |  | 770,871                 |  | 24.9                       | %
|                                                                                                                          |  |                        
|Venrock Entities (1) (3) 30 Rockefeller Plaza, Room 5508 New York, NY 10112                                               |  | 269,123                 |  | 8.7                        | %
|                                                                                                                          |  |                        
|Bank of America Corporation (1) (4) 100 North Tryon Street, Floor 25 Bank of America Corporate Center Charlotte, NC 28255 |  | 229,159                 |  | 7.4                        | %
|                                                                                                                          |  |                        
|Pantheon Global PCC Limited (5) Transamerica Center 600 Montgomery Street, 23rdFloor San Francisco, CA 94111              |  | 196,775                 |  | 6.4                        | %
|                                                                                                                          |  |                        
|The Venture Capital Fund of New England III, L.P. (1) (6) 30 Washington Street Wellesley Hills, MA 02481                  |  | 191,319                 |  | 6.2                        | %
|                                                                                                                          |  |                        
|Asset Management Associates 1989, L.P. (1) (7) 480 Cowper Street, 2ndFloor Palo Alto, CA 94301                            |  | 184,954                 |  | 6.0                        | %
|                                                                                                                          |  |                        
|John C. Garbarino (1) (8) 175 Derby Street, Suite 36 Hingham, MA 02043                                                    |  | 292,238                 |  | 8.6                        | %
|                                                                                                                          |  |                        
|Lynne M. Rosen (1) (9)                                                                                                    |  | 122,111                 |  | 3.8                        | %
|                                                                                                                          |  |                        
|Keith G. Frey (10)                                                                                                        |  | 68,750                  |  | 2.2                        | %
|                                                                                                                          |  |                        
|H. Nicholas Kirby (11)                                                                                                    |  | 67,496                  |  | 2.1                        | %
|                                                                                                                          |  |                        
|William B. Patterson, MD, MPH (12)                                                                                        |  | 31,613                  |  | 1.0                        | %
|                                                                                                                          |  |                        
|Edward L. Cahill (13)                                                                                                     |  | 27,000                  |  | *                          |  
|                                                                                                                          |  |                        
|Kevin J. Dougherty (14)                                                                                                   |  | 27,000                  |  | *                          |  
|                                                                                                                          |  |                        
|Angus M. Duthie (15)                                                                                                      |  | 48,430                  |  | 1.5                        | %
|                                                                                                                          |  |                        
|Steven W. Garfinkle (16)                                                                                                  |  | 37,500                  |  | 1.2                        | %
|                                                                                                                          |  |                        
|Donald W. Hughes (17)                                                                                                     |  | 26,200                  |  | *                          |  
|                                                                                                                          |  |                        
|Frank H. Leone (18)                                                                                                       |  | 37,500                  |  | 1.2                        | %
|                                                                                                                          |  |                        
|All directors and executive officers as a group (11 persons) (19)                                                         |  | 785,838                 |  | 20.3                       | %

---

|* | Less than 1%
|- | ------------



38



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##### Table of Contents

|(1) | Each of the stockholders who is a party to a certain Amended and Restated Stockholders Agreement dated as of March 24, 2003, by and among the Company and certain of its
stockholders (the Stockholders Agreement) may be deemed to share voting power with respect to, and therefore may be deemed to beneficially own, all of the shares of the Common Stock subject to the Stockholders Agreement. Such
stockholders disclaim such beneficial ownership.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Edward L. Cahill and Donald W. Hughes, directors of the Company, are General Partners of Cahill, Warnock Strategic Partners, L.P., the General Partner of Cahill, Warnock Strategic
Partners Fund, L.P. David L. Warnock is also a General Partner of Cahill, Warnock Strategic Partners, L.P. The General Partners of Cahill, Warnock Strategic Partners, L.P. share voting and investment power with respect to the shares held by Cahill,
Warnock Strategic Partners Fund, L.P. and may be deemed to be the beneficial owners of such shares. Each of the General Partners of Cahill, Warnock Strategic Partners, L.P. disclaims beneficial ownership of the shares held by Cahill, Warnock
Strategic Partners Fund, L.P.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Consists of 130,861 shares of Common Stock held by Venrock Associates and 138,262 shares of Common Stock held by Venrock Associates II, L.P. Michael C. Brooks, Eric S. Copeland,
Anthony B. Evnin, Bryan E. Roberts, Ray A. Rothrock, Anthony Sun, and Michael F. Tyrell are General Partners of Venrock Associates and of Venrock Associates II, L.P. The General Partners of Venrock Associates and of Venrock Associates II, L.P. share
voting and investment power with respect to the shares held by Venrock Associates and by Venrock Associates II, L.P. and may be deemed to be the beneficial owners of such shares. Each of the General Partners of Venrock Associates and Venrock
Associates II, L.P. disclaims beneficial ownership of the shares held by Venrock Associates and Venrock Associates II, L.P.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Consists of 115,636 shares of Common Stock reported as beneficially owned in Schedule 13G dated August 10, 2004 as filed with the SEC by Bank of America Corporation and its
affiliates on behalf of its subsidiary, BancBoston Ventures Inc., and 113,523 shares of Common Stock held in the name of BancBoston Ventures Inc.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Reported as beneficially owned in Schedule 13G dated July 10, 2000 as filed with the SEC to report shares held by Pantheon Global PCC Limited for its own account for the benefit of
its shareholders, Pantheon Global Secondary Fund, L.P., Pantheon Global Secondary Fund, Ltd. and Pantheon International Participations, PLC.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Kevin J. Dougherty, a director of the Company, is a General Partner of FH&Co. III, L.P., the General Partner of The Venture Capital Fund of New England III, L.P. Richard A.
Farrell, Harry J. Healer, Jr. and William C. Mills III are also General Partners of FH&Co. III, L.P. The General Partners of FH&Co. III, L.P. share voting and investment power with respect to the shares held by The Venture Capital Fund of
New England III, L.P. and may be deemed to be the beneficial owners of such shares. Each of the General Partners of FH&Co. III, L.P. disclaims beneficial ownership of the shares held by The Venture Capital Fund of New England III, L.P.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | Craig C. Taylor, Franklin P. Johnson Jr., John F. Shoch and W. Ferrell Sanders are General Partners of AMC Partners 89, L.P., the General Partner of Asset Management Associates
1989, L.P. The General Partners of AMC Partners 89, L.P. share voting and investment power with respect to the shares held by Asset Management Associates 1989, L.P. and may be deemed to be the beneficial owners of such shares. Each of the General
Partners of AMC Partners 89, L.P. disclaims beneficial ownership of the shares held by Asset Management Associates 1989, L.P. except to the extent of any pecuniary interest therein.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(8) | Includes 220,169 shares of Common Stock issuable upon the exercise of options that are exercisable within 60 days of March 1, 2005.
|--- | -----------------------------------------------------------------------------------------------------------------------------------

|(9) | Includes 99,330 shares of Common Stock issuable upon the exercise of options that are exercisable within 60 days of March 1, 2005.
|--- | ----------------------------------------------------------------------------------------------------------------------------------

|(10) | Consists entirely of shares of Common Stock issuable upon the exercise of options that are exercisable within 60 days of March 1, 2005.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------

|(11) | Includes 55,996 shares of Common Stock issuable upon the exercise of options that are exercisable within 60 days of March 1, 2005.
|---- | ----------------------------------------------------------------------------------------------------------------------------------

|(12) | Includes 27,313 shares of Common Stock issuable upon the exercise of options that are exercisable within 60 days of March 1, 2005.
|---- | ----------------------------------------------------------------------------------------------------------------------------------



39



---

##### Table of Contents

|(13) | Consists entirely of shares of Common Stock issuable upon the exercise of options that are exercisable within 60 days of March 1, 2005. Does not include 770,871 shares of Common
Stock held by Cahill, Warnock Strategic Partners Fund, L.P. (see Note 2) and 42,713 shares of Common Stock held by Strategic Associates, L.P. Mr. Cahill is a General Partner of Cahill, Warnock Strategic Partners, L.P., the General Partner of each of
Cahill, Warnock Strategic Partners Fund, L.P. and of Strategic Associates, L.P. Mr. Cahill disclaims any beneficial ownership of the shares held by Cahill, Warnock Strategic Partners Fund, L.P. and Strategic Associates, L.P.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(14) | Consists entirely of shares of Common Stock issuable upon the exercise of options that are exercisable within 60 days of March 1, 2005. Mr. Dougherty disclaims any beneficial
ownership in the shares held by The Venture Capital Fund of New England III, L.P. See Note 6.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(15) | Includes 27,750 shares of Common Stock issuable upon the exercise of options that are exercisable within 60 days of March 1, 2005.
|---- | ----------------------------------------------------------------------------------------------------------------------------------

|(16) | Consists entirely of shares of Common Stock issuable upon the exercise of options that are exercisable within 60 days of March 1, 2005.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------

|(17) | Consists entirely of shares of Common Stock issuable upon the exercise of options that are exercisable within 60 days of March 1, 2005. Does not include 770,871 shares of Common
Stock held by Cahill, Warnock Strategic Partners Fund, L.P. (see Note 2) and 42,713 shares of Common Stock held by Strategic Associates, L.P. Mr. Hughes is a General Partner of Cahill, Warnock Strategic Partners, L.P., the General Partner of each of
Cahill, Warnock Strategic Partners Fund, L.P. and of Strategic Associates, L.P. Mr. Hughes disclaims any beneficial ownership of the shares held by Cahill, Warnock Strategic Partners Fund, L.P. and Strategic Associates, L.P.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(18) | Consists entirely of shares of Common Stock issuable upon the exercise of options that are exercisable within 60 days of March 1, 2005.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------

|(19) | Includes an aggregate of 654,508 shares of Common Stock issuable upon the exercise of options that are exercisable within 60 days of March 1, 2005. Does not include an aggregate of
1,004,903 shares of Common Stock with respect to which certain directors disclaim beneficial ownership. See Notes 2, 6, 13, 14 and 17.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



40



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##### Table of Contents

EQUITY COMPENSATION PLAN INFORMATION



|                                                              |  |                                                                                          |  |                                                                          |      |                                                                                                                                        |        
|------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------ | ---- | -------------------------------------------------------------------------------------------------------------------------------------- | -------
|Plan Category                                                 |  | Number of SecuritiesTo Be Issued Upon Exercise ofOutstanding Options,Warrants and Rights |  | Weighted-averageExercise Price ofOutstanding Options,Warrants and Rights |      | Number of SecuritiesRemaining Available ForFuture Issuance UnderEquity Compensation Plans(Excluding SecuritiesReflected in
Column (a))
|                                                              |  | (a)                                                                                      |  | (b)                                                                      |      | (c)                                                                                                                                   
|Equity compensation plans approved by security holders (1)(2) |  | 1,367,547                                                                                |  | $                                                                        | 2.27 |                                                                                                                                        | 105,766
|Equity compensation plans not approved by security holders    |  |                                                                                         |  |                                                                          |     |                                                                                                                                        |       
|                                                              |  |                                                                                          |  |                                                                          |      |                                                                                                                                        |        
|Total                                                         |  | 1,367,547                                                                                |  | $                                                                        | 2.27 |                                                                                                                                        | 105,766

---

|(1) | Includes the Companys 1993, 1996, and 1998 Stock Plans. The 1998 Stock Plan, as approved by the Companys stockholders, reserved 150,000 shares of the Companys
Common Stock for the granting of non-qualified stock options, incentive stock options, and stock appreciation rights. The Companys board of directors has subsequently approved, without stockholder approval, the reservation of an additional
870,000 shares of the Companys Common Stock under the 1998 Stock Plan for the granting of non-qualified stock options and stock appreciation rights.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Each of the Companys Stock Plans expires ten years from inception, after which no new options may be granted from them. Since the expiration of the 1993 Stock Plan in February
2003, options to purchase 52,052 shares under the 1993 Stock Plan have been forfeited by former employees and are no longer available for re-issuance.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



No relationships or related transactions exist that require reporting by the Company for the year ended December 31, 2004.



ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES



The following table presents fees for professional services rendered by PricewaterhouseCoopers LLP (PwC) for the audit of the Companys annual financial statements for the years ended December 31,
2004 and 2003 and fees billed for audit-related services, tax services and all other services rendered by PwC for the years ended December 31, 2004 and 2003.



|                   |  |      |     |      |   |    
|------------------ |  | ---- | --- | ---- | - | ---
|(in thousands)     |  | 2004 |     | 2003
|Audit fees         |  | $    | 190 |      | $ | 167
|Audit-related fees |  |      |    |      |   |   
|                   |  |      |     |      |   |    
|                   |  |      | 190 |      |   | 167
|Tax fees (1)       |  |      | 56  |      |   | 57 
|All other fees     |  |      |    |      |   |   
|                   |  |      |     |      |   |    
|                   |  | $    | 246 |      | $ | 224
|                   |  |      |     |      |   |    

---

|(1) | Primarily tax compliance services, including U.S. federal and state income tax returns.
|--- | ---------------------------------------------------------------------------------------



All audit related services, tax services and other services were pre-approved by the Companys audit committee, which
concluded that the provision of such services by PwC was compatible with the maintenance of that firms independence in the conduct of its auditing functions. The Audit Committee Charter provides for pre-approval of audit, audit-related and tax
services specifically described by the audit committee on an annual basis. In addition, individual engagements anticipated to exceed pre-established thresholds must be separately approved.



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##### Table of Contents

PART IV



|ITEM | 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|---- | ----------------------------------------------



(a) Financial Statements and Schedules



The auditors report, consolidated financial statements and financial statement schedule listed in the Index to the Consolidated Financial Statements
and Financial Statement Schedule on page 44 hereof are filed as part of this report, commencing on page 45 hereof.



Schedule II Valuation and Qualifying Accounts



(b) Exhibits



|      |     |  |                                                                                                                                                                                                                                                                                                                                                                           
|----- | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.01  |     |  | Restated Certificate of Incorporation filed with the Delaware Secretary of State on April 21, 2003 (Filed as Exhibit 3.01 to Form 10-Q for the quarterly period ended March 31, 2003, File No.
0-21428, and incorporated by reference herein).                                                                                                                            
|      |    
|3.02  |     |  | Restated Bylaws, as amended (Filed as the exhibit stated in Form 10-K for the fiscal year ended December 31, 1996, File No. 0-21428, and incorporated by reference herein).                                                                                                                                                                                               
|      |    
|4.01  |     |  | Form of Common Stock Certificate (Filed as Exhibit 4.01 to Form 10-Q for the quarterly period ended June 30, 1996, File No. 0-21428, and incorporated by reference herein).                                                                                                                                                                                               
|      |    
|4.02  | (a) |  | Amended and Restated Revolving Credit and Security Agreement dated December 15, 2003 by and between the Company, CM Occupational Health, Limited Liability Company and OHR-SSM, LLC, and
CapitalSource Finance LLC (Lender) (Filed as Exhibit 4.02(a) to Form 10-K for the fiscal year ended December 31, 2003, File No. 0-21428, and incorporated by reference herein).
|      |    
|4.02  | (b) |  | Amended and Restated Revolving Note by and between the Company, CM Occupational Health, Limited Liability Company and OHR-SSM, LLC, and Lender to pay Lender $7,250,000 (Filed as Exhibit
4.02(b) to Form 10-K for the fiscal year ended December 31, 2003, File No. 0-21428, and incorporated by reference herein).                                                      
|      |    
|4.02  | (c) |  | Waiver dated as of March 7, 2005 under the Amended and Restated Revolving Credit and Security Agreement dated December 15, 2003 by and between the Company, CM Occupational Health, Limited
Liability Company and OHR-SSM, LLC and Lender.*                                                                                                                               
|      |    
|10.01 |     |  | Employment Agreement by and between the Company and John C. Garbarino dated as of June 6, 1996 (Filed as Exhibit 10.02 to Form 10-Q for the quarterly period ended June 30, 1996, File No.
0-21428, and incorporated by reference herein).                                                                                                                                
|      |    
|10.02 | (a) |  | Series A Convertible Preferred Stock Repurchase Agreement among the Company and certain security holders dated as of March 24, 2003.**                                                                                                                                                                                                                                    
|      |    
|(b    | )   |  | Amended and Restated Stockholders Agreement among the Company and certain security holders dated as of March 24, 2003.**                                                                                                                                                                                                                                                 
|      |    
|(c    | )   |  | Amended and Restated Registration Rights Agreement among the Company and certain security holders dated as of March 24, 2003.**                                                                                                                                                                                                                                           
|      |    
|(d    | )   |  | Promissory Notes dated March 24, 2003 payable to certain security holders.**                                                                                                                                                                                                                                                                                              
|      |    
|(e    | )   |  | Subordination Agreement dated March 24, 2003 by and among the Company, certain security holders, and DVI Business Credit Corporation and DVI Financial Services Inc, which has been assigned to
Lender.**                                                                                                                                                                 
|      |    
|(f    | )   |  | Forbearance dated as of March 7, 2005 by holders of Promissory Notes.*                                                                                                                                                                                                                                                                                                    



42



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|      |     |  |                                                                                                                                                                                                                                                                  
|----- | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |    
|10.03 | (a) |  | Lease Agreement dated August 30, 2002 by and between the Company and Somerset Capital Group, Ltd. (Somerset) (Filed as Exhibit 10.07(a) to Form 10-Q for the quarterly period ended
September 30 2002, File No. 0-21428, and incorporated by reference herein).
|      |    
|(b    | )   |  | Letter dated August 29, 2002 to the Company from Somerset (Filed as Exhibit 10.07(a) to Form 10-Q for the quarterly period ended September 30 2002, File No. 0-21428, and incorporated by
reference herein).                                                     
|      |    
|10.04 |     |  | 1998 Stock Plan (as fully amended).++                                                                                                                                                                                                                            
|      |    
|21.01 |     |  | Subsidiaries of the Company.++                                                                                                                                                                                                                                   
|      |    
|23.01 |     |  | Consent of PricewaterhouseCoopers LLP.++                                                                                                                                                                                                                         
|      |    
|31.01 |     |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.++                                                                                       
|      |    
|31.02 |     |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.++                                                                                       
|      |    
|32.01 |     |  | Certification pursuant to Rule 13a-14(b) of the Securities Exchange Act and 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.++                                                                                       

---

|* | Previously filed as the exhibit stated in Form 8-K dated March 14, 2005 and filed on March 18, 2005, File No. 0-21428, and incorporated by reference herein.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------

|** | Previously filed as the exhibits stated in Form 10-K for the fiscal year ended December 31, 2002, File No. 0-21428, and incorporated by reference herein.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|++ | Filed herewith.
|-- | ---------------



The Company agrees to furnish to the SEC a copy of any instrument evidencing long-term debt, which is not otherwise required to be filed.



43



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OCCUPATIONAL HEALTH + REHABILITATION INC



CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE



For the Years Ended December 31, 2004 and 2003



INDEX



|                                                                     |  |   
|-------------------------------------------------------------------- |  | --
|Report of Independent Registered Public Accounting Firm              |  | 45
|                                                                     | 
|Consolidated Financial Statements                                    |  |   
|Consolidated Balance Sheets                                          |  | 46
|Consolidated Statements of Operations                                |  | 47
|Consolidated Statements of Stockholders Equity and Redeemable Stock |  | 48
|Consolidated Statements of Cash Flows.                               |  | 49
|Notes to Consolidated Financial Statements                           |  | 50
|                                                                     | 
|Schedule II  Valuation and Qualifying Accounts                      |  | 65



44



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##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



Board of Directors and Shareholders

Occupational Health + Rehabilitation Inc:



In our opinion, the consolidated financial statements listed in the accompanying index appearing on page 44 present fairly, in all material
respects, the financial position of Occupational Health + Rehabilitation Inc and its subsidiaries at December 31, 2004 and 2003, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2004
in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index appearing under Item 15(a) presents fairly, in all material
respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.



|                                 
|---------------------------------
|/s/    PRICEWATERHOUSECOOPERS LLP
|                                 
|Boston, Massachusetts            
|March 29, 2005                   



45



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OCCUPATIONAL HEALTH + REHABILITATION INC



CONSOLIDATED BALANCE SHEETS

December 31, 2004 and 2003

(dollar amounts in thousands)



