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UNITED STATES
    SECURITIES AND EXCHANGE COMMISSION


Washington, D.C.
    20549










Form 10-K




|                                                |  |                                                                                             
|----------------------------------------------- |  | --------------------------------------------------------------------------------------------
|þ                                               |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|For the Fiscal Year Ended
    December 31, 2005
|OR                                             
|o                                               |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|For the transition period
    from          to 





Commission File No.: 0-51149


Emageon Inc.


(Exact name of registrant as
    specified in its charter)




|                                                                                                        |  |                                         
|------------------------------------------------------------------------------------------------------- |  | ----------------------------------------
|Delaware                                                                                                |  | 63-1240138                              
|(State or other jurisdiction
    of incorporation or organization)                                      |  | (I.R.S. Employer Identification
    No.)
|                                                                                                        |  |                                         
|1200 Corporate Drive,
    Suite 200
    Birmingham, Alabama(Address of principal
    executive offices) |  | 35242(zip
    code)                     





Registrants telephone number, including area code:


(205) 980-9222




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


None


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


Common Stock, $0.001 Par Value Per Share


(Title of Class)




o þ




o þ




þ o




Regulation S-K Form 10-K Form 10-K. o






o o þ




Rule 12b-2 o þ












DOCUMENTS
    INCORPORATED BY REFERENCE












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##### 



TABLE OF
    CONTENTS
  PART IItem 1:

Business


1Item 1A:

Risk Factors


16Item 1B:

Unresolved Staff
    Comments


25Item 2:

Properties


25Item 3:

Legal
    Proceedings


26Item 4:

Submission of
    Matters to a Vote of Security Holders


26PART IIItem 5:

Market for the
    Registrants Common Equity, Related Stockholder Matters and
    Issuer Purchases of Equity Securities


26Item 6:

Selected
    Consolidated Financial Data


27Item 7:

Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


28Item 7A:

Quantitative and
    Qualitative Disclosures About Market Risk


48Item 8:

Financial
    Statements and Supplementary Data


48Item 9:

Changes in and
    Disagreements With Accountants on Accounting and Financial
    Disclosure


48Item 9A:

Controls and
    Procedures


49Item 9B:

Other
    Information


49PART IIIItem 10:

Directors and
    Executive Officers of the Registrant


49Item 11:

Executive
    Compensation


49Item 12:

Security Ownership
    of Certain Beneficial Owners and Management and Related
    Stockholder Matters


49Item 13:

Certain
    Relationships and Related Transactions


49Item 14:

Principal
    Accountant Fees and Services


49PART IVItem 15:

Exhibits and
    Financial Statement Schedules


50INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS


F-1EX-21.1 SUBSIDIARY OF EMAGEON INC.EX-23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMEX-31.1 SECTION 302, CERTIFICATION OF THE CEOEX-32.1 SECTION 302, CERTIFICATION OF THE CFOEX-32 SECTION 906, CERTIFICATION OF THE CEO AND CFO




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PART I  SPECIAL
    NOTE REGARDING FORWARD-LOOKING STATEMENTS
  Form 10-K
   ITEM 1:  BUSINESS  Overview
       1




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Our
    Opportunity
        Increasing Number, Size and Complexity of Imaging
    Exams.
  Need for Advanced Visualization Tools.
 2




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Need for Complete Electronic Health
    Records.
  Shortcomings of Film-Based Image
    Management.
  Limitations of Current Methodologies for Managing Digital
    Medical Images. e.g.
 3




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Our
    Solutions
    
       Group

Benefits from our
    SolutionsAdministration

 Demonstrable return on
    investment(CEO, CFO and COO)

 Better service to
    physicians Improved staff
    productivity Improved satisfaction
    of referring physicians Elimination of many
    routine, non-productive and non-clinical tasksInformation Technology

 Lower total cost of
    operation(CIO and IT Department)

 Fault tolerant,
    redundant and reliable Ease of integration
    with different clinical information systems Multi-site,
    standards-based integration Focused, high quality
    implementation servicesDiagnostic Physicians

 Integrated, and
    easy-to-use
    visualization tools(Radiologists)

 Multi-point access to
    visualization tools and images Productivity gainsTreating Physicians

 Availability of
    easy-to-use,
    specialty specific visualization tools(Cardiologists, Surgeons, etc.)

 Faster turnaround of
    information for treatment planning Facilitates
    collaborative analysis with diagnostic physicians Improved treatment
    planning  4




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Single-Source, Enterprise-Level Image
    Management.
  Advanced Visualization Technology.
  Specialty-Specific Clinical Applications.
  Open Standards-Based Software.
  Effective Implementation, User Adoption and Support
    Services.
 5




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Our
    Strategy
    Expand Our Market Share by Attracting New
    Customers.
  Increase Penetration With Existing
    Customers.
  
    Increase Installations with Existing Multi-Facility
    Customers.  As of December 31, 2005, we had
    customer relationships with 17 multi-facility health care
    providers that control over 240 hospitals. Our initial contracts
    with these customers often provide for implementation of the
    content management functions and sometimes the advanced
    visualization functions of our EVMS solution at only a portion
    of the facilities managed by the parent company. We believe
    there are significant opportunities to expand our installed base
    at facilities that are part of multi-facility systems in which
    we have some level of customer relationship with the parent
    company or with an individual facility within the multi-facility
    system.
    Cross-Sell to Existing Customers.  We are also
    in a strong position to sell additional functionality to our
    existing customers, including advanced visualization tools for
    image-intensive medical specialties that may not have been part
    of the initial sale. Typically our initial sale to a customer is
    for medical content management. As follow-on sales
    opportunities, we offer our advanced visualization software and
    additional functionality to radiologists and other specialty
    groups within the organization. Our offering of the suite of
    cardiology products we recently obtained in the Camtronics
    acquisition gives us broader cross-selling opportunities than we
    had prior to the acquisition. We believe that our excellent
    customer relationships increase our customers comfort in
    purchasing new products or enhanced functionality from us.  Enhance Our Product Offerings.
  Continue to Deliver Superior Implementation, User Adoption
    and Customer Support Services.
 6




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Maintain Our Open-Standards Focus. off-the-shelf
  Our
    Product and Service Offerings
    Software
    Advanced Visualization Tools
  
    Sophistication.  The software makes use of
    complex processing techniques such as multi-planar reformat
    (MPR) and volumetric imaging for 3D imaging applications.
    Integration.  Imaging tools include integrated
    2D and 3D viewing methods that can be used simultaneously with
    the same image or images on the same computer.
    Ease of Use.  The system is intuitive and
    user-friendly so physicians can easily adapt its use into their
    current practice patterns.
    Application to Numerous Clinical
    Specialties.  The user interface automatically
    adjusts for the type of physician using the system, user
    preferences, the type of imaging device used to create the image
    (such as CT, X-ray or MRI), and the particular body part and
    tissue type being imaged.
    Platform Compatibility.  The system uses a
    common personal computer graphics standard, allowing off-site
    physicians to use inexpensive personal computers and permitting
    the enterprise to make use of lower-priced workstations with
    off-the-shelf
    graphics hardware.
    Web-enabled.  Physicians or other authorized
    users have secure access to images and advanced visualization
    tools at any network access point.  Clinical Content Management
 7




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
    Multi-Site and Multi-Department.  The system
    permits authorized users to access images from any network
    access point, including home, office or throughout the health
    care facility. It handles images created by multiple hospital
    departments and multiple image devices.
    Enterprise-Level Scalability.  We can
    install Clinical Content Management as a single facility
    application or as an enterprise-level solution to support the
    medical image management needs of large multi-facility health
    care providers. By using predictive technologies and local
    caching of images, the system provides optimal network speed and
    availability.
    Fault Tolerance.  We use an advanced, fault
    tolerant, high availability configuration on redundant server
    clusters with redundant storage systems. We support either full
    backup and recovery or mirrored archives in two different
    locations, enabling uninterrupted operation in the event of the
    loss of one archive.
    Open Standards.  Unlike many competitive image
    management systems, our system has been designed using an open
    standards architecture that leads to better integration with
    imaging devices and clinical information systems, improves the
    speed and reliability of transfers of medical image data and
    provides a lower total cost of ownership by avoiding unnecessary
    translation overhead.  Clinical Workflow
    HeartSuite VERICIS
  
    Elimination of film and paper-based processes
    Reduction of redundant tasks, including cine film handling, data
    entry, archiving and transcription
    Streamlined access to patient studies and reports
    Scalable and expandable to meet needs of any size cardiology
    department 8




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HeartSuite Hemodynamics
  HeartSuite CVIS
  Service
    and Support
      