|                                                                                                              |  |      |        |   |      |   |        |  
|------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|                                                                                                              |  | 2004 |        |   | 2003 |  
|ASSETS                                                                                                        |  |      |        |   |      |   |        |  
|Current assets:                                                                                               |  |      |        |   |      |   |        |  
|Cash and cash equivalents                                                                                     |  | $    | 1,082  |   |      | $ | 1,744  |  
|Accounts receivable, less allowance for doubtful accounts of $1,225 and $1,082 in 2004 and 2003, respectively |  |      | 10,577 |   |      |   | 8,771  |  
|Deferred tax assets                                                                                           |  |      | 830    |   |      |   | 691    |  
|Prepaid expenses and other assets                                                                             |  |      | 869    |   |      |   | 812    |  
|                                                                                                              |  |      |        |   |      |   |        |  
|Total current assets                                                                                          |  |      | 13,358 |   |      |   | 12,018 |  
|Property and equipment, net                                                                                   |  |      | 2,289  |   |      |   | 3,111  |  
|Goodwill, net                                                                                                 |  |      | 6,687  |   |      |   | 6,687  |  
|Other intangible assets, net                                                                                  |  |      | 112    |   |      |   | 152    |  
|Deferred tax assets                                                                                           |  |      | 1,329  |   |      |   | 1,990  |  
|Other assets                                                                                                  |  |      | 138    |   |      |   | 141    |  
|                                                                                                              |  |      |        |   |      |   |        |  
|Total assets                                                                                                  |  | $    | 23,913 |   |      | $ | 24,099 |  
|                                                                                                              |  |      |        |   |      |   |        |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                          |  |      |        |   |      |   |        |  
|Current liabilities:                                                                                          |  |      |        |   |      |   |        |  
|Accounts payable                                                                                              |  | $    | 1,400  |   |      | $ | 1,073  |  
|Accrued expenses                                                                                              |  |      | 3,324  |   |      |   | 3,016  |  
|Accrued payroll                                                                                               |  |      | 2,697  |   |      |   | 1,817  |  
|Current portion of long-term debt                                                                             |  |      | 7,148  |   |      |   | 8,462  |  
|Current portion of obligations under capital leases                                                           |  |      | 749    |   |      |   | 782    |  
|                                                                                                              |  |      |        |   |      |   |        |  
|Total current liabilities                                                                                     |  |      | 15,318 |   |      |   | 15,150 |  
|Long-term debt, less current maturities                                                                       |  |      | 117    |   |      |   | 851    |  
|Obligations under capital leases, less current maturities                                                     |  |      | 487    |   |      |   | 854    |  
|                                                                                                              |  |      |        |   |      |   |        |  
|Total liabilities                                                                                             |  |      | 15,922 |   |      |   | 16,855 |  
|                                                                                                              |  |      |        |   |      |   |        |  
|Commitments and contingencies                                                                                 |  |      |        |   |      |   |        |  
|Minority interests                                                                                            |  |      | 1,388  |   |      |   | 1,430  |  
|Stockholders equity:                                                                                         |  |      |        |   |      |   |        |  
|Preferred stock, $.001 par value, 5,000,000 shares authorized; none issued and outstanding                    |  |      |       |   |      |   |       |  
|Common stock, $.001 par value, 10,000,000 shares authorized; 3,088,111 shares issued and outstanding          |  |      | 3      |   |      |   | 3      |  
|Additional paid-in capital                                                                                    |  |      | 13,037 |   |      |   | 13,037 |  
|Accumulated deficit                                                                                           |  |      | (6,437 | ) |      |   | (7,226 | )
|                                                                                                              |  |      |        |   |      |   |        |  
|Total stockholders equity                                                                                    |  |      | 6,603  |   |      |   | 5,814  |  
|                                                                                                              |  |      |        |   |      |   |        |  
|Total liabilities and stockholders equity                                                                    |  | $    | 23,913 |   |      | $ | 24,099 |  
|                                                                                                              |  |      |        |   |      |   |        |  



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



46



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OCCUPATIONAL HEALTH + REHABILITATION INC



CONSOLIDATED STATEMENTS OF OPERATIONS

For the Years Ended December 31, 2004, 2003 and 2002

(amounts in thousands, except per share amounts)



|                                                       |  |      |        |   |      |   |        |      |  |   |        |  
|------------------------------------------------------ |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                       |  | 2004 |        |   | 2003 |   |        | 2002 | 
|Net Revenue                                            |  | $    | 57,088 |   |      | $ | 53,538 |      |  | $ | 56,949 |  
|                                                       |  |      |       
|Center operating expenses                              |  |      | 48,938 |   |      |   | 47,570 |      |  |   | 50,680 |  
|                                                       |  |      |        |   |      |   |        |      |  |   |        |  
|Center operating profit                                |  |      | 8,150  |   |      |   | 5,968  |      |  |   | 6,269  |  
|General and administrative expenses                    |  |      | 5,150  |   |      |   | 4,772  |      |  |   | 4,967  |  
|Amortization of intangibles                            |  |      | 75     |   |      |   | 69     |      |  |   | 51     |  
|                                                       |  |      |        |   |      |   |        |      |  |   |        |  
|Income from operations                                 |  |      | 2,925  |   |      |   | 1,127  |      |  |   | 1,251  |  
|Non-operating gains (losses)                           |  |      |        |   |      |   |        |      |  |   |        |  
|Interest expense, net                                  |  |      | (821   | ) |      |   | (642   | )    |  |   | (397   | )
|Minority interest and contractual settlements, net     |  |      | (729   | ) |      |   | (815   | )    |  |   | (496   | )
|                                                       |  |      |        |   |      |   |        |      |  |   |        |  
|Income (loss) before income taxes                      |  |      | 1,375  |   |      |   | (330   | )    |  |   | 358    |  
|Tax provision (benefit)                                |  |      | 586    |   |      |   | (99    | )    |  |   | 215    |  
|                                                       |  |      |        |   |      |   |        |      |  |   |        |  
|Net income (loss)                                      |  | $    | 789    |   |      | $ | (231   | )    |  | $ | 143    |  
|                                                       |  |      |        |   |      |   |        |      |  |   |        |  
|Net income(loss) available to common shareholders      |  | $    | 789    |   |      | $ | (377   | )    |  | $ | (537   | )
|                                                       |  |      |        |   |      |   |        |      |  |   |        |  
|Per share amounts:                                     |  |      |        |   |      |   |        |      |  |   |        |  
|Net income (loss) per common share - basic             |  | $    | 0.26   |   |      | $ | (0.14  | )    |  | $ | (0.36  | )
|                                                       |  |      |        |   |      |   |        |      |  |   |        |  
|Net income (loss) per common share - assuming dilution |  | $    | 0.25   |   |      | $ | (0.14  | )    |  | $ | (0.36  | )
|                                                       |  |      |        |   |      |   |        |      |  |   |        |  
|Weighted average common shares outstanding:            |  |      |        |   |      |   |        |      |  |   |        |  
|Basic                                                  |  |      | 3,088  |   |      |   | 2,727  |      |  |   | 1,480  |  
|                                                       |  |      |        |   |      |   |        |      |  |   |        |  
|Assuming dilution                                      |  |      | 3,212  |   |      |   | 2,727  |      |  |   | 1,480  |  
|                                                       |  |      |        |   |      |   |        |      |  |   |        |  





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



47



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##### Table of Contents

OCCUPATIONAL HEALTH + REHABILITATION INC



CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

AND REDEEMABLE STOCK

For the Years Ended December 31, 2004, 2003 and 2002

(dollar amounts in thousands)



|                                     |  |                                               |         |   |              |           |                           |   |        |                     |   |        |                |  |   |                           |   |  |          |   |  |   |      |   |  |   |       |  
|------------------------------------ |  | --------------------------------------------- | ------- | - | ------------ | --------- | ------------------------- | - | ------ | ------------------- | - | ------ | -------------- |  | - | ------------------------- | - |  | -------- | - |  | - | ---- | - |  | - | ----- | -
|                                     |  | RedeemableConvertiblePreferred Stock Series A |         |   | Common Stock |           | AdditionalPaid-in Capital |   |        | Accumulated Deficit |   |        | Treasury Stock |  |   | TotalStockholders Equity |  
|                                     |  |                                               | Shares  |   | Amount       |           |                           |   | Shares |                     |   | Amount |                | 
|Balance at December 31, 2001         |  | $                                             | 9,973   |   |              | 1,479,864 |                           | $ | 1      |                     | $ | 9,070  |                |  | $ | (7,138                    | ) |  | 100,502  |   |  | $ | (500 | ) |  | $ | 1,433 |  
|Accrual of preferred stock dividends |  |                                               | 680     |   |              |           |                           |   |        |                     |   | (680   | )              |  |   |                           |   |  |          |   |  |   |      |   |  |   | (680  | )
|Net income                           |  |                                               |         |   |              |           |                           |   |        |                     |   |        |                |  |   | 143                       |   |  |          |   |  |   |      |   |  |   | 143   |  
|                                     |  |                                               |         |   |              |           |                           |   |        |                     |   |        |                |  |   |                           |   |  |          |   |  |   |      |   |  |   |       |  
|Balance at December 31, 2002         |  |                                               | 10,653  |   |              | 1,479,864 |                           |   | 1      |                     |   | 8,390  |                |  |   | (6,995                    | ) |  | 100,502  |   |  |   | (500 | ) |  |   | 896   |  
|Accrual of preferred stock dividends |  |                                               | 146     |   |              |           |                           |   |        |                     |   | (146   | )              |  |   |                           |   |  |          |   |  |   |      |   |  |   | (146  | )
|Repurchase of preferred stock        |  |                                               | (10,799 | ) |              | 1,608,247 |                           |   | 2      |                     |   | 5,293  |                |  |   |                           |   |  |          |   |  |   |      |   |  |   | 5,295 |  
|Retirement of treasury stock         |  |                                               |         |   |              |           |                           |   |        |                     |   | (500   | )              |  |   |                           |   |  | (100,502 | ) |  |   | 500  |   |  |   |      |  
|Net loss                             |  |                                               |         |   |              |           |                           |   |        |                     |   |        |                |  |   | (231                      | ) |  |          |   |  |   |      |   |  |   | (231  | )
|                                     |  |                                               |         |   |              |           |                           |   |        |                     |   |        |                |  |   |                           |   |  |          |   |  |   |      |   |  |   |       |  
|Balance at December 31, 2003         |  |                                               |        |   |              | 3,088,111 |                           |   | 3      |                     |   | 13,037 |                |  |   | (7,226                    | ) |  |         |   |  |   |     |   |  |   | 5,814 |  
|Net income                           |  |                                               |         |   |              |           |                           |   |        |                     |   |        |                |  |   | 789                       |   |  |          |   |  |   |      |   |  |   | 789   |  
|                                     |  |                                               |         |   |              |           |                           |   |        |                     |   |        |                |  |   |                           |   |  |          |   |  |   |      |   |  |   |       |  
|Balance at December 31, 2004         |  | $                                             |        |   |              | 3,088,111 |                           | $ | 3      |                     | $ | 13,037 |                |  | $ | (6,437                    | ) |  |         |   |  | $ |     |   |  | $ | 6,603 |  
|                                     |  |                                               |         |   |              |           |                           |   |        |                     |   |        |                |  |   |                           |   |  |          |   |  |   |      |   |  |   |       |  