    Adoption Success Management (ASM).  ASM is our
    services program that facilitates rapid and complete adoption by
    all relevant constituents during the implementation phase, which
    typically lasts several months. We have designed ASM to maximize
    the user implementation experience, promote behavioral change at
    all levels and increase the probability of complete
    implementation success.
    Total Solution Management (TSM).  TSM is an
    ongoing set of support services to ensure that our systems are
    highly available and optimally configured for the users. Through
    continuous remote monitoring of our solution, we analyze system
    and user behaviors and, when appropriate, intervene and make the
    necessary adjustments to prevent anticipated problems from
    occurring. We provide standard
    24-hour
    service and support for our software and any third-party
    components we provide to the customer. Our standard contracts
    with customers typically provide for a 99% guarantee of system
    availability and a 98% guarantee of component availability. Our
    system availability guarantee covers our solution as a whole,
    while the component guarantee covers each individual component,
    as in certain circumstances a component may fail without
    affecting system availability.
    Enterprise Performance Monitoring (EPM).  EPM
    is an enterprise-level performance monitoring tool that we use
    to measure the ultimate success of our customers
    implementation, including full adoption and effective use of the
    systems we provide. Our EPM service provides the customer with
    periodic reporting of system performance, operational
    performance and financial performance metrics to aid in
    maximizing the return on the customers investment in our
    system.   9




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Third-Party
    Components
    
    Servers.  Our software and the database run on
    a cluster of standard redundant servers.
    Data Storage.  We support industry standard
    storage configurations, including fault-tolerant RAID (redundant
    array of independent disks) systems.
    Backup/Recovery.  Our solution typically
    includes a tape library-based backup and recovery system that
    provides backup for our database, configuration files and the
    digital medical images. We also offer an optional configuration
    with mirrored archives in two locations, enabling uninterrupted
    operation in the event of the loss of one archive.
    Workstations and Monitors.  Customers typically
    implement our advanced visualization software using standard
    personal computer workstations and high-resolution monitors for
    visualization within the facility.
    Database.  Our software applications operate on
    Oracletm
    database technology and other standard relational database
    applications.
    Computed Radiography.  We offer computed
    radiography devices, which are manufactured by Eastman Kodak
    Company and Fujifilm Medical Systems USA, Inc. Computed
    radiography devices convert analog X-ray images into digital
    images.
    We also offer a software toolset for orthopedic surgeons which
    is licensed from Orthocrat, Ltd. and a voice recognition
    dictation system from Lanier Worldwide, Inc.  Our
    Technology
    
    Native DICOM Compatibility.  We have written
    our software to exploit the capabilities of the DICOM standard
    for medical image storage and workflow management, as
    promulgated by the American College of Radiology and the
    National Electronic Manufacturers Association. DICOM is an
    industry standard in medical imaging that defines the data
    elements, communication protocols, storage formats and workflow
    methods associated with medical imaging data and processes. Our
    software stores and manages medical images using native DICOM
    communications, preserves the DICOM information associated with
    the image and follows DICOM workflow methods. Using native DICOM
    communication means our solution does not require
    translation devices for converting the DICOM
    information into a proprietary storage or other format. We
    believe our commitment to DICOM as the underlying protocol for
    our software is a competitive advantage, delivering faster
    streaming, more efficient storage of the image and the ability
    to integrate our software to new imaging devices that output
    information using DICOM.
    Proprietary DICOM-Toolkit.  While DICOM is an
    industry standard protocol for medical image data management and
    storage, the software toolsets used to process, manage and use
    DICOM information are generally unique to particular software
    vendors. Unlike many of our competitors who license
    DICOM-toolkits from third parties, we have developed and own a
    DICOM-toolkit that we believe permits us to more rapidly
    integrate DICOM-based information into our software. We believe
    that the ownership and continued development of our
    DICOM-toolkit is a core technology strategy, in part because it
    reduces reliance on third-party software.
    Commitment to the IHE Technical Framework.  We
    are a leader in the implementation of the Integrated Healthcare
    Enterprise (IHE) technical framework. The Radiological Society
    of North America and the Healthcare Information and Management
    Systems Society created IHE, which represents a consortium of
    companies in the radiology and health care information systems
    fields. The 10




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
    Compatibility with the OPEN GL Graphics
    Standard.  Our advanced visualization software
    performs sophisticated 3D rendering and other graphics intensive
    functions that provide physicians the ability to view 3D medical
    images for diagnosis and treatment planning. Historically,
    workstations and graphics hardware that could perform the
    advanced rendering and other graphics functions needed for
    advanced visualization functionality were cost prohibitive for
    widespread use. Our advanced visualization software uses the
    OPEN GL graphics standard, which permits our customers, or
    off-site physicians affiliated with our customers, to purchase
    inexpensive personal computers and graphics hardware to perform
    sophisticated image analysis.
    Component-Based Software Engineering.  Our
    software architecture is based on a component-based services
    model. Our software development framework supports common and
    domain specific components that can be plugged in while the
    system is operating. By building flexible, dynamic, reusable
    components, we gain great flexibility to add functionality to
    our system and increase the reliability of our system because we
    can remedy problems at the component level rather than being
    forced to address issues throughout the entire application.  Customers
      Sales and
    Marketing
      Research
    and Development
   11




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
    improving physician and technologist workflow;
    developing and refining visualization capabilities including new
    3D and analysis applications; and
    data storage, retrieval, integration and comparison of past and
    current images; and
    extending imaging tools to referring physicians in multiple
    specialities      Competition
    
    companies that manufacture and sell digital imaging devices such
    as GE Healthcare, Siemens Medical Solutions and Philips Medical
    Systems, who may integrate some of the functionality provided by
    our products into their equipment or bundle it with the
    equipment sale;
    companies that have traditionally sold imaging films such as
    Eastman Kodak Company and Fujifilm Medical Systems USA, Inc.;
    companies that have traditionally sold health care information
    technology applications such as McKesson Corp. and Cerner
    Corp.; and
    a number of smaller companies that sell department-level or
    cardiology-specific PACS or specialty visualization tools.      
    product innovation;
    product quality and performance;
    customer service and support; 12




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
    the experience of our sales, marketing and service professionals;
    rapid development of new products and features;
    price;
    continued active involvement in the development of DICOM and
    other standards-based medical communication protocols; and
    product and policy decisions announced by competitors.  Intellectual
    Property
            ® ® ®
  Employees
   13




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Government
    Regulation
    Food and Drug Administration.
          Health Canada.
 14




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HIPAA Privacy and Security Regulations.
    Government Reimbursement.
  Fraud and Abuse. fraud-and-abuse
 15




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
    Anti-Kickback Law.  The anti-kickback
    provisions of the Social Security Act prohibit the exchange of
    anything of value with the intent to encourage utilization of
    items or services payable under a federal health care program.
    Courts have construed the anti-kickback law to mean that a
    financial arrangement will violate such law if even one of the
    purposes of one of the parties is to encourage patient referrals
    or other Medicare/Medicaid business, regardless of whether
    legitimate purposes also exist for the arrangement. Penalties
    for federal anti-kickback violations are severe. Conviction can
    result in up to five years imprisonment, a $25,000 fine per
    offense, and exclusion from participation under federal health
    care programs. Violators may also be assessed civil monetary
    penalties ranging from $10,000 to $50,000 per offense, as
    well as damage assessments equal to three times the total amount
    of the kickback. We believe that all of our arrangements with
    physicians and health care facilities have been fully lawful.
    But given the broad sweep of the federal anti-kickback law, we
    cannot assure you that all such arrangements will be found
    compliant with such law if examined by government regulators, to
    the extent that such regulators determine that any of our
    arrangements are subject to such law.
    Stark Law.  The Ethics in Patient Referrals
    Act, known as the Stark Law, also prohibits certain
    types of referral arrangements between physicians and health
    care entities. Physicians are prohibited under the original
    Stark Law, its subsequent Stark II amendment, and the Stark
    implementing regulations from referring patients for
    designated health services reimbursed under the
    Medicare and Medicaid programs to entities with which they have
    a financial relationship or an ownership interest, unless such
    referrals fall within a Stark exception. Violations of the
    statute can result in civil monetary penalties of up to
    $15,000 per improper referral and exclusion from the
    Medicare and Medicaid programs. We do not believe that our
    arrangements with physician consultants or other health care
    providers violate the Stark Law, but we cannot provide
    assurances to such effect, nor can we assure you that we will
    not in the future be subject to Stark Law penalties.
    State Law.  Various states have enacted
    equivalents of the foregoing federal statutory and regulatory
    provisions. These state law equivalents would apply to items or
    services reimbursed by any third-party payor, including
    commercial payors. Many of these laws vary significantly from
    state to state, rendering compliance a costly and uncertain
    endeavor.  Available
    Information
  www.emageon.com.
  ITEM 1A:
    RISK
    FACTORS  Our business involves various risks and uncertainties, some
    of which are discussed in this section. The information
    discussed below should be considered carefully with the other
    information contained in this Annual Report on
    Form 10-K
    and the other documents and materials we file with the SEC, as
    well as news releases and other information we may publicly
    disseminate from time to time. The risks and uncertainties
    described below are not the only ones we face. Additional risks
    and uncertainties not presently known to us, or that we
    currently believe to be immaterial, may also adversely affect
    our business. Any of the following risks or uncertainties that
    develop into actual events could have a materially adverse
    effect on our business, financial condition or results of
    operations, or on the market price of our common stock.
  Our
    industry includes many large companies that have significantly
    greater resources and other competitive advantages, and we may
    not be able to compete successfully against these
    competitors.   16




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We
    have incurred substantial operating losses in the past and may
    not be profitable in the future.    Our
    operating results may fluctuate, which makes quarterly results
    difficult to predict and could cause our stock price to decline
    or exhibit volatility.  quarter-to-quarter
  