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



48



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##### Table of Contents

OCCUPATIONAL HEALTH + REHABILITATION INC



CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 2004, 2003 and 2002

(amounts in thousands)



|                                                                                         |  |      |        |   |      |   |        |      |  |   |        |  
|---------------------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                                         |  | 2004 |        |   | 2003 |   |        | 2002 | 
|Operating activities:                                                                    |  |      |        |   |      |   |        |      |  |   |        |  
|Net income (loss)                                                                        |  | $    | 789    |   |      | $ | (231   | )    |  | $ | 143    |  
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |      |        |   |      |   |        |      |  |   |        |  
|Depreciation                                                                             |  |      | 1,381  |   |      |   | 1,336  |      |  |   | 961    |  
|Amortization                                                                             |  |      | 75     |   |      |   | 69     |      |  |   | 51     |  
|Provision for doubtful accounts                                                          |  |      | 974    |   |      |   | 1,008  |      |  |   | 1,069  |  
|Minority interest                                                                        |  |      | 731    |   |      |   | 853    |      |  |   | 891    |  
|Imputed interest on non-interest bearing promissory notes payable                        |  |      | 64     |   |      |   | 91     |      |  |   | 112    |  
|Loss on disposal of fixed assets                                                         |  |      | 11     |   |      |   | 33     |      |  |   | 13     |  
|Deferred tax expense (benefit)                                                           |  |      | 522    |   |      |   | (119   | )    |  |   | 206    |  
|Changes in operating assets and liabilities:                                             |  |      |        |   |      |   |        |      |  |   |        |  
|Accounts receivable                                                                      |  |      | (2,780 | ) |      |   | (43    | )    |  |   | 406    |  
|Prepaid expenses and other assets                                                        |  |      | (49    | ) |      |   | 28     |      |  |   | (390   | )
|Restructuring liability                                                                  |  |      |       |   |      |   | (22    | )    |  |   | (50    | )
|Accounts payable and accrued expenses                                                    |  |      | 1,515  |   |      |   | (44    | )    |  |   | (806   | )
|                                                                                         |  |      |        |   |      |   |        |      |  |   |        |  
|Net cash provided by operating activities                                                |  |      | 3,233  |   |      |   | 2,959  |      |  |   | 2,606  |  
|                                                                                         |  |      |        |   |      |   |        |      |  |   |        |  
|Investing activities:                                                                    |  |      |        |   |      |   |        |      |  |   |        |  
|Property and equipment additions                                                         |  |      | (380   | ) |      |   | (678   | )    |  |   | (891   | )
|Cash paid for acquisitions and other intangibles                                         |  |      |       |   |      |   | (482   | )    |  |   | (115   | )
|                                                                                         |  |      |        |   |      |   |        |      |  |   |        |  
|Net cash used in investing activities                                                    |  |      | (380   | ) |      |   | (1,160 | )    |  |   | (1,006 | )
|                                                                                         |  |      |        |   |      |   |        |      |  |   |        |  
|Financing activities:                                                                    |  |      |        |   |      |   |        |      |  |   |        |  
|Proceeds (repayment) from lines of credit                                                |  |      | 450    |   |      |   | 3,061  |      |  |   | (198   | )
|Proceeds from lease lines                                                                |  |      | 217    |   |      |   | 139    |      |  |   | 766    |  
|Payments of long-term debt and capital lease obligations                                 |  |      | (3,395 | ) |      |   | (1,181 | )    |  |   | (1,205 | )
|Payments made for debt issuance costs                                                    |  |      | (14    | ) |      |   | (98    | )    |  |   | (10    | )
|Distributions to joint venture partners                                                  |  |      | (773   | ) |      |   | (845   | )    |  |   | (886   | )
|Repurchase of preferred stock                                                            |  |      |       |   |      |   | (2,805 | )    |  |   |       |  
|                                                                                         |  |      |        |   |      |   |        |      |  |   |        |  
|Net cash used by financing activities                                                    |  |      | (3,515 | ) |      |   | (1,729 | )    |  |   | (1,533 | )
|                                                                                         |  |      |        |   |      |   |        |      |  |   |        |  
|Net (decrease) increase in cash and cash equivalents                                     |  |      | (662   | ) |      |   | 70     |      |  |   | 67     |  
|Cash and cash equivalents at beginning of year                                           |  |      | 1,744  |   |      |   | 1,674  |      |  |   | 1,607  |  
|                                                                                         |  |      |        |   |      |   |        |      |  |   |        |  
|Cash and cash equivalents at end of year                                                 |  | $    | 1,082  |   |      | $ | 1,744  |      |  | $ | 1,674  |  
|                                                                                         |  |      |        |   |      |   |        |      |  |   |        |  
|Noncash items:                                                                           |  |      |        |   |      |   |        |      |  |   |        |  
|Accrual of dividends payable                                                             |  | $    |       |   |      | $ | 146    |      |  | $ | 680    |  
|Repurchase of preferred stock                                                            |  |      |       |   |      |   | 8,099  |      |  |   |       |  
|Capital leases, excluding proceeds received from lease lines                             |  |      | 196    |   |      |   | 539    |      |  |   | 648    |  
|Retirement of treasury stock                                                             |  |      |       |   |      |   | 500    |      |  |   |       |  



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



49



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##### Table of Contents

OCCUPATIONAL HEALTH + REHABILITATION INC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands, except per share amounts)



1. Summary of Significant Accounting Policies



Occupational Health + Rehabilitation Inc (the Company) is a
leading provider of occupational healthcare services to employers and their employees and specializes in the prevention, treatment and management of work related injuries and illnesses as well as regulatory compliance services. The Company develops
and operates occupational health centers and contracts with other healthcare providers to develop integrated occupational healthcare delivery systems. The Company typically operates the centers under management and submanagement agreements with
professional corporations (Physician Practices) that practice exclusively through such centers. Additionally, the Company has entered into joint ventures and management agreements with health systems to provide management and related
services to the centers and networks of providers established by the joint ventures or health systems.



Principles of Consolidation



The consolidated financial statements include the accounts of the Company and its joint ventures and partnerships. All of the outstanding voting equity
instruments of the Physician Practices are owned by shareholders nominated by the Company. Through employee agreements, the Company restricts transfer of Physician Practice ownership without its consent and can, at any time, require the nominated
shareholder to transfer ownership to a Company designee. It is through this structure and through long-term management agreements entered into with the Physician Practices that the Company has an other than temporary controlling financial interest
in the Physician Practices.



Most states in which the Company
operates have laws and regulations that are often vague limiting the corporate practice of medicine and the sharing of fees between physicians and non-physicians. The Company believes it has structured all of its operations so that they comply with
such laws and regulations; however, there can be no assurance that an enforcement agency could not find to the contrary or that future interpretations of such laws and regulations will not require structural and organizational modifications of the
Companys business.



All inter-company accounts and
transactions have been eliminated.



Cash and Cash
Equivalents



Cash and cash equivalents include cash on
hand, demand deposits and short-term investments with original maturities of three months or less. Cash and cash equivalents include cash balances of joint ventures of $1,012 and $1,358 at December 31, 2004 and 2003, respectively. These funds are
utilized only for joint venture purposes unless paid as dividends to the joint venture partners.



Property and Equipment



Property and equipment is stated at cost. Depreciation is computed by the straight-line method over the useful lives of the respective assets. Medical
equipment is depreciated over 10 years, and furniture and office equipment is depreciated over 5 years. Leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or the estimated useful life of the asset.
Depreciation of assets under capital leases is included with depreciation.



Goodwill and Other Intangible Assets



The Company has adopted the Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standard (SFAS) No. 142, Goodwill and Other Intangible Assets, which was effective
January 1, 2002. SFAS 142 requires, among other things, the discontinuance of goodwill amortization.



50



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OCCUPATIONAL HEALTH + REHABILITATION INC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollar amounts in thousands, except per share amounts)



The Company performs an impairment test on goodwill on an annual basis or on an interim basis if an
event or circumstance indicates that it is more likely than not that an impairment loss has been incurred. Impairment is determined by comparing the fair value to the carrying value of the reporting units. The fair value of each reporting unit is
determined based on its discounted future cash flows using a discount reflecting the Companys average cost of funds. If impairment were determined to have occurred, the Company would make the appropriate adjustment to goodwill to reduce the
assets carrying value. No such impairment existed at December 31, 2004 or 2003.



Other intangible assets are comprised of non-compete agreements and deferred financing costs which are being amortized using the straight-line method over periods of three to five years. The Company performs an
impairment test on such definite-lived intangibles when facts and circumstances exist which would suggest that the intangibles may be impaired. If impairment were determined to have occurred, the Company would make the appropriate adjustment to the
intangible asset to reduce the assets carrying value to fair value. No such impairment existed at December 31, 2004 or 2003.



Joint Ventures



The Company has entered into joint ventures with health systems in which the Company owns varying percentages but no less than a majority. Accordingly,
these joint ventures are consolidated for financial reporting purposes. The minority equity holders portions of the equity in the joint ventures are disclosed as an obligation on the balance sheets. The minority equity holders portions
of the operating results are disclosed in the statements of operations as a non-operating gain or loss.



Revenue Recognition



Revenue is recorded at estimated net amounts to be received from employers, third-party payers and others for services rendered. The Company operates in
certain states that regulate the amounts the Company can charge for its services associated with work-related injuries and illnesses.



Contractual Settlements



The Company has in the past entered into management contracts to manage the day-to-day operations of certain clinics. Generally, these contracts required
a payment by the Company at the inception of the agreement, which was recorded as an intangible asset and amortized over the initial term of the contract. The contracts generally required the sharing of profits and losses at varying percentages
throughout the contract term. The funding/payment of these contractual settlement amounts were recorded as non-operating gains or losses. Effective April 30, 2003, the Company terminated its last management contract upon the purchase of five centers
which it had previously managed for a hospital system in Nashville, Tennessee.



The Company recorded $0, $38 and $395 of funded operating losses and contractual settlements for the years ended December 31, 2004, 2003 and 2002, respectively, as non-operating gains.



Provision for Doubtful Accounts



Accounts receivable consists primarily of amounts due from third-party
payers (principally managed care companies and commercial insurance companies), employers and others, including private-pay patients. Estimated provisions for doubtful accounts are recorded to the extent that it is probable that a portion or all of
a particular account receivable will not be collected. The Company estimates the provision for doubtful accounts based on various factors including payer type, historical collection patterns, and the age of the receivable. Changes in estimates for
particular accounts receivable are recorded in the period in which the change occurs.



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OCCUPATIONAL HEALTH + REHABILITATION INC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollar amounts in thousands, except per share amounts)



Professional Liability Coverage



The Company maintains entity professional liability insurance coverage on a claims-made basis in all states in which it has
operating centers. The Company also maintains shared professional liability insurance coverage in the name of its full-time physicians on a claims-made basis. At December 31, 2004, the Company recorded an actuarially determined liability equal to
the estimated required reserves for future payments for claims that have been reported and claims that have occurred but have not been reported. The Company intends to renew its existing professional liability insurance policies and is not aware of
any reason it will not be able to do so; nor is it aware of any claims that may result in a loss in excess of amounts covered by its existing insurance.



Reserves for Employee Medical Benefits



The Company retains a significant amount of self-insurance risk for its employee medical benefits. The Company maintains stop-loss insurance which limits
the Companys liability for medical insurance payments on both an individual and total group basis. The Company records an accrued expense for estimated medical benefit claims incurred but not reported. The Company estimates this accrual based
on various factors including historical experience, industry trends and recent claims history. This accrual is by necessity based on estimates and is subject to ongoing revision as conditions change and as new data present themselves. Adjustments to
estimated liabilities are recorded in the accounting period in which the change in estimate occurs.



Stock Compensation Arrangements



The Company has a Stock Option Program. SFAS No. 123, Accounting for Stock Based Compensation, encourages entities to recognize as expense over the
vesting period the fair market value of all stock-based awards on the date of grant. Alternatively, SFAS 123 allows entities to continue to apply the provisions of Accounting Principles Board (APB) No. 25, Accounting for Stock Issued to
Employees, and provide pro forma net income and pro forma earnings per share disclosures for employee stock grants as if the fair-value method defined in SFAS 123 had been applied.



The Company accounts for its Stock Option Program under the recognition and measurement principles of APB 25. Consequently,
no compensation cost related to the Stock Option Program is reflected in net income since all options under this program had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table
illustrates the effect on net income (loss) per share if the Company had applied the fair value recognition provisions of SFAS 123 to the Stock Option Program.



|                                                                                                                                            |  |      |      |   |      |   |       |      |  |   |       |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---- | - | ---- | - | ----- | ---- |  | - | ----- | -
|                                                                                                                                            |  | 2004 |      |   | 2003 |   |       | 2002 | 
|Net income (loss) available to common stockholders, as reported                                                                             |  | $    | 789  |   |      | $ | (377  | )    |  | $ | (537  | )
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |      | (159 | ) |      |   | (223  | )    |  |   | (152  | )
|                                                                                                                                            |  |      |      |   |      |   |       |      |  |   |       |  
|Pro forma net income (loss) available to common stockholders                                                                                |  | $    | 630  |   |      | $ | (600  | )    |  | $ | (689  | )
|                                                                                                                                            |  |      |      |   |      |   |       |      |  |   |       |  
|Earnings (Loss) per share:                                                                                                                  |  |      |      |   |      |   |       |      |  |   |       |  
|Basic - as reported                                                                                                                         |  | $    | 0.26 |   |      | $ | (0.14 | )    |  | $ | (0.36 | )
|                                                                                                                                            |  |      |      |   |      |   |       |      |  |   |       |  
|- pro forma                                                                                                                                 |  | $    | 0.20 |   |      | $ | (0.22 | )    |  | $ | (0.47 | )
|                                                                                                                                            |  |      |      |   |      |   |       |      |  |   |       |  
|Assuming dilution - as reported                                                                                                             |  | $    | 0.25 |   |      | $ | (0.14 | )    |  | $ | (0.36 | )
|                                                                                                                                            |  |      |      |   |      |   |       |      |  |   |       |  
|- pro forma                                                                                                                                 |  | $    | 0.20 |   |      | $ | (0.22 | )    |  | $ | (0.47 | )
|                                                                                                                                            |  |      |      |   |      |   |       |      |  |   |       |  



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OCCUPATIONAL HEALTH + REHABILITATION INC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollar amounts in thousands, except per share amounts)



Estimates and Assumptions



The preparation of financial statements in conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, if any, at the date of the financial statements, and the reported amounts
of revenues and expenses during the reporting period. Actual results could differ from those estimates.



Fair Value of Financial Instruments



The Companys financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, and long-term
debt. The Company believes that the carrying value of its financial instruments approximates fair value.



Segment Reporting



The Company follows SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, which establishes standards for related disclosures
about products and services, geographic areas, and major customers. All of the Companys efforts are devoted to occupational healthcare that are managed and reported in one segment. The Company derives all of its revenues from services provided
in the United States of America.



Recent Accounting
Standards



In December 2004, the FASB issued SFAS No.
123R, Share-Based Payment. SFAS 123R is a revision of SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes APB 25. SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be
recognized in the financial statements based on their fair values. The provisions of SFAS 123R are effective for interim or annual periods beginning after June 15, 2005. The Company is currently evaluating the provisions of this standard to
determine the impact on its financial statements. It is, however, expected to have a negative effect on net income.



As permitted by SFAS 123, the Company currently accounts for share-based payments to employees using the intrinsic value method permitted by APB 25 and
accordingly does not recognize any compensation cost for employee stock options. Accordingly, adoption of the fair value method required by SFAS 123R will have an impact on the Companys results of operations, although it will have no impact on
its overall financial position. The impact of the modified prospective adoption of SFAS 123R cannot be estimated at this time because it will depend on levels of share-based payments granted in the future. However, had the Company adopted SFAS 123R
in prior periods, the impact of that standard would have approximated the impact of SFAS 123 as described in the disclosure of pro forma net income and earnings per share.



In December 2004, the FASB decided to defer issuance of their final standard on earnings per share (EPS)
entitled Earnings per Share, an Amendment to SFAS 128. The final standard will be effective in 2005 and will require retrospective application for all prior periods presented. The significant proposed changes to the EPS computation are changes to
the treasury stock method and contingent share guidance for computing year-to-date diluted EPS, removal of the ability to overcome the presumption of share settlement when computing diluted EPS when there is a choice of share or cash settlement and
inclusion of mandatorily convertible securities in basic EPS. The Company is currently evaluating the proposed provisions of this amendment to determine the impact on its consolidated financial statements.



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OCCUPATIONAL HEALTH + REHABILITATION INC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollar amounts in thousands, except per share amounts)



Reclassifications



Certain prior year amounts have been reclassified on the accompanying Consolidated Financial Statements to conform to the
2004 presentation. The Company has reclassified its financial statements in order to present its center operating profit and has reallocated depreciation expense between center operating expenses and general and administrative expenses, as
applicable.



Income Taxes



The Company accounts for income taxes under an asset and liability approach.
Under this approach, deferred tax assets and liabilities are recognized based upon temporary differences between the financial statement and tax basis of assets and liabilities, as measured by the enacted tax rates which will be in effect when these
differences reverse. Deferred tax expense or benefit is the result of changes between deferred tax assets and liabilities. A valuation allowance is established when, based on an evaluation of objective verifiable evidence, there is a likelihood that
some portion or all of the deferred tax assets will not be realized.



2.
Joint Ventures, Acquisitions and Contractual Settlements



Effective January 31, 2003, the Company terminated its long-term management contract with Eastern Rehabilitation Network (ERN), an affiliate of Hartford Hospital, Hartford, Connecticut. As consideration for agreeing to the
termination, the Company acquired title to the four occupational health centers in Connecticut which it had previously managed for ERN. In addition, ERN agreed to terminate its network provider agreement with Hartford Medical Group
(HMG), also an affiliate of Hartford Hospital, under which the Company had managed seven occupational health centers owned by HMG. The Company agreed to pay ERN $25 for its share of the networks assets. There will be a final
settlement between the parties after the Company has collected all amounts owed to, and paid all amounts owed by, the network as of the termination date. Final settlement will occur during 2005, and the Company has recorded its estimated liability.



In 2002, the Company recognized revenue of $2,286 for the
seven occupational health centers owned by HMG which it no longer manages. Because a significant portion of the revenue was paid to third party providers for services rendered to the Companys patients, the loss of revenue has not had a
material impact on the Companys operating profit.



On
April 1, 2003, the Company purchased an occupational health practice in Murfreesboro, Tennessee for a total consideration of $525, payable in cash of $150 at closing, and $125 on each of March 31, 2004, 2005, and 2006, and consolidated the
operations into its existing center. The note is non-interest bearing and has been discounted. The Company recognized $493 in goodwill and other intangible assets on the transaction.



Effective April 30, 2003, the Company terminated its long-term management contract with a hospital system in Nashville,
Tennessee and concurrently purchased five centers which it had previously managed for a total consideration of $1,700, payable in cash of $300 at closing, and $400, $500, and $500 on October 1, 2003, 2004, and 2005, respectively. In September 2004,
the Company renegotiated the payment terms with the seller for the $1,000 then outstanding. Under the terms of the amended agreement, the Company will pay a total of $1,029 in fifteen monthly installments: six payments of $70, beginning October 1,
2004; seven payments of $68, beginning April 1, 2005; and two payments of approximately $67, beginning November 1, 2005. However, the balance outstanding on September 30, 2005 of $201 will be payable in full on October 1, 2005 if such payment will
not cause an immediate default under the terms of the Companys asset-based line of credit, or if the Company reasonably believes, based on its historical financial performance, that it would not cause such a default within three months of the
date such payment was made. The note is non-interest bearing and has been discounted.



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OCCUPATIONAL HEALTH + REHABILITATION INC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollar amounts in thousands, except per share amounts)



In connection with the purchase of the five centers in Tennessee, the seller forgave the loan payable
balance of $1,200 (before discount) due under the long-term management contract. Accordingly, the Company offset against the purchase price the net deferred credit previously recorded on the management contract which amounted to $550. This deferred
credit represented the net difference between payments made by the hospital system for working capital deficiencies and the discounted value of the non-interest bearing loan payable to the hospital system. The net of the aforementioned items
resulted in the recognition of $98 in fixed assets and $35 in goodwill and other intangible assets and had no impact on the Companys statement of operations.



In January 2002, the Company entered into an affiliation with a hospital system in New Jersey to operate its employee health
and occupational health programs. In February 2002, the Company purchased two occupational health programs. In February 2002, the Company purchased two occupational health clinics located in New Jersey and transferred the hospital systems
occupational health program to these centers. The combined purchase price of these entities was $610, of which $70 was in cash and the balance in the form of a subordinated note payable in varying installments through February 2005. The Company
recognized goodwill of $621 on these transactions. In January 2005, the Company renegotiated the payment terms for the $140,000 then outstanding on the subordinated note. Under the terms of the amended agreement, the Company will pay the outstanding
amount in varying installments between February 1, 2005 and May 1, 2005. Effective July 1, 2002, the Company assumed the 40% ownership interest of its joint venture partner in its Rochester, New York center and recognized $193 in goodwill on the
transaction. Effective August 1, 2002, the Company increased its ownership in its joint venture in the St. Louis, Missouri market to 96% from 80%, and recognized $90 in goodwill on the transaction.



All acquisitions have been accounted for using the purchase method of
accounting. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based upon their estimated fair values at the dates of acquisition. The results of operations of the acquired practices are included in the
consolidated financial statements from the respective dates of acquisition.



In connection with certain acquisitions prior to 2000, the Company entered into contractual arrangements whereby the selling parties were entitled to receive contingent cash consideration based upon the achievement of
certain minimum operating results. Obligations related to these contingencies were reflected as additional goodwill in the periods they became known. At December 31, 2004, there were no contingent obligations outstanding.



3. Property and Equipment



Property and equipment, inclusive of assets under capital leases, consisted
of the following at December 31, 2004 and 2003:



|                               |  |      |        |   |      |   |        |  
|------------------------------ |  | ---- | ------ | - | ---- | - | ------ | -
|                               |  | 2004 |        |   | 2003 |  
|Medical equipment              |  | $    | 1,672  |   |      | $ | 1,795  |  
|Furniture and office equipment |  |      | 4,693  |   |      |   | 4,739  |  
|Leasehold improvements         |  |      | 969    |   |      |   | 950    |  
|Vehicles                       |  |      | 1      |   |      |   | 13     |  
|                               |  |      |        |   |      |   |        |  
|                               |  |      | 7,335  |   |      |   | 7,497  |  
|Less accumulated depreciation  |  |      | (5,046 | ) |      |   | (4,386 | )
|                               |  |      |        |   |      |   |        |  
|                               |  | $    | 2,289  |   |      | $ | 3,111  |  
|                               |  |      |        |   |      |   |        |  



Depreciation expense
was $1,381, $1,336 and $961 for the years ended December 31, 2004, 2003 and 2002, respectively.