    Long Sales Cycle:  Many of our customers are
    large organizations with lengthy and unpredictable purchasing
    processes. Because our solution is a major capital expenditure
    involving a multi-year commitment, it can take a significant
    period of time to close a sale. We typically have to educate our
    prospective customers on the benefits of our solution and obtain
    approval from senior management. Consolidation in the health
    care industry may also delay or extend the sales cycle for
    affected customers. As a result, our solution has a typical
    sales cycle, from the initial contact to the placing of an
    order, of six to nine months, and sometimes much longer. This
    long and unpredictable sales cycle may contribute to substantial
    fluctuations in our quarterly operating results.
    Timing of Revenue:  A significant portion of
    our revenue each quarter comes from sales made in prior periods,
    as we implement our solution and perform services under
    multi-year maintenance and support agreements with our
    customers. As a result, a decline in sales, client renewals, or
    market acceptance of our products in a particular quarter will
    not necessarily be reflected in revenue in that quarter and may
    adversely affect our revenue and profitability in future
    quarters. Moreover, a majority of our customers now purchase
    perpetual licenses from us. Unlike term licenses, where license
    revenue and certain implementation fees are recognized over the
    life of an initial term typically ranging from two to seven
    years, with perpetual licenses the full software license fee and
    associated implementation fees are recognized as revenue in the
    month when all revenue recognition criteria are met. Because
    revenue recognition may not be achieved in the period expected,
    our revenue could fluctuate from quarter to quarter solely due
    to the timing of satisfying our revenue recognition criteria. 17




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
    Implementation Delays:  Once we enter into a
    customer contract, our recognition of revenue from that contract
    depends, to a significant extent, on the timing of our
    implementation of the project. Customer implementation schedules
    may be delayed for reasons beyond our control, such as customer
    scheduling changes, delays in acceptance testing by customers,
    unusual integration issues or delays in obtaining equipment from
    third-party vendors. Delays in the implementation of a
    particular project may require us to delay the recognition of
    anticipated revenue from one quarter to another and may
    contribute to substantial fluctuations in our quarterly
    operating results.    Our
    failure to manage growth effectively may strain our management,
    personnel and other resources, which could impair our ability to
    meet customer requirements.    Acquisitions
    could result in integration difficulties, dilution or other
    adverse financial consequences.    Analogic
    Corporation, the former owner of Camtronics, identified a
    material weakness in its internal control over financial
    reporting due to control deficiencies at Camtronics, and we
    cannot be certain that such control deficiencies have been fully
    remediated, or that other control deficiencies will not be
    identified that will lead us to conclude that a material
    weakness in our internal control over financial reporting
    exists.   18




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We
    depend on highly specialized personnel, and the loss or failure
    to identify, hire, motivate and retain additional highly
    specialized personnel could adversely affect our ability to grow
    our business.      We are
    dependent on our senior executive management, and the loss of
    any member of senior executive management may prevent us from
    managing and growing our businesses effectively.  day-by-day
 19




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The
    loss of Ascension Health or future major customers could
    materially and adversely affect our results of operations and
    financial condition because portions of our future revenues are
    tied to continuing relationships with significant
    customers.    Our
    products are complex and are operated in a wide variety of
    network configurations, which could result in errors or product
    failures.    Changes
    in our third-party reselling arrangements may affect our
    revenues and our ability to deliver a complete solution, which
    may adversely impact our revenue and cause customer
    dissatisfaction.    We may
    not be able to respond to changes in our industry, competitive
    technologies, changes in customer requirements or evolving
    industry standards, which would result in reduced revenue and
    profit margins.   20




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Our
    customers depend on third-party reimbursement. A reduction or
    other change in third-party reimbursements to our customers
    could negatively affect our business by reducing the demand for
    our products or adversely impacting our pricing.    If we
    fail to obtain or maintain necessary FDA clearances for our
    products, if such clearances are delayed, or if our products are
    subject to FDA recall, we will be unable to distribute and
    market some of our products.     21




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If we
    fail to comply with other potentially applicable health care
    regulations, we could face substantial penalties, and our
    business, operations, and financial condition could be adversely
    impacted.    
    The Federal Anti-Kickback Statute prohibits the exchange of
    anything of value with the intent to encourage utilization of
    services payable under a federal health care program. Courts
    have construed this statute as being implicated even when only
    one of the purposes of one of the parties is to encourage
    patient referrals or other federal health care business, even if
    legitimate purposes also exist for the arrangement.
    The Federal Ethics in Patient Referrals Act, known as the Stark
    Law, prohibits (absent an applicable Stark exception) referrals
    for designated health services reimbursable under Medicare or
    Medicaid by a physician to an entity with which the physician,
    or an immediate family member, has a financial relationship.
    The Federal Health Insurance Portability and Accountability Act
    of 1996, or HIPAA, has increased the scope of federal
    fraud-and-abuse
    laws by applying them to prohibit fraudulent conduct in
    connection with any health care benefit program, not only
    federal health care programs. Although we are not a covered
    entity that is directly subject to liability under the HIPAA
    privacy and security standards, we could be impacted by such
    regulations through contractual relations with those of our
    customer base who are covered entities.
    State law equivalents of each of the above federal laws, such as
    anti-kickback, self-referral, and false claims laws, may apply
    to items or services reimbursed by any third-party payor
    (including commercial insurers). State laws governing the
    privacy of health information in certain circumstances, many of
    which differ from each other in significant ways and often are
    not preempted by HIPAA (thus complicating compliance efforts)
    and some of which may apply to us directly, may also affect our
    operations.   22




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We may
    not be able to raise additional capital on acceptable terms to
    fund our operations, develop product enhancements or fund
    acquisitions, which could adversely affect our growth
    prospects.    
    develop new technologies;
    enhance existing product lines, such as expanding our advanced
    visualization tools product line to apply to additional clinical
    specialties;
    fund additional sales and marketing programs;
    invest in or acquire complementary businesses, product lines or
    technologies; or
    hire additional personnel, particularly to expand sales,
    marketing, research and development.    If the
    market for digital medical imaging products and services does
    not develop as we expect, our business strategy may be
    ineffective, and we may not be able to grow our
    business.    
    the availability of high performance computers and storage
    systems at reduced prices;
    the continuing development of industry standards for the
    generation, transmission and storage of medical imaging data;
    changing dynamics in the health care industry, including
    consolidation and third-party reimbursement, which are driving
    increased automation across multiple sites; and
    changing medical practices, including demand for more and better
    medical imaging.    Product
    liability claims may require us to pay damages, reduce the
    demand for our products, and harm our reputation.   23




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If we
    fail to protect our intellectual property rights, our
    competitors may take advantage of our ideas to compete more
    effectively with us.      Our
    operating results could suffer if we become subject to a
    protracted infringement claim or litigation or a significant
    damage award.    
    costly litigation and damage awards;
    diversion of management attention and resources;
    product sales and distribution delays or suspensions, either
    temporary or permanent; and
    the need to enter into royalty or licensing agreements, which
    may not be available on terms acceptable to us, if at all.    Our
    directors may not be held personally liable for certain actions,
    which could discourage stockholder suits against
    them.   24




---



##### Table of Contents



Delaware
    law and certain anti-takeover provisions of our corporate
    documents could delay or prevent a third party from acquiring us
    or a change in control even if it would benefit our
    stockholders.    
    our board of directors may issue 200,000 shares of blank
    check preferred stock without stockholder approval and that may
    be substantially dilutive or contain preferences or rights
    objectionable to an acquiror;
    our board of directors is comprised of classes of directors with
    staggered, three-year terms so that only a portion of our
    directors is subject to election at each annual meeting;
    our board of directors can amend our bylaws without stockholder
    approval;
    stockholders cannot call special meetings of stockholders;
    stockholders cannot act by written consent;
    stockholders must give advance notice to nominate directors for
    election or to submit proposals at stockholder meetings;
    we may be obligated to make payments under executive employment
    agreements in the event of a change in control; and
    some Delaware statutes restrict or prohibit certain transactions
    with affiliated or interested parties and permit the adoption of
    poison pills without stockholder approval.    ITEM 1B:
    UNRESOLVED
    STAFF COMMENTS     ITEM 2:
    PROPERTIES   25




---



##### Table of Contents



ITEM 3:
    LEGAL
    PROCEEDINGS     ITEM 4:
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS    PART II   ITEM 5:
    MARKET
    FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
    MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES  Market
    for Common Stock      2005 Quarter Ended

High


LowMarch 31, 2005

$
18.50


$
14.35June 30, 2005

$
17.29


$
13.99September 30, 2005

$
15.00


$
11.30December 31, 2005

$
16.47


$
12.35   Dividends
    Use of
    Proceeds from Initial Public Offering      Purchases
    of Equity Securities by the Issuer and Affiliated
    Purchasers   26




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##### Table of Contents



ITEM 6:
    SELECTED
    CONSOLIDATED FINANCIAL DATA    Year Ended
    December 31,2001


2002


2003


2004


2005(Dollars in thousands, except
    per share data)Consolidated Statements of
    Operations Data(1):Revenue:System sales

$
1,868


$
8,437


$
17,234


$
33,441


$
50,041Support services


630



4,182



6,057



12,361



23,750Total revenue


2,498



12,619



23,291



45,802



73,791Cost of revenue:System sales


1,031



6,316



10,227



21,452



28,316Support services


1,396



4,040



7,493



10,728



14,648Total cost of revenue


2,427



10,356



17,720



32,180



42,964Gross profit


71



2,263



5,571



13,622



30,827Operating expenses:Research and development


1,952



2,383



4,143



6,021



10,697Sales and marketing


4,383



4,456



6,144



9,027



11,830General and administrative


3,050



3,149



5,793



8,024



12,308Amortization and write-off of
    intangible assets related to Camtronics acquisition


















993Integration costs related to
    Camtronics acquisition


















244Loss on contract from issuance of
    warrants


550















Total operating expenses


9,935



9,988



16,080



23,072



36,072Operating loss


(9,864
)


(7,725
)


(10,509
)


(9,450
)


(5,245
)Interest income (expense), net


151



(601
)


(850
)


(1,022
)


248Net loss

$
(9,713
)

$
(8,326
)

$
(11,359
)

$
(10,472
)

$
(4,997
)Basic and diluted net loss per
    share data:Net loss per share:Basic and Diluted

$
(7.41
)

$
(6.38
)

$
(5.79
)

$
(4.07
)

$
(0.28
)Weighted average shares:Basic and Diluted


1,313,693



1,314,238



1,973,108



2,589,832



17,975,083Selected Cash Flow
    Data:Cash provided by (used in)
    operations

$
(4,280
)

$
(7,847
)

$
(2,377
)

$
4,959


$
(1,881
)   27




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##### Table of Contents



As of
    December 31,2001


2002


2003


2004


2005(Dollars in thousands)Consolidated Balance Sheet
    Data:Cash and cash equivalents

$
3,399


$
2,242


$
2,340


$
5,995


$
15,520Marketable securities


















4,951Intangible assets, net










8,000



6,873



34,277Total assets


15,699



24,990



29,050



41,768



117,944Total debt and capital lease
    obligations


2,100



10,260



8,467



9,489



3,749Redeemable preferred stock


24,269



24,326



30,282



30,348



Total stockholders equity
    (deficit)


(17,369
)


(20,508
)


(23,535
)


(32,370
)


63,639Other Data (unaudited, in
    millions):Contracted backlog(2)

$
35.3


$
55.4


$
82.7


$
118.2


$
158.0     (1)
    
    On November 1, 2005, we acquired Camtronics Medical
    Systems, Ltd., and on May 30, 2003, we merged with
    Ultravisual Medical Systems Corporation. Both the acquisition
    and the merger were accounted for as purchases under Statement
    of Financial Accounting Standards No. 141, Business
    Combinations. Accordingly, the results of operations of
    Camtronics Medical Systems, Ltd. and Ultravisual Medical Systems
    Corporation have been included in the accompanying consolidated
    financial statements since the respective dates of acquisition.
    For more information, see Note 4 of the notes to our
    consolidated financial statements.(2)
    
    We define contracted backlog as the aggregate dollar value of
    unrecognized revenue from all executed contracts at a given
    point in time.  ITEM 7:
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS  Company
    Overview
        Results
    Overview
   28




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##### Table of Contents



Important
    Developments
        Our
    Market
    
    Increasing procedure volumes
    Increasing procedure size
    Modality blending, a layering of studies from two
    separate modalities for diagnostic and treatment purposes
    Expanding adoption and use of standards
    Increasing emphasis by healthcare providers and government
    agencies on electronic health record integration
    Body transparency, a new paradigm for navigating through large
    volumes of information    
    MR and CT angiography
    Multi-Detector CT for heart and chest imaging 29




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##### Table of Contents




    CT/PET Fusion
    Cardiac catheterization      Significant
    Events in 2005
    
    During February 2005, we entered into a ten-year contract with
    Sisters of St. Francis Health Services, Inc., an integrated
    network of 12 hospitals, clinics and associated facilities
    located in Indiana and Illinois.
    During March 2005, our quality management system received ISO
    13485:2003 certification from the certification body,
    Lloyds Register Quality Assurance, for both the Madison,
    Wisconsin and Birmingham, Alabama offices. This certification is
    issued for the design and management of software manufacturing
    and for services used by healthcare provider organizations for
    the clinical analysis, management, storage, distribution and
    visualization of digital medical images and corresponding data.
    During May 2005, we announced enhancements to our advanced
    visualization software allowing radiologists and treating
    physicians to better use volume rendering and 3D navigation in
    one native, integrated, open-standards package. This improvement
    means physicians can utilize both 2D and 3D tools without having
    to resort to third-party software and proprietary hardware to
    analyze medical images  offering time-savings
    and increased productivity.
    During September 2005, we received certification under the
    Canadian Medical Device Conformity Assessment System recognizing
    our ISO 13485:2003 status in Canada. We also received our
    medical device license from Health Canada to allow us to market
    our products in Canada. We believe that there may be a strong
    opportunity for business with multi-facility providers
    throughout the Canadian marketplace.
    During November 2005, we entered into a contract with Meridian
    Health, a leading integrated delivery system serving central New
    Jersey. The agreement with Meridian Health represented our first
    combined sale of the Emageon Enterprise Visual Medical System
    with the full suite of Camtronics cardiology imaging
    products.
    During November 2005, we entered into a contract with The Johns
    Hopkins Hospital, a world-renowned medical center headquartered
    in Baltimore, Maryland.
    Also during November 2005, we entered into an agreement with
    Orthocrat Ltd. to distribute TraumaCad, Orthocrats
    orthopedic surgical planning application. This agreement allows
    us to further extend our enterprise vision by offering
    additional leading edge tools to orthopedic specialists in our
    customer base. 30




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##### Table of Contents



Change in
    Financial Position
    
    We issued 10,843,411 shares of common stock upon the
    automatic conversion of outstanding shares of preferred stock
    into shares of common stock.
    We sold 5,750,000 shares of common stock in connection with
    the public offering.
    We issued 537,082 shares of common stock upon exercise of
    mandatorily redeemable warrants.
    We received total cash proceeds (net of underwriting discount
    and offering expenses) of $67.2 million.
    With a portion of the proceeds, we repaid $4.0 million of
    our subordinated debt. We also recorded a non-cash interest
    charge of $0.6 million for the write-off of the debt
    discount related to the subordinated debt.
    We invested the remaining proceeds in cash equivalents and
    short-term marketable securities.
    In November 2005, we utilized $40 million of the cash
    proceeds to purchase Camtronics Medical Systems, Ltd.    Sources
    of Revenue
      year-to-year
 31




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##### Table of Contents



not-for-profit
  Cost of
    Revenue
          Gross
    Profit
    
    actual sales prices negotiated in the contracting process;
    amount of amortization of acquired software and internally
    developed capitalized software;
    costs associated with purchasing and manufacturing third-party
    components;
    fluctuations in prices received from third-party component
    manufacturers and distributors relative to the
    mark-up
    percentages provided for in customer contracts. 32




---



##### Table of Contents




    actual services fees negotiated during the contracting process;
    productivity of our professional service team;
    costs of service agreements related to third-party components
    included in our solution; and
    costs associated with the use of outside contractors.  Operating
    Expenses
  Research and Development.
  Sales and Marketing.
  General and Administrative.
  Depreciation.
  Stock-Based Expenses.
  Critical
    Accounting Policies and Estimates
      Revenue Recognition and Deferred Revenue.
 33




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##### Table of Contents



(SOP 97-2), Software Revenue Recognition
            
    Persuasive evidence of an arrangement
    exists:  It is our customary practice to have a
    written contract, which is signed by both the customer and us,
    or a purchase order from those customers that have previously
    negotiated a standard end-user license arrangement, prior to
    recognizing revenue on an arrangement.
    Delivery has occurred:  It is our customary
    practice to obtain acceptance for our software, which is
    evidenced by written customer acknowledgement. In the event that
    we grant a customer the right to specified upgrades, we defer
    recognition of the entire arrangement fee until we deliver the
    specified upgrades as we have not established vendor-specific
    objective evidence (VSOE) of fair value for specified upgrades.
    Specified upgrades include, but are not limited to, future
    software deliverables that are stated in the customer contract.
    The customers payment is deemed fixed or
    determinable:  We assess whether fees are fixed or
    determinable and free of contingencies or significant
    uncertainties at the time of sale and recognize revenue when all
    other revenue recognition requirements are met. While our
    standard payment terms are net 30 to 45 days, we have, on a
    few occasions, extended payment terms beyond 45 days (but
    none greater than six months) to creditworthy customers. We have
    established a successful history of collection, without
    concessions, on these receivables, therefore satisfying the
    required criteria for revenue recognition. If the fee is
    determined not to be fixed or determinable, we recognize revenue
    as the amounts become due and payable.
    Collection is probable:  Likelihood of
    collection is assessed on a
    customer-by-customer
    basis. Both new and existing customers are subjected to a credit
    review that evaluates such customers financial position
    and ultimately their ability to pay. For follow-on sales to
    existing customers, prior payment history is also used to
    evaluate probability of collection. If it is determined from the
    outset of the arrangement that collection is not probable based
    upon our credit review process, revenue is recognized on a
    cash-collected basis if all other criteria are met.   34