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OCCUPATIONAL HEALTH + REHABILITATION INC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollar amounts in thousands, except per share amounts)



Property and equipment under capital leases consisted of the following at December 31, 2004 and 2003:



|                               |  |      |        |   |      |   |       |  
|------------------------------ |  | ---- | ------ | - | ---- | - | ----- | -
|                               |  | 2004 |        |   | 2003 |  
|Medical equipment              |  | $    | 219    |   |      | $ | 102   |  
|Furniture and office equipment |  |      | 2,300  |   |      |   | 2,186 |  
|Leasehold improvements         |  |      | 202    |   |      |   | 202   |  
|                               |  |      |        |   |      |   |       |  
|                               |  |      | 2,721  |   |      |   | 2,490 |  
|Less accumulated depreciation  |  |      | (1,301 | ) |      |   | (689  | )
|                               |  |      |        |   |      |   |       |  
|                               |  | $    | 1,420  |   |      | $ | 1,801 |  
|                               |  |      |        |   |      |   |       |  



The Company entered
into capital lease obligations of $413, $678 and $1,414 in 2004, 2003 and 2002, respectively.



4. Long-Term Debt, Other Credit Arrangements and Liquidity



Long-term debt consisted of the following at December 31, 2004 and 2003:



|                                                                                                                      |  |      |       |      |   |      
|--------------------------------------------------------------------------------------------------------------------- |  | ---- | ----- | ---- | - | -----
|                                                                                                                      |  | 2004 |       | 2003
|8.00% Subordinated promissory notes, now bearing interest at 15.00%                                                   |  | $    | 675   |      | $ | 2,700
|Promissory notes bearing interest at rates ranging from 0% to 12%, due in periodic installments through December 2005 |  |      | 1,183 |      |   | 1,656
|Credit line collateralized by certain accounts receivable                                                             |  |      | 5,407 |      |   | 4,957
|                                                                                                                      |  |      |       |      |   |      
|                                                                                                                      |  |      | 7,265 |      |   | 9,313
|Less current portion                                                                                                  |  |      | 7,148 |      |   | 8,462
|                                                                                                                      |  |      |       |      |   |      
|                                                                                                                      |  | $    | 117   |      | $ | 851  
|                                                                                                                      |  |      |       |      |   |      



The non-interest
bearing note payable over three years to the sellers of an occupational health practice has been discounted at 5.25% and the amended non-interest bearing note payable over fifteen months to a hospital system has been discounted at 5.75%.



On March 24, 2003, the Company repurchased all of its outstanding Series A
Convertible Preferred Stock in exchange for (i) $2,700 in cash at closing, (ii) subordinated debt in the principal amount of $2,700, and (iii) 1,608,247 shares of the Companys Common Stock.



In April 2003, the Company purchased an occupational health practice in
Murfreesboro, Tennessee for a total consideration of $525, of which $150 was paid in cash, with the balance due in equal installments over the succeeding three years. At December 31, 2004, the discounted amount payable was $241.



In May 2003, the Company purchased five occupational health clinics located
in Tennessee which it had previously managed for a total consideration of $1,700, of which $300 was paid in cash with the balance payable in varying installments through October 2005. In September 2004, the Company renegotiated the payment terms on
$1,000 then outstanding. Under the terms of the amended agreement, the Company will pay a total of $1,029 in fifteen monthly installments of approximately equal amounts, commencing October 1, 2004. At December 31, 2004, the discounted amount payable
was $798.



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OCCUPATIONAL HEALTH + REHABILITATION INC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollar amounts in thousands, except per share amounts)



In February 2002, the Company purchased two occupational health clinics located in New Jersey. The
purchase price of these clinics was $610, of which $70 was paid in cash and the balance in the form of a subordinated note payable in varying installments through February 2005. In January 2005, the Company renegotiated the payment terms on the
subordinated note. Under the terms of the amended agreement, the Company will pay the outstanding amount in varying installments between February 1, 2005 and May 1, 2005. At December 31, 2004, the amount payable was $140.



In June 2000, a joint venture partnership of the Company issued a promissory
note for $86 in connection with the construction of leasehold improvements for one of the partnerships centers. The note is payable in equal installments over 60 months and the interest rate is 12%. At December 31, 2004, the amount payable was
$4.



On December 15, 2003, the Company entered into an
agreement with CapitalSource for a new three-year revolving line of credit (the CapitalSource Credit Line) of up to $7,250. The CapitalSource Credit Line is collateralized by present and future assets of certain operations of the
Company. The borrowing base consists of a certain percentage of eligible accounts receivable (as defined in the agreement). Under the terms of the agreement, the Company pays a commitment fee of 0.60% of the unused portion of the CapitalSource
Credit Line and certain other fees. The interest rate under the CapitalSource Credit Line is the prime rate plus 1.00%, subject to a floor of 4.00% on the prime rate. At December 31, 2004, the interest rate under the CapitalSource Credit Line was
6.25%.



The financial covenants under the CapitalSource Credit
Line consist of a fixed charge ratio (defined as the ratio, for a defined period, of earnings before interest, taxes, depreciation, amortization, and other non-cash charges and non-recurring gains and losses to the sum of payments on long-term debt,
exclusive of the subordinated promissory notes (the Notes), and capital leases, accrued interest and dividends, and capital expenditures and income taxes paid in cash) of not less than 1.20 to 1.00, tested monthly on a trailing six
months basis and minimum liquidity (defined as the sum of unrestricted cash on hand, the Companys pro rata share of cash on hand in its joint ventures, and the unborrowed availability under the CapitalSource Credit Line) of $1,000.
During the term of the agreement, the Company may enter into new capital lease obligations of up to $1,000, must obtain the prior approval of CapitalSource before acquiring any new business, and is prohibited from the payment of dividends. The
Company was in compliance with its financial covenants through December 31, 2004. As of and for the trailing six months ended December 31, 2004, the Companys minimum liquidity was $2,166 and its fixed charge ratio was 1.68, respectively.



Based on its projections, the Company expects to be in
compliance during 2005 with its covenants under the CapitalSource Credit Line. However, there can be no assurance that the Company will meet its projections and if it does not, it may not be in compliance with its covenants in the future.



At December 31, 2004, the maximum amount available under the
lenders borrowing base formula was $6,933, of which $5,407 was outstanding.



Aggregate maturities of obligations under long-term debt agreements are as follows:



|     |  |   |      
|---- |  | - | -----
|2005 |  | $ | 7,148
|2006 |  |   | 117  
|     |  |   |      
|     |  | $ | 7,265
|     |  |   |      



Interest paid in 2004,
2003 and 2002 was $985, $471 and $440, respectively.



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OCCUPATIONAL HEALTH + REHABILITATION INC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollar amounts in thousands, except per share amounts)



Liquidity



Under the terms of its Notes, the Company was required to make principal payments of $900 on each of March 24, June 24 and
September 24, 2004 together with accrued interest thereon. If the Company did not fulfill its contractual payment obligations, the interest rate on the unpaid principal and interest increased to 15.00% from 8.00% until such default was cured. A
default under the Notes permits the Note holders to accelerate payment of all unpaid principal and interest. However, under the CapitalSource Credit Line, no amounts can be paid to the Note holders if CapitalSource objects.



On March 24, 2004, the Company paid $450 of the $900 principal amount due
together with accrued interest thereon of $36. The Company elected to enter into such default in order to conserve its cash resources for operating purposes. The Company has determined that this default, under the terms of the Notes, does not
constitute a cross default with respect to third party contractual obligations of the Company other than CapitalSource.



The default under the Notes created a cross default under the CapitalSource Credit Line. Accordingly, the Company obtained a waiver from CapitalSource on
March 30, 2004 which waives any similar cross default that occurs as a result of any additional partial payment of the Notes by the Company through March 31, 2005. Also on March 30, 2004, the Note holders agreed in writing not to pursue any remedies
related to the failure to make a full installment payment on the Notes through March 31, 2005.



On each of May 5, 2004 and June 18, 2004, the Company paid an additional $225 of principal, being the balance of the amount due on its Notes as of March 24, 2004, together with accrued interest thereon of $22 and $27,
respectively. After the payment on June 18, 2004, the Company was no longer in default on the Notes. However, the Company elected not to pay $900 due on the Notes on June 24, 2004 and so reverted to default, at which time the Company began to accrue
interest at 15.00% on the sum of the outstanding principal and the accrued interest to date.



On July 23, 2004, the Company paid $243 on the Notes, being the total interest accrued thereon as of that date. On each of August 27, September 30,
October 29, November 30 and December 22, 2004 the Company paid an additional $225 of principal together with accrued interest thereon of $26, $22, $16, $15 and $8, respectively. At December 31, 2004, the total amount outstanding on the Notes was
$678, of which $3 represented accrued interest.



In January
2005, the Company determined that, due primarily to a deterioration in the days sales outstanding in its accounts receivable and a consequent reduction in liquidity, it should conserve its cash and not pay the balance outstanding on the Notes by
March 31, 2005, the expiration date of the waiver granted by CapitalSource. Accordingly, effective March 7, 2005, the Company obtained from CapitalSource an extension of its waiver through December 31, 2005. Also effective March 7, 2005, the Note
holders agreed in writing to extend their original agreement dated March 24, 2004 to not pursue any remedies related to the failure to pay the Notes when due from March 31, 2005 to December 31, 2005.



The Company expects that its principal use of funds in the foreseeable future
will be for the repayment of the Notes and other long-term debt obligations, and for working capital requirements, purchases of property and equipment, and acquisitions and the formation of joint ventures. The Company believes that the funds
available to it under the Credit Line, together with cash generated from operations and other sources of funds it anticipates will be available to it, will be adequate to meet these projected needs.



58



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##### Table of Contents

OCCUPATIONAL HEALTH + REHABILITATION INC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollar amounts in thousands, except per share amounts)



5. Leases



The Company maintains operating leases for commercial property and office equipment. The commercial leases contain renewal options and require the Company
to pay certain utilities and taxes over established base amounts. Operating lease expenses were $3,895, $3,671 and $3,434 for the years ended December 31, 2004, 2003 and 2002, respectively.



In March 2001, the Company entered into an agreement for an Equipment
Facility (the Equipment Facility) of $750 to provide secured financing. Borrowings under the facility are repayable over 42 months. The interest rate was based upon the 31-month Treasury Note (T-Note) plus a spread and
fluctuates with any change in the T-Note rate up until the time of payment commencement for each draw down.At December 31, 2004, the full amount of the Equipment Facility had been utilized. Interest rates range from 9.93% to 10.99%.



In August 2002, the Company entered into an agreement for
collateralized equipment lease financing in the approximate amount of $1,600 (the Collateralized Line). Borrowings under the facility are repayable over 36 months. The lease-rate factors are based upon the 36-month Treasury Note yield
ten days prior to payment commencement for each draw down. At the end of the lease term, the Company may either purchase the equipment for its fair market value, renew the lease on a year-to-year basis at its then fair market value, or return the
equipment with no further obligation. The Company has utilized this lease line primarily to fund its equipment needs relating to the upgrade of its practice management system. At December 31, 2004, the full amount of the Collateralized Line had been
utilized. Interest rates range from 3.25% to 9.65%.