---



##### Table of Contents



Revenue
    Recognition in Financial Statements.
  No. 00-21, Accounting for Revenue Arrangements with Multiple
    Deliverables (EITF 00-21). EITF 00-21
     35




---



##### Table of Contents



SOP 97-2
    Research and Development Costs.
 36




---



##### Table of Contents



product-by-product
  Intangible and Other Long-Lived Assets.
  Results
    of Operations
  Revenue
    Year Ended
    December 31,


Year Ended
    December 31,2005


2004


Change


Change (%)


2004


2003


Change


Change (%)(In thousands except
    percentages)


(In thousands except
    percentages)System sales

$
50,041


$
33,441


$
16,600



49.6
%

$
33,441


$
17,234


$
16,207



94.0
%Percentage of total revenue


67.8
%


73.0
%










73.0
%


74.0
%Support services

$
23,750


$
12,361


$
11,389



92.1
%

$
12,361


$
6,057


$
6,304



104.1
%Percentage of total revenue


32.2
%


27.0
%










27.0
%


26.0
%Total revenue

$
73,791


$
45,802


$
27,989



61.1
%

$
45,802


$
23,291


$
22,511



96.7
%      37




---



##### Table of Contents



Cost
    of Revenue
    Year Ended
    December 31,


Year Ended
    December 31,2005


2004


Change


Change (%)


2004


2003


Change


Change (%)(In thousands except
    percentages)


(In thousands except
    percentages)Cost of system sales revenue

$
28,316


$
21,452


$
6,864



32.0
%

$
21,452


$
10,227


$
11,225



109.8
%Percentage of system sales revenue


56.6
%


64.1
%










64.1
%


59.3
%Cost of support services revenue

$
14,648


$
10,727


$
3,921



36.6
%

$
10,728


$
7,493


$
3,235



43.2
%Percentage of support services
    revenue


61.7
%


86.8
%










86.8
%


123.7
%Total cost of revenue

$
42,964


$
32,179


$
10,785



33.5
%

$
32,180


$
17,720


$
14,460



81.6
%Percentage of total revenue


58.2
%


70.3
%










70.3
%


76.1
%    38




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##### Table of Contents



Gross
    Margin Percentage
    Research
    and Development (R&D)
  Year Ended
    December 31,


Year Ended
    December 31,2005


2004


Change


Change (%)


2004


2003


Change


Change (%)(In thousands except
    percentages)


(In thousands except
    percentages)R&D Expense

$
10,697


$
6,021


$
4,676



77.7
%

$
6,021


$
4,143


$
1,878



45.3
%% of Revenue


14.5
%


13.1
%










13.1
%


17.8
%    39




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##### Table of Contents



Sales
    and Marketing (S&M)
  Year Ended
    December 31,


Year Ended
    December 31,2005


2004


Change


Change (%)


2004


2003


Change


Change (%)(In thousands except
    percentages)


(In thousands except
    percentages)S&M Expense

$
11,830


$
9,027


$
2,803



31.1
%

$
9,027


$
6,144


$
2,883



46.9
%% of Revenue


16.0
%


19.7
%










19.7
%


26.4
%          40




---



##### Table of Contents



state-of-the-art
    General
    and Administrative (G&A)
  Year Ended
    December 31,


Year Ended
    December 31,2005


2004


Change


Change (%)


2004


2003


Change


Change (%)(In thousands except
    percentages)


(In thousands except
    percentages)G&A Expense

$
12,308


$
8,024


$
4,284



53.4
%

$
8,024


$
5,793


$
2,231



38.5
%% of Revenue


16.7
%


17.5
%










17.5
%


24.9
%     
    Administrative expense has increased $1.9 million and
    $0.7 million for the twelve months ended December 31,
    2005, and December 31, 2004, as compared to corresponding
    periods in 2004 and 2003, respectively. The increases occurred
    in insurance, accounting and legal fees, consultants, and other
    professional fees mainly as a result of our becoming a public
    company in 2005 and associated expenses incurred for compliance
    and regulatory affairs.
    Depreciation expense has increased $1.1 million and
    $0.2 million for the twelve months ended December 31,
    2005, and December 31, 2004, as compared to corresponding
    periods in 2004 and 2003, respectively, mainly as a result of
    increased purchases of employee computer equipment, server
    equipment for the internal engineering laboratory, and testing
    equipment.
    Stock-based compensation has increased $0.7 million and
    $0.6 million for the twelve months ended December 31,
    2005, and December 31, 2004, as compared to corresponding
    periods in 2004 and 2003, respectively. The majority of stock
    options with an intrinsic value were issued during 2004 and the
    beginning of 2005; thus we recorded minimal expense during the
    first nine months of 2004. Periodic stock-based compensation has
    remained consistent during 2005 as fewer options have been
    granted. 41




---



##### Table of Contents




    Personnel expense has increased $0.6 million and
    $0.5 million for the twelve months ended December 31,
    2005, and December 31, 2004, as compared to corresponding
    periods in 2004 and 2003. New employees have been added in the
    accounting, human resources and general administrative functions
    in support of our increased employee base and increased amount
    of administrative transactions and activity. In addition,
    associated costs such as travel, communications and rent have
    increased in conjunction with the growth in our employee base.    Amortization
    and Write-Off of Intangible Assets related to Camtronics
    Acquisition
  Accounting for the Cost of Computer Software to Be Sold,
    Leased or Otherwise Marketed
  Integration
    Costs Related to Camtronics Acquisition
    Operating
    Income (Loss)
   42




---



##### Table of Contents



Other
    Income and Expense
      Quarterly
    Results of Operations
    Quarter EndedMarch 31,


June 30,


September 30,


December 31,


March 31,


June 30,


September 30,


December 31,2004


2004


2004


2004


2005


2005


2005


2005(Dollars in thousands, except
    per share data)Revenue:System sales

$
4,909


$
8,761


$
7,458


$
12,313


$
7,719


$
13,402


$
13,490


$
15,430Support services


2,208



3,356



2,864



3,933



3,617



5,168



6,116



8,849Total revenue


7,117



12,117



10,322



16,246



11,336



18,570



19,606



24,279Cost of revenue:System sales


3,489



4,117



5,554



8,292



4,823



5,753



7,206



10,534Support services


2,279



2,414



2,949



3,086



3,083



3,322



3,389



4,854Total cost of revenue


5,768



6,531



8,503



11,378



7,906



9,075



10,595



15,388Gross profit


1,349



5,586



1,819



4,868



3,430



9,495



9,011



8,891Operating expenses:Research and development


1,270



1,303



1,581



1,867



2,385



2,533



2,364



3,415Sales and marketing


1,738



2,407



2,359



2,523



2,689



2,521



2,344



4,276General and administrative


1,741



1,832



2,079



2,372



2,555



2,876



2,838



4,039Amortization and write-off of
    intangible assets related to Camtronics acquisition






























993Integration costs related to
    Camtronics acquisition






























244Total operating expenses


4,749



5,542



6,019



6,762



7,629



7,930



7,546



12,967Operating income (loss)


(3,400
)


44



(4,200
)


(1,894
)


(4,199
)


1,565



1,465



(4,076
)Other expense, net


192



188



333



309



619



(335
)


(366
)


(166
)Net income (loss)

$
(3,592
)

$
(144
)

$
(4,533
)

$
(2,203
)

$
(4,818
)

$
1,900


$
1,831


$
(3,910
)Net income (loss) per
    share  basic

$
(1.48
)

$
(0.06
)

$
(1.69
)

$
(0.82
)

$
(0.42
)

$
0.09


$
0.09


$
(0.19
)Net income (loss) per
    share  diluted

$
(1.48
)

$
(0.06
)

$
(1.69
)

$
(0.82
)

$
(0.42
)

$
0.09


$
0.09


$
(0.19
)    43




---



##### Table of Contents



Revenue.
  Cost of Revenue.
  Operating Expenses.
  Operating Income (Loss).
  
    our ability to retain and increase sales to existing customers,
    attract new customers and satisfy our customers
    requirements;
    our ability to successfully integrate our acquisition of
    Camtronics;
    length of the sales cycle for our solution;
    implementation delays at customer sites, whether within or
    outside our control;
    renewal rates for our solutions;
    changes in our pricing policies;
    new product introductions and product enhancements by us or our
    competitors;
    effectiveness of our sales force;
    buying and capital budgeting patterns of our customers;
    our success in selling our solutions to large multi-facility
    health care providers;
    technical difficulties or downtime in our solutions;
    general economic conditions in the U.S.;
    additional investments in our solutions or operations; and
    regulatory compliance costs.  quarter-to-quarter
 44




---



##### Table of Contents



Liquidity
    and Capital Resources
    December 312005


2004Working capital

$
10,717


$
(9,404
)Current ratio*


1.2:1.0



0.7:1.0Cash, cash equivalents and
    marketable securities


20,471



5,994Short-term borrowings and
    long-term debt


3,749



9,489     *
    
    Current ratio is the ratio of current assets to current
    liabilities.    Operating
    Activities
         45




---



##### Table of Contents



Investing
    Activities
          Financing
    Activities
      Payments Due by PeriodLess Than








More ThanContractual Cash
    Obligations

Total


1 Year


1-3 Years


3-5 Years


5 Years(Dollars in thousands)Long-term debt, including interest

$
2,943


$
2,181


$
762


$



$
Capital lease obligations


1,063



820



243







Operating leases


7,292



1,419



2,951



2,057



865Total contractual cash obligations

$
11,298


$
4,420


$
3,956


$
2,057


$
865   st
 46




---



##### Table of Contents



Off-Balance
    Sheet Arrangements
    Recently
    Issued Accounting Pronouncements
  Share-Based Payment
 47




---



##### Table of Contents



Inventory Costs.
  Accounting Changes and Error Corrections Accounting
    Changes Reporting Changes in
    Interim Financial Statements.
  ITEM 7A:
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
    RISK      ITEM 8:
    FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA  page F-1
  ITEM 9:
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURE   48




---



##### Table of Contents



ITEM 9A:
    CONTROLS
    AND PROCEDURES  Evaluation
    of Disclosure Controls and Procedures
  Rules 13a-15(e) 15d-15(e)
  Changes
    in Internal Control over Financial Reporting
  Rules 13a-15(f) 15d-15(f)
  ITEM 9B:
    OTHER
    INFORMATION   PART III  ITEM 10:
    DIRECTORS
    AND EXECUTIVE OFFICERS OF THE REGISTRANT    www.emageon.com.
  ITEM
    11:
    EXECUTIVE
    COMPENSATION    ITEM
    12:
    SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
    RELATED STOCKHOLDER MATTERS    ITEM
    13:
    CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS    ITEM
    14:
    PRINCIPAL
    ACCOUNTANT FEES AND SERVICES   49




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##### Table of Contents



PART IV  ITEM 15:
    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES  (a)
    The following documents are filed as part of this Annual Report:  1.
    Financial
    Statements PageNumber inDescription

ReportReport of Independent Registered
    Public Accounting Firm

F-2Consolidated Balance Sheets as of
    December 31, 2005 and 2004

F-3Consolidated Statements of
    Operations for the years ended December 31, 2005, 2004 and 2003

F-4Consolidated Statements of
    Stockholders Equity for the years ended December 31, 2005,
    2004 and 2003

F-5Consolidated Statements of Cash
    Flows for the years ended December 31, 2005, 2004 and 2003

F-6Notes to Consolidated Financial
    Statements

F-7   2.
    Financial
    Statement Schedules  Schedule II  Valuation
    and Qualifying Accounts and Reserves for the three years ended
    December 31, 2005

Follows page F-29     3.
    Exhibits    Exhibit No.

Description2
.1

Agreement and Plan of Merger,
    dated as of April 30, 2003, by and among Emageon, Inc.,
    Emageon  UV Development Corporation, Ultravisual
    Medical Systems Corporation and Jeff Rusinow as
    Stockholders Representative (incorporated by reference to
    Exhibit 2.1 to the Companys Registration Statement on
    Form S-1,
    Registration
    No. 333-120621,
    filed on November 19, 2004)3
.1

Emageon Inc. Amended and Restated
    Certificate of Incorporation (incorporated by reference to
    Exhibit 3.2 to the Companys Registration Statement on
    Form S-1/A,
    Registration
    No. 333-120621,
    filed on January 25, 2005)3
.2

Emageon Inc. Amended and Restated
    Bylaws (incorporated by reference to Exhibit 3.4 to the
    Companys Registration Statement on
    Form S-1/A,
    Registration
    No. 333-120621,
    filed on January 25, 2005)4
.1

Form of Emageon Inc. common stock
    certificate (incorporated by reference to Exhibit 3.4 to
    the Companys Registration Statement on
    Form S-1/A,
    Registration
    No. 333-120621,
    filed on February 4, 2005)10
.1#

Imageon Solutions, Inc. 2000
    Equity Incentive Plan (incorporated by reference to
    Exhibit 10.1 to the Companys Registration Statement
    on
    Form S-1,
    Registration
    No. 333-120621,
    filed on November 19, 2004)10
.2#

Emageon, Inc. 2000 Equity
    Compensation Plan (incorporated by reference to
    Exhibit 10.2 to the Companys Registration Statement
    on
    Form S-1,
    Registration
    No. 333-120621,
    filed on November 19, 2004)10
.3#

Emageon Inc. 2005 Equity Incentive
    Plan (incorporated by reference to Exhibit 10.3 to the
    Companys Registration Statement on
    Form S-1/A,
    Registration
    No. 333-120621,
    filed on February 4, 2005)10
.4#

Emageon Inc. 2005 Non-Employee
    Director Stock Incentive Plan (incorporated by reference to
    Exhibit 10.4 to the Companys Registration Statement
    on
    Form S-1/A,
    Registration
    No. 333-120621,
    filed on February 4, 2005) 50




---



##### Table of Contents



Exhibit No.

Description10
.5#

Employment Agreement of Charles A.
    Jett, Jr. (incorporated by reference to Exhibit 10.5 to the
    Companys Registration Statement on
    Form S-1,
    Registration
    No. 333-120621,
    filed on November 19, 2004)10
.6#

Employment Agreement of Milton G.
    Silva-Craig (incorporated by reference to Exhibit 10.6 to
    the Companys Registration Statement on
    Form S-1,
    Registration
    No. 333-120621,
    filed on November 19, 2004)10
.7#

Employment Agreement of W. Randall
    Pittman (incorporated by reference to Exhibit 10.7 to the
    Companys Registration Statement on
    Form S-1,
    Registration
    No. 333-120621,
    filed on November 19, 2004)10
.8#

Employment Agreement of Mark A.
    Gehring (incorporated by reference to Exhibit 10.8 to the
    Companys Registration Statement on
    Form S-1,
    Registration
    No. 333-120621,
    filed on November 19, 2004)10
.9#

Employment Agreement of Noel D.
    Gartman (incorporated by reference to Exhibit 10.9 to the
    Companys Registration Statement on
    Form S-1,
    Registration
    No. 333-120621,
    filed on November 19, 2004)10
.10

Form of Indemnification Agreement
    between the Registrant and each of its directors and executive
    officers (incorporated by reference to Exhibit 10.10 to the
    Companys Registration Statement on
    Form S-1,
    Registration
    No. 333-120621,
    filed on November 19, 2004)10
.11

Amended and Restated Registration
    Rights Agreement, dated as of October 2, 2001, by and among
    Emageon UV, Inc. and certain stockholders, as amended and joined
    on May 30, 2003 and June 25, 2003 (incorporated by
    reference to Exhibit 10.11 to the Companys
    Registration Statement on
    Form S-1,
    Registration
    No. 333-120621,
    filed on November 19, 2004)10
.12

Enterprise Agreement, dated as of
    May 5, 2004, by and between Emageon UV, Inc. and Ascension
    Health (incorporated by reference to Exhibit 10.12 to the
    Companys Registration Statement on
    Form S-1/A,
    Registration
    No. 333-120621,
    filed on February 8, 2005)10
.13

Lease Agreement, dated as of
    December 20, 2001, by and between Meadow Brook North,
    L.L.C. and Emageon UV, Inc. (incorporated by reference to
    Exhibit 10.13 to the Companys Registration Statement
    on
    Form S-1,
    Registration
    No. 333-120621,
    filed on November 19, 2004)10
.13A

Sixth Amendment to Lease
    Agreement, dated as of July 23, 2004, by and between Meadow
    Brook North, L.L.C. and Emageon UV, Inc. (incorporated by
    reference to Exhibit 10.13A to the Companys
    Registration Statement on
    Form S-1,
    Registration
    No. 333-120621,
    filed on November 19, 2004)10
.14

Note and Warrant Purchase
    Agreement, dated as of June 25, 2004, among Emageon UV,
    Inc. and Whitecap Alabama Growth Fund I, LLC, Enhanced
    Alabama Issuer, LLC and Advantage Capital Alabama Partners I,
    L.P. (incorporated by reference to Exhibit 10.14 to the
    Companys Registration Statement on
    Form S-1/A,
    Registration
    No. 333-120621,
    filed on January 25, 2005)10
.15

Emageon, Inc. Amended and Restated
    Stockholders Agreement, dated as of October 2, 2001, among
    Emageon, Inc. and the stockholders signatory thereto
    (incorporated by reference to Exhibit 10.15 to the
    Companys Registration Statement on
    Form S-1/A,
    Registration
    No. 333-120621,
    filed on January 25, 2005)10
.15A

Emageon, Inc. First Amendment and
    Joinder to Amended and Restated Stockholders Agreement, dated as
    of May 30, 2003, among Emageon, Inc and the stockholders
    signatory thereto (incorporated by reference to
    Exhibit 10.15A to the Companys Registration Statement
    on
    Form S-1/A,
    Registration
    No. 333-120621,
    filed on January 25, 2005)10
.15B

Emageon, Inc. Second Amendment and
    Joinder to Amended and Restated Stockholders Agreement, dated as
    of June 25, 2003, among Emageon, Inc. and the stockholders
    signatory thereto (incorporated by reference to
    Exhibit 10.15B to the Companys Registration Statement
    on
    Form S-1/A,
    Registration
    No. 333-120621,
    filed on January 25, 2005)14
.1

Emageon Inc. Code of Ethics
    (incorporated by reference to Exhibit 14.1 to the Companys
    Report on Form 10-K for the year ended December 31, 2004)21
.1*

Subsidiaries of Emageon Inc.23
.1*

Consent of Independent Registered
    Public Accounting Firm 51




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##### Table of Contents



Exhibit No.