In
December 2003, the Company entered into an agreement for collateralized equipment lease financing of approximately $330 (the Lease Line). The Company drew down $346 under the Lease Line. In June 2004, the Lease Line was increased by $250
(the Lease Line Extension), for a combined lease line of $596. The Lease Line Extension was available for equipment purchases made during the balance of 2004. Borrowings under both facilities are repayable over 60 months. The interest
rate on the Lease Line was initially set at certain percentage points above the Five Year Interest Rate Swap rate and subsequently changed to certain percentage points above the most recent weekly average rate of the Five Year Treasuries, both rates
being struck at the time of funding. The weighted average interest rate on the Lease Line is 8.90%. The interest rate on the Lease Line Extension is set at a fixed 5.05 percentage points above the most recent weekly average rate of the Five Year
Treasuries at the time of funding. In December 2004, the Company drew down $134 under the Lease Line Extension with an effective interest rate of 8.65%. At December 31, 2004, the Company had utilized $479 of the combined lease line.



The Company has also entered into equipment lease arrangements with other
lenders. Interest rates on these leases range from 11.35% to 14.79%.



Future minimum lease payments under capital leases and noncancelable operating leases are as follows:



|                                            |  |               |       |                 |   |       
|------------------------------------------- |  | ------------- | ----- | --------------- | - | ------
|                                            |  | CapitalLeases |       | OperatingLeases
|2005                                        |  | $             | 817   |                 | $ | 3,562 
|2006                                        |  |               | 252   |                 |   | 2,812 
|2007                                        |  |               | 123   |                 |   | 2,210 
|2008                                        |  |               | 118   |                 |   | 1,935 
|2009 and thereafter                         |  |               | 57    |                 |   | 1,769 
|                                            |  |               |       |                 |   |       
|Total minimum lease payments                |  |               | 1,367 |                 | $ | 12,288
|                                            |  |               |       |                 |   |       
|Less: amounts representing interest         |  |               | 131   |                 |   |       
|                                            |  |               |       |                 |   |       
|Present value of net minimum lease payments |  | $             | 1,236 |                 |   |       
|                                            |  |               |       |                 |   |       



59



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##### Table of Contents

OCCUPATIONAL HEALTH + REHABILITATION INC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollar amounts in thousands, except per share amounts)



6. Income Taxes



For the years ended December 31, 2004 and 2003, the provision for income taxes consisted of the following:



|               |  |      |     |      |   |      |  
|-------------- |  | ---- | --- | ---- | - | ---- | -
|               |  | 2004 |     | 2003 |  
|Current:       |  |      |     |      |   |      |  
|Federal        |  | $    | 32  |      | $ |     |  
|State          |  |      | 34  |      |   | 20   |  
|               |  |      |     |      |   |      |  
|Total current  |  |      | 66  |      |   | 20   |  
|               |  |      |     |      |   |      |  
|Deferred:      |  |      |     |      |   |      |  
|Federal        |  |      | 407 |      |   | (90  | )
|State          |  |      | 113 |      |   | (29  | )
|               |  |      |     |      |   |      |  
|Total deferred |  |      | 520 |      |   | (119 | )
|               |  |      |     |      |   |      |  
|               |  | $    | 586 |      | $ | (99  | )
|               |  |      |     |      |   |      |  



Income tax paid, net
of (refunds), in 2004, 2003 and 2002 was $57, $17 and $(2), respectively.



A reconciliation of the differences between the U.S statutory income tax rate and the effective tax rates based on income (loss) before taxes is as follows:



|                                                   |  |      |   |  |      |  
|-------------------------------------------------- |  | ---- | - |  | ---- | -
|                                                   |  | 2004 |   |  | 2003 |  
|Federal income tax                                 |  | 34.0 | % |  | 34.0 | %
|State income tax, net of federal income tax effect |  | 3.7  |   |  | 1.9  |  
|Permanent differences and other                    |  | 4.9  |   |  | (5.7 | )
|                                                   |  |      |   |  |      |  
|                                                   |  | 42.6 | % |  | 30.2 | %
|                                                   |  |      |   |  |      |  



At December 31, 2004
and 2003, the components of the Companys deferred tax assets and liabilities were:



|                                       |  |      |       |   |      |   |       |  
|-------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | -
|                                       |  | 2004 |       |   | 2003 |  
|Deferred tax assets:                   |  |      |       |   |      |   |       |  
|Net operating loss carryforwards       |  | $    | 1,644 |   |      | $ | 2,279 |  
|Federal alternative minimum tax credit |  |      | 33    |   |      |   |      |  
|Accrued expenses and reserves          |  |      | 829   |   |      |   | 651   |  
|                                       |  |      |       |   |      |   |       |  
|Total deferred tax assets              |  |      | 2,506 |   |      |   | 2,930 |  
|Deferred tax liabilities:              |  |      |       |   |      |   |       |  
|Depreciation and amortization          |  |      | (347  | ) |      |   | (249  | )
|                                       |  |      |       |   |      |   |       |  
|Deferred tax assets, net               |  | $    | 2,159 |   |      | $ | 2,681 |  
|                                       |  |      |       |   |      |   |       |  



At December 31, 2004,
the Company had federal net operating loss carryforwards of $4,378 available for use which begin to expire in 2009. Of this amount, $1,536 is subject to an annual limitation on usage under the change in stock ownership rules of the Internal Revenue
Code.



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##### Table of Contents

OCCUPATIONAL HEALTH + REHABILITATION INC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollar amounts in thousands, except per share amounts)



7. Stockholders Equity and Redeemable Preferred Stock



Net Income (Loss) Per Common Share



The Company calculates earnings per share in accordance with SFAS 128,
Earnings Per Share, which requires disclosure of basic and diluted earnings per share. Basic earnings per share excludes any dilutive effects of options and convertible securities while diluted earnings per share includes such amounts. For purposes
of the net income (loss) per share calculation, the income (loss) available to common shareholders has been adjusted for accrued but unpaid dividends on the preferred stock ($0, $146 and $680 in 2004, 2003 and 2002, respectively). For 2003 and 2002,
the effect of dilutive options is not considered since it would be antidilutive.



|                                                               |  |      |       |      |   |       |      |  |   |       |  
|-------------------------------------------------------------- |  | ---- | ----- | ---- | - | ----- | ---- |  | - | ----- | -
|                                                               |  | 2004 |       | 2003 |   |       | 2002 | 
|Basic Earnings per Share:                                      |  |      |       |      |   |       |      |  |   |       |  
|Net income (loss)                                              |  | $    | 789   |      | $ | (231  | )    |  | $ | 143   |  
|Dividends accrued on preferred stock                           |  |      |      |      |   | (146  | )    |  |   | (680  | )
|                                                               |  |      |       |      |   |       |      |  |   |       |  
|Net income (loss) available to common shareholders             |  | $    | 789   |      | $ | (377  | )    |  | $ | (537  | )
|                                                               |  |      |       |      |   |       |      |  |   |       |  
|Total weighted average shares outstanding (000)basic          |  |      | 3,088 |      |   | 2,727 |      |  |   | 1,480 |  
|                                                               |  |      |       |      |   |       |      |  |   |       |  
|Net income (loss) per common sharebasic                       |  | $    | 0.26  |      | $ | (0.14 | )    |  | $ | (0.36 | )
|                                                               |  |      |       |      |   |       |      |  |   |       |  
|                                                               |  |      |      
|Diluted Earnings per Share:                                    |  |      |       |      |   |       |      |  |   |       |  
|Net income (loss)                                              |  | $    | 789   |      | $ | (231  | )    |  | $ | 143   |  
|Dividends accrued on preferred stock                           |  |      |      |      |   | (146  | )    |  |   | (680  | )
|                                                               |  |      |       |      |   |       |      |  |   |       |  
|Net income (loss) available to common shareholders             |  | $    | 789   |      | $ | (377  | )    |  | $ | (537  | )
|                                                               |  |      |       |      |   |       |      |  |   |       |  
|                                                               |  |      |      
|Share data (000)                                               |  |      |       |      |   |       |      |  |   |       |  
|Total weighted average shares outstanding                      |  |      | 3,088 |      |   | 2,727 |      |  |   | 1,480 |  
|Options                                                        |  |      | 124   |      |   |      |      |  |   |      |  
|                                                               |  |      |       |      |   |       |      |  |   |       |  
|Total weighted average shares outstandingassuming dilution    |  |      | 3,212 |      |   | 2,727 |      |  |   | 1,480 |  
|                                                               |  |      |       |      |   |       |      |  |   |       |  
|Net income (loss) available per common shareassuming dilution |  | $    | 0.25  |      | $ | (0.14 | )    |  | $ | (0.36 | )
|                                                               |  |      |       |      |   |       |      |  |   |       |  



For the years ended
December 31, 2003 and 2002, $(0.14) and $(0.36) are both the basic and diluted net loss per common share. The weighted average shares outstanding for the following potentially dilutive securities were excluded from the computation of diluted loss
per common share because the effect would have been antidilutive.



|                                                                       |  |       |  |       |  |      
|---------------------------------------------------------------------- |  | ----- |  | ----- |  | -----
|                                                                       |  | 2004  |  | 2003  |  | 2002 
|Share data (000)                                                       |  |       |  |       |  |      
|Incremental shares from assumed conversion of Series A preferred stock |  |      |  |      |  | 1,417
|Stock options                                                          |  | 1,244 |  | 1,229 |  | 1,301
|                                                                       |  |       |  |       |  |      
|                                                                       |  | 1,244 |  | 1,229 |  | 2,718
|                                                                       |  |       |  |       |  |      



Preferred Stock



At December 31, 2004, 5,000,000 shares of preferred
stock, $.001 par value, were authorized and unissued. In 1996, 1,666,667 of such shares were designated as Series A Convertible Preferred Stock (Series A). On



61



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##### Table of Contents

OCCUPATIONAL HEALTH + REHABILITATION INC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollar amounts in thousands, except per share amounts)



November 6, 1996, the Company issued 1,416,667 shares of redeemable Series A in a private placement at a purchase price of $6.00 per share. Each share of
Series A was convertible, at the option of the holder, into one share of Common Stock, subject to certain adjustments. Commencing November 6, 1999, dividends became payable on the shares of Series A when and if declared by the Companys board
of directors and thereafter accrued at an annual cumulative rate of $0.48 per share, subject to certain adjustments. At December 31, 2002, $2,153 of dividends were accrued and included in the carrying value of the preferred stock.



On March 24, 2003, the Company repurchased all of its outstanding Series A
for (i) $2,700 in cash at closing, (ii) subordinated promissory notes (the Notes) in the principal amount of $2,700, and (iii) 1,608,247 shares of the Companys Common Stock. The Notes bore interest at 8.00% and were payable in
three equal principal installments, together with interest accrued thereon, 12, 15 and 18 months after the date of issuance. In the event a principal payment was not made when due, the interest rate on the unpaid principal and interest amount
increased to 15.00% until the default was cured.



On March 24,
2004, the Company paid $450 of the $900 principal amount due together with accrued interest thereon of $36. The Company elected to enter into such default in order to conserve its cash resources for operating purposes. The Company has determined
that this default, under the terms of the Notes, does not constitute a cross default with respect to third party contractual obligations of the Company other than CapitalSource.