Description31
.1*

Certification of Chief Executive
    Officer pursuant to
    Rule 13a-14(a)
    or
    Rule 15d-14(a)
    under the Securities Exchange Act of 193431
.2*

Certification of Chief Financial
    Officer pursuant to
    Rule 13a-14(a)
    or
    Rule 15d-14(a)
    under the Securities Exchange Act of 193432
*

Certification of Chief Executive
    Officer and Chief Financial Officer pursuant to 18 U.S.C.
    Section 1350, as adopted pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002     *
    
    Filed herewith#
    
    Indicates a management contract or any compensatory plan,
    contract or arrangement
    
    Confidential treatment has been granted for portions of this
    exhibit 52




---



##### Table of Contents



EMAGEON
    INC.
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS   CONTENTS
  Report of
    Independent Registered Public Accounting Firm


F-2Consolidated
    Balance Sheets


F-3Consolidated
    Statements of Operations


F-4Consolidated
    Statements of Stockholders Equity


F-5Consolidated
    Statements of Cash Flows


F-6Notes to
    Consolidated Financial Statements


F-7  F-1




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM               F-2




---



##### Table of Contents



EMAGEON
    INC.
  CONSOLIDATED BALANCE SHEETS
  December 31,2004


2005(In thousands, except for share
    data)ASSETSCurrent assets:Cash and cash equivalents

$
5,994


$
15,520Marketable securities






4,951Trade accounts receivable, net of
    allowance for doubtful accounts of $75 and $126 at
    December 31, 2004 and 2005, respectively


14,557



29,261Prepaid expenses and other current
    assets


1,799



3,052Deferred offering costs


1,326



Inventories


1,422



8,031Total current assets


25,098



60,815Property and equipment, net


8,832



21,433Restricted cash


903



535Other noncurrent assets


62



884Intangible assets:Goodwill


3,755



21,079Customer relationships, net






9,510Developed technology, net


2,847



3,028Capitalized software development
    costs, net


21



231Trademark and trade names, net


250



429Total intangible assets


6,873



34,277Total assets

$
41,768


$
117,944LIABILITIES, REDEEMABLE
    PREFERRED STOCK AND STOCKHOLDERS EQUITY
    (DEFICIT)Current liabilities:Accounts payable

$
4,658


$
13,196Accrued payroll and related costs


1,557



4,104Deferred revenue


21,357



25,312Other accrued expenses


3,838



4,723Current portion of long-term debt


2,472



2,031Current portion of capital lease
    obligations


620



732Total current liabilities


34,502



50,098Long-term deferred revenue


2,796



3,221Deferred tax liability


95



Long-term debt


5,528



750Capital lease obligations, less
    current portion


869



236Total liabilities


43,790



54,305Redeemable preferred stock,
    $0.001 par value, 64,450,000 shares authorized,
    64,007,054 shares issued and outstanding at
    December 31, 2004


30,348



Stockholders equity (deficit):Preferred stock, $0.001 par
    value, 23,965,000 shares authorized, 19,692,358 shares
    issued and 18,319,620 shares outstanding at
    December 31, 2004


7,306



Common stock, $0.001 par
    value; 165,050,000 shares authorized, 3,056,181 shares
    and 20,628,913 shares issued and 2,709,370 shares and
    20,453,156 shares outstanding at December 31, 2004 and
    2005, respectively


3



21Additional paid in capital


6,998



115,215Accumulated other comprehensive
    income






85Accumulated deficit


(46,402
)


(51,407
)(32,095
)


63,914Treasury stock,
    175,757 shares, at cost


(275
)


(275
)Total stockholders equity
    (deficit)


(32,370
)


63,639Total liabilities, redeemable
    preferred stock and stockholders equity

$
41,768


$
117,944  F-3




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##### Table of Contents



EMAGEON
    INC.
  CONSOLIDATED STATEMENTS OF OPERATIONS
  Year Ended
    December 31,2003


2004


2005(In thousands, except for share
    data and per share amounts)Revenue:System sales

$
17,234


$
33,441


$
50,041Support services


6,057



12,361



23,750Total revenue


23,291



45,802



73,791Cost of revenue:System sales


10,227



21,452



28,316Support services


7,493



10,728



14,648Total cost of revenue


17,720



32,180



42,964Gross profit


5,571



13,622



30,827Operating expenses:Research and development


4,143



6,021



10,697Sales and marketing


6,144



9,027



11,830General and administrative


5,793



8,024



12,308Amortization and write-off of
    intangible assets related to Camtronics acquisition










993Integration costs related to
    Camtronics acquisition










244Total operating expenses


16,080



23,072



36,072Operating loss


(10,509
)


(9,450
)


(5,245
)Interest income


14



31



1,497Interest expense


(864
)


(1,053
)


(1,249
)Net loss

$
(11,359
)

$
(10,472
)

$
(4,997
)Net loss per
    share  basic and diluted

$
(5.79
)

$
(4.07
)

$
(0.28
)Weighted average common stock
    outstanding  basic and diluted


1,973,108



2,589,832



17,975,083  F-4




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##### Table of Contents



EMAGEON
    INC.
  CONSOLIDATED STATEMENTS OF STOCKHOLDERS
    EQUITY (DEFICIT)
  Accumulated








TotalPreferred Stock


Common Stock


Additional


Other








StockholdersCarrying





Par


Paid in


Comprehensive


Treasury


Accumulated


EquityShares


Value


Shares


Value


Capital


Income (Loss)


Stock


Deficit


(Deficit)(In thousands, except for share
    data)Balance at December 31, 2002


5,965,000


$
1,438



1,314,238


$
1


$
2,490


$



$



$
(24,438
)

$
(20,509
)Exercise of stock options










3,430







15















15Common stock, Series D
    preferred stock and warrants issued in connection with
    Ultravisual Merger


13,727,358



5,868



1,715,541



2



2,789















8,659Purchase of treasury stock
    ($1.5675 per share)


























(275
)






(275
)Accretion of redeemable preferred
    stock






























(66
)


(66
)Net loss






























(11,359
)


(11,359
)Balance at December 31, 2003


19,692,358



7,306



3,033,209



3



5,294







(275
)


(35,863
)


(23,535
)Exercise of stock options










22,972







64















64Issuance of warrants in connection
    with subordinated debt and customer sales agreement


















1,046















1,046Stock based
    compensation  options


















594















594Accretion of redeemable preferred
    stock






























(67
)


(67
)Net loss






























(10,472
)


(10,472
)Balance at December 31, 2004


19,692,358



7,306



3,056,181



3



6,998







(275
)


(46,402
)


(32,370
)Exercise of stock options










417,607



1



1,292















1,293Exercise of stock warrants


105,703



58



24,632







74















132Exercise of mandatorily redeemable
    stock warrants in connection with initial public offering










537,082



1



735















736Proceeds from initial public
    offering, net of issuance costs










5,750,000



6



67,195















67,201Automatic conversion of
    non-redeemable preferred stock into common stock in connection
    with initial public offering


(19,798,061
)


(7,364
)


2,402,898



2



7,362















Automatic conversion of redeemable
    preferred stock into common stock in connection with initial
    public offering










8,440,513



8



30,348















30,356Stock based
    compensation  stock options


















1,211















1,211Foreign currency translation
    adjustments






















93











93Loss on
    available-for-sale
    marketable securities






















(8
)










(8
)Accretion of redeemable preferred
    stock






























(8
)


(8
)Net loss






























(4,997
)


(4,997
)Balance at December 31, 2005





$




20,628,913


$
21


$
115,215


$
85


$
(275
)

$
(51,407
)

$
63,639  F-5




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##### Table of Contents



EMAGEON
    INC.
  CONSOLIDATED STATEMENTS OF CASH FLOWS
  Year Ended
    December 31,2003


2004


2005(In thousands)Operating activitiesNet loss

$
(11,359
)

$
(10,472
)

$
(4,997
)Adjustments to reconcile net loss
    to net cash (used in)/provided by operating activities:Depreciation


1,087



1,430



2,970Depreciation of property and
    equipment at contracted customer sites


2,743



3,360



2,698Amortization of developed
    technology, customer relationships and trade names


486



833



1,483Write off of intangible assets
    related to Camtronics acquisition, net of tax liability










403Amortization of capitalized
    software development costs


79



327



143Amortization and write off of
    subordinated debt discount






157



646Employee stock based compensation
    expense






533



1,171Other operating activities


42



373



215Changes in operating assets and
    liabilities, net of acquired companies:Trade accounts receivable


2,589



(10,233
)


(7,659
)Prepaid expenses and other current
    assets


(788
)


(2,120
)


(885
)Inventories


657



(1,137
)


(3,402
)Other noncurrent assets


56



(59
)