The default under the Notes created a cross default under the CapitalSource Credit Line. Accordingly, the Company obtained a
waiver from CapitalSource on March 30, 2004 which waives any similar cross default that occurs as a result of any additional partial payment of the Notes by the Company through March 31, 2005. Also on March 30, 2004, the Note holders agreed in
writing to not pursue any remedies related to the failure to make a full installment payment on the Notes through March 31, 2005.



On each of May 5, 2004 and June 18, 2004, the Company paid an additional $225 of principal, being the balance of the amount due on its Notes as of March
24, 2004, together with accrued interest thereon of $22 and $27, respectively. After the payment on June 18, 2004, the Company was no longer in default on the Notes. However, the Company elected not to pay $900 due on the Notes on June 24, 2004 and
so reverted to default, at which time the Company began to accrue interest at 15.00% on the sum of the outstanding principal and the accrued interest to date.



On July 23, 2004, the Company paid $243 on the Notes, being the total interest accrued thereon as of that date. On each of
August 27, September 30, October 29, November 30 and December 22, 2004 the Company paid an additional $225 of principal together with accrued interest thereon of $26, $22, $16, $15 and $8, respectively. At December 31, 2004, the total amount
outstanding on the Notes was $678, of which $3 represented accrued interest.



In January 2005, the Company determined that, due primarily to a deterioration in the days sales outstanding in its accounts receivable and a consequent reduction in liquidity, it should conserve its cash and not pay
the balance outstanding on the Notes by March 31, 2005, the expiration date of the waiver granted by CapitalSource. Accordingly, effective March 7, 2005, the Company obtained from CapitalSource an extension of its waiver through December 31, 2005.
Also effective March 7, 2005, the Note holders agreed in writing to extend their original agreement dated March 24, 2004 to not pursue any remedies related to the failure to pay the Notes when due from March 31, 2005 to December 31, 2005.



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##### Table of Contents

OCCUPATIONAL HEALTH + REHABILITATION INC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollar amounts in thousands, except per share amounts)



Shares Reserved for Future Issuance



At December 31, 2004, the Company has reserved 1,367,547 shares of common
stock for future issuance under its Stock Plans.



8. Benefit Plans



Stock Plans



1998 Stock Plan: In January 1998, the Companys board of directors
adopted the 1998 Stock Plan which provided for the granting of up to 150,000 non-qualified stock options, incentive stock options, and stock appreciation rights to employees, directors, and consultants of the Company. In 2002, 2003, and 2004, the
Companys board of directors increased the number of shares of common stock issuable under the plan by 200,000, 50,000 and 100,000, respectively. At December 31, 2004, 1,020,000 shares were issuable under the 1998 Stock Plan.



1996 Stock Plan: In October 1996, the Companys board of directors
adopted the 1996 Stock Plan, which provides for the granting of up to 265,000 nonqualified stock options and stock appreciation rights to employees, directors and consultants of the Company.



Non-qualified options granted under both the 1998 and 1996 Stock Plans may
not be priced at less than 50% of the fair market value of the common stock on the date of grant.



1993 Stock Plan: The Companys 1993 Stock Plan provided for the granting of options to purchase up to 245,000 shares of the Companys common
stock during its ten year term, which elapsed in February 2003. No new options may now be granted from the plan. At December 31, 2004, options to purchase 52,052 shares had been forfeited since the expiration of the plan and are no longer available
for re-issuance.



The options in all of the above plans
generally become exercisable over a four-year period and generally expire in ten years.



A summary of the activity under the stock plans follows:



|                                  |  |           |   |  |                                |      |      |           |   |                               |   |      |  |           |                               |  |   |     
|--------------------------------- |  | --------- | - |  | ------------------------------ | ---- | ---- | --------- | - | ----------------------------- | - | ---- |  | --------- | ----------------------------- |  | - | ----
|                                  |  | 2004      |   |  | Weighted- averageExercisePrice |      | 2003 |           |   | Weighted-averageExercisePrice |   | 2002 |  |           | Weighted-averageExercisePrice
|Outstanding, at beginning of year |  | 1,228,576 |   |  | $                              | 2.08 |      | 1,301,631 |   |                               | $ | 2.54 |  | 1,095,117 |                               |  | $ | 2.93
|Granted                           |  | 159,495   |   |  |                                | 3.62 |      | 109,700   |   |                               |   | 1.45 |  | 308,500   |                               |  |   | 1.29
|Exercised                         |  |          |   |  |                                |     |      |          |   |                               |   |     |  |          |                               |  |   |    
|Canceled                          |  | (20,524   | ) |  |                                | 1.69 |      | (182,755  | ) |                               |   | 4.99 |  | (101,986  | )                             |  |   | 2.91
|                                  |  |           |   |  |                                |      |      |           |   |                               |   |      |  |           |                               |  |   |     
|Outstanding, at end of year       |  | 1,367,547 |   |  | $                              | 2.27 |      | 1,228,576 |   |                               | $ | 2.08 |  | 1,301,631 |                               |  | $ | 2.54
|                                  |  |           |   |  |                                |      |      |           |   |                               |   |      |  |           |                               |  |   |     



63



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##### Table of Contents

OCCUPATIONAL HEALTH + REHABILITATION INC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollar amounts in thousands, except per share amounts)



Related information for options outstanding and exercisable as of December 31, 2004 under the stock
plans is as follows:



|                         |  |                    |  |                    |  |                                       
|------------------------ |  | ------------------ |  | ------------------ |  | --------------------------------------
|Range of exercise prices |  | OptionsOutstanding |  | OptionsExercisable |  | Weighted- averageRemainingLife (years)
|$ 1.20 - 1.77            |  | 547,533            |  | 315,258            |  | 6.56                                  
|2.00 - 2.98              |  | 476,150            |  | 439,630            |  | 6.25                                  
|3.00 - 3.75              |  | 270,905            |  | 127,160            |  | 6.12                                  
|4.50 - 6.00              |  | 72,959             |  | 72,959             |  | 2.64                                  
|                         |  |                    |  |                    |  |                                       
|                         |  | 1,367,547          |  | 955,007            |  |                                       
|                         |  |                    |  |                    |  |                                       



Pro Forma
Information for Stock-Based Compensation



Pro forma
information regarding net income and earnings per share, as if the Company had used the fair value method of SFAS 123 to account for stock options issued under its Stock Plans, is presented below. The fair value of stock activity under these plans
was estimated at the date of grant using the minimum value method for options granted prior to 1996, the date of the Companys merger, and the Black-Scholes option pricing model for options granted in and subsequent to 1996. The following
weighted-average assumptions were used to determine the fair value for 2004, 2003 and 2002, respectively: a risk-free interest rate of 4.07% in 2004, 3.50% in 2003 and 3.40% in 2002; an expected dividend yield of 0% each year; an average volatility
factor of the expected market price of the Companys common stock over the expected life of the options of 1.131 in 2004, 1.056 in 2003 and 1.219 in 2002; and a weighted-average expected life of the options of between 5.75 years and 7.25 years.



Retirement Plan



The Company has a qualified 401(k) plan for employees meeting certain
eligibility requirements. The Company contributes up to 2% of an employees cash compensation depending on the employees contribution percentage. Company contributions to the 401(k) plan were $295, $290 and $294 during 2004, 2003 and
2002, respectively.



9. Subsequent Event



In January 2005, the Company determined that, due primarily to a
deterioration in the days sales outstanding in its accounts receivable and a consequent reduction in liquidity, it should conserve its cash and not pay the balance outstanding on its Notes by March 31, 2005, the expiration date of the waiver granted
by CapitalSource on March 30, 2004. Accordingly, effective March 7, 2005, the Company obtained from CapitalSource an extension of its waiver through December 31, 2005. Also effective March 7, 2005, the Note holders agreed in writing to extend their
original agreement dated March 24, 2004 to not pursue any remedies related to the failure of the Company to pay the Notes when due from March 31, 2005 to December 31, 2005.



64



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##### Table of Contents

SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS



Occupational Health + Rehabilitation Inc

December 31, 2004



|                   |  |                                              |           |   |      |   |           |      |  |   |            |  
|------------------ |  | -------------------------------------------- | --------- | - | ---- | - | --------- | ---- |  | - | ---------- | -
|                   |  | Allowance for Doubtful Accounts December 31, |          
|                   |  | 2004                                         |           |   | 2003 |   |           | 2002 | 
|Beginning balance  |  | $                                            | 1,082,000 |   |      | $ | 969,300   |      |  | $ | 1,168,800  |  
|Charged to revenue |  |                                              | 1,000,000 |   |      |   | 1,007,500 |      |  |   | 1,069,300  |  
|Deductions (1)     |  |                                              | (857,000  | ) |      |   | (894,800  | )    |  |   | (1,268,800 | )
|                   |  |                                              |           |   |      |   |           |      |  |   |            |  
|Ending balance     |  | $                                            | 1,225,000 |   |      | $ | 1,082,000 |      |  | $ | 969,300    |  
|                   |  |                                              |           |   |      |   |           |      |  |   |            |  

---

|(1) | Uncollectible accounts written off, net of recoveries.
|--- | ------------------------------------------------------



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##### Table of Contents

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.



March 31, 2005



Occupational Health + Rehabilitation IncBy:

/s/    JOHN C.
GARBARINOJohn C. Garbarino President, Chief Executive Officer and Director




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/    JOHN C.
GARBARINOJohn C.
Garbarino     |  | President And Chief Executive Officer (principal executive officer)   |  | March 31, 2005
|                                              |  |                                                                      
|/s/    KEITH G. FREYKeith G. Frey             |  | Chief Financial Officer And Secretary (principal financial officer)   |  | March 31, 2005
|                                              |  |                                                                      
|/s/    JANICE M.
GOGUENJanice M.
Goguen       |  | Vice President, Finance and Controller (principal accounting officer) |  | March 31, 2005
|                                              |  |                                                                      
|/s/    EDWARD L.
CAHILLEdward L.
Cahill       |  | Director                                                              |  | March 31, 2005
|                                              |  |                                                                      
|/s/    KEVIN J.
DOUGHERTYKevin J.
Dougherty   |  | Director                                                              |  | March 31, 2005
|                                              |  |                                                                      
|/s/    ANGUS M. DUTHIEAngus M. Duthie         |  | Director                                                              |  | March 31, 2005
|                                              |  |                                                                      
|/s/    STEVEN W.
GARFINKLESteven W.
Garfinkle |  | Director                                                              |  | March 31, 2005
|                                              |  |                                                                      
|/s/    DONALD W.
HUGHESDonald W.
Hughes       |  | Director                                                              |  | March 31, 2005
|                                              |  |                                                                      
|/s/    FRANK H. LEONEFrank H. Leone           |  | Director                                                              |  | March 31, 2005



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##### Table of Contents

EXHIBIT INDEX



|            |  |                                                                                                                                                                        
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                            
|            | 
|10.04       |  | 1998 Stock Plan (as fully amended)                                                                                                                                     
|            | 
|21.01       |  | Subsidiaries of the Company                                                                                                                                            
|            | 
|23.01       |  | Consent of PricewaterhouseCoopers LLP                                                                                                                                  
|            | 
|31.01       |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|            | 
|31.02       |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|            | 
|32.01       |  | 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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