(726
)Accounts payable


13



3,243



5,775Accrued payroll and related costs


688



184



348Other accrued expenses


(155
)


3,500



(187
)Deferred revenue


1,485



15,040



123Net cash (used in)/provided by
    operating activities


(2,377
)


4,959



(1,881
)Investing activitiesPurchases of property and equipment
    for internal purposes


(1,424
)


(2,655
)


(5,815
)Purchases of third-party components
    located at contracted customer sites


(1,095
)


(250
)


(1,865
)Purchases of marketable securities










(44,198
)Proceeds from sales and maturities
    of marketable securities










39,335Capitalized software development
    costs


(339
)


(32
)


(354
)Purchase price of Camtronics, net
    of cash received










(40,359
)Net cash received from Ultravisual
    merger


1,829







Net cash used in investing
    activities


(1,029
)


(2,937
)


(53,256
)Financing activitiesProceeds from issuance of common
    stock, net of issuance costs


15



64



70,630Proceeds from issuance of preferred
    stock, net of issuance costs


5,889







58Payments on capital lease
    obligations


(514
)


(577
)


(642
)Proceeds from loans, net of
    issuance costs






3,980



Payments on loans


(1,611
)


(1,739
)


(5,873
)Additions to restricted cash to
    secure letter of credit






(96
)


Cash released from restriction










374Purchase of treasury stock


(275
)






Net cash provided by financing
    activities


3,504



1,632



64,547Effect of exchange rate changes on
    cash










116Net increase in cash


98



3,654



9,526Cash at beginning of year


2,242



2,340



5,994Cash at end of year

$
2,340


$
5,994


$
15,520Supplemental disclosure of cash
    flow:Interest paid

$
897


$
863


$
1,266Assets acquired under capital lease

$
107


$



$
Assets acquired through issuance of
    equity securities

$
8,660


$



$
  F-6




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##### Table of Contents



EMAGEON
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Years Ended December 31, 2003, 2004 AND 2005
  1.
    Business
    Description and Background  Business
    Description
    Background
    2.
    Summary
    of Significant Accounting Policies  Principles
    of Consolidation
    Presentation
    Use of
    Estimates
    Reclassification
    Fair
    value of financial instruments
   F-7




---



##### Table of Contents



EMAGEON
    INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Cash
    and Cash Equivalents
    Restricted
    Cash
    Securities
    Available-for-Sale
  held-to-maturity, available-for-sale, available-for-sale. available-for-sale
  Trade
    Accounts Receivable and Allowance for Doubtful
    Accounts
    day-to-day
      Inventories
   F-8




---



##### Table of Contents



EMAGEON
    INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Property
    and Equipment
        Business
    Combinations
  Business Combinations Goodwill and Other Intangible
    Assets.
  Goodwill,
    Trademarks and Other Intangible Assets
       F-9




---



##### Table of Contents



EMAGEON
    INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Treasury
    Stock
    Revenue
    Recognition
      (SOP 97-2), Software Revenue Recognition
   F-10




---



##### Table of Contents



EMAGEON
    INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
         Revenue
    Recognition in Financial Statements.
  00-21, Accounting for Revenue Arrangements with Multiple
    Deliverables (EITF 00-21).
  SOP 97-2
  Cost
    of Revenue
     F-11




---



##### Table of Contents



EMAGEON
    INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Customer
    Indemnity and Warranty Costs
      Customer Indemnity:
  Product Warranty:
  System Availability:
 F-12




---



##### Table of Contents



EMAGEON
    INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Income
    Taxes
      Other
    Comprehensive Income
  Reporting Comprehensive Income available-for-sale
  Computation
    of Net Loss Per Share
   F-13




---



##### Table of Contents



EMAGEON
    INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      For the Year Ended
    December 31,2003


2004


2005Net loss

$
(11,359
)

$
(10,472
)

$
(4,997
)Accretion of redemption value
    related to redeemable preferred stock


(66
)


(66
)


(8
)Net loss allocable to common
    stockholders

$
(11,425
)

$
(10,538
)

$
(5,005
)Common stock outstanding at
    beginning of period


1,314,238



2,429,742



2,709,370Weighted average effect of:Shares issued in connection with
    the Ultravisual merger


762,114







Purchase of treasury shares


(104,973
)






Release of escrowed common stock






151,866



Conversion of preferred stock to
    common stock










9,506,552Issuance of common stock in
    initial public offering










5,032,877Issuance of common stock and
    preferred stock pursuant to stock option and warrant exercises


1,729



8,224



576,321Release of escrowed common stock
    upon completion of initial public offering










149,963Weighted average number of shares
    of common stock  basic and diluted


1,973,108



2,589,832



17,975,083Net loss per
    share  basic and diluted

$
(5.79
)

$
(4.07
)

$
(0.28
)     Stock-Based
    Compensation
  Accounting for Stock Issued to Employees Accounting for Stock-Based
    Compensation
 F-14




---



##### Table of Contents



EMAGEON
    INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   No. 96-18, Accounting for Equity Instruments That Are Issued to Other
    Than Employees for Acquiring, or in Conjunction with Selling,
    Goods or Services.
    For the Year Ended
    December 31,2003


2004


2005Actual net loss

$
(11,359
)

$
(10,472
)

$
(4,997
)Deduct: Accretion of redemption
    value related to redeemable preferred stock


(66
)


(66
)


(8
)Add: Total stock-based employee
    compensation expense determined under APB 25






533



1,171Deduct: Total stock-based employee
    compensation expense determined under fair value method for all
    awards


(64
)


(801
)


(2,045
)Pro forma net loss allocable to
    common stockholders

$
(11,489
)

$
(10,806
)

$
(5,879
)Weighted average shares of common
    stock  basic and diluted


1,973,108



2,589,832



17,975,083Pro forma net loss per
    share  basic and diluted

$
(5.82
)

$
(4.17
)

$
(0.33
)     Research
    and Development Costs
    product-by-product
  Sales
    Commissions
    Translation
    of Foreign Currencies
   F-15




---



##### Table of Contents



EMAGEON
    INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
         Advertising
    Expense
    Recently
    Issued Accounting Pronouncements
  Share-Based Payment
  Inventory Costs.
 F-16




---



##### Table of Contents



EMAGEON
    INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Accounting Changes and Error Corrections Accounting
    Changes Changes in
    Interim Financial Statements.
  3.
    Initial
    Public Offering      4.
    Acquisitions
    and Mergers     F-17




---



##### Table of Contents



EMAGEON
    INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Accounts receivable

$
7,101Inventories


3,207Property, plant and equipment


10,595Other current assets


693Goodwill


17,325Intangible assets:Customer relationships


10,028Developed technology


1,074Trade names


501In-process technology


248Total assets acquired


50,772Accounts payable and other
    liabilities


5,312Accrued expenses


844Unearned revenue


4,257Total liabilities assumed


10,413Net assets acquired

$
40,359      F-18




---



##### Table of Contents



EMAGEON
    INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      For the Year Ended
    December 31,2004


2005(unaudited)Revenue

$
99,876


$
111,032Net loss

$
(16,459
)

$
(11,689
)Loss per
    share  basic and diluted

$
(6.38
)

$
(0.65
)         5.
    Intangible
    Assets    Weighted


December 31, 2004


December 31, 2005Average


Gross





GrossAmortization


Carrying


Accumulated


Carrying


AccumulatedPeriod (Years)


Amount


Amortization


Amount


AmortizationDeveloped technology


5.0


$
4,166


$
(1,319
)

$
5,240


$
(2,212
)Goodwill


n/a



3,755







21,079



Customer relationships


4.9











10,028



(518
)Trade names


1.2











501



(72
)Capitalized software development
    costs


1.3



445



(424
)


798



(567
)Ultravisual trademark


n/a



250











$
8,616


$
(1,743
)

$
37,646


$
(3,369
)  F-19




---



##### Table of Contents



EMAGEON
    INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Accounting for the
    Costs of Computer Software to be Sold, Leased, or Otherwise
    Marketed
  2006

$
4,9622007


2,5732008


2,0272009


1,3812010 and thereafter


2,254Total

$
13,197   6.
    Marketable
    Securities  available-for-sale
    7.
    Inventories    December 31,2004


2005Third party components

$



$
497Work in process






345Completed systems


1,422



7,189$
1,422


$
8,031  F-20




---



##### Table of Contents



EMAGEON
    INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    8.
    Property
    and Equipment    Estimated


December 31,Useful Lives


2004


2005Land


Indefinite


$



$
791Buildings and improvements


39 years







5,913Machinery and equipment


5 to 7 years







861Computers, software and other


3 to 7 years



5,388



12,733Furniture and fixtures


3 to 7 years



1,534



1,967Leasehold improvements


4 to 5 years



365



1,411Third-party components leased to
    customers under operating leases


5 to 7 years



11,924



13,23419,211



36,910Less accumulated depreciation and
    amortization






(10,379
)


(15,477
)$
8,832


$
21,433   9.
    Major
    Customers and Related Party Transactions      10.
    Licensing
    Agreements    11.
    Defined
    Contribution Benefit Plans   F-21




---



##### Table of Contents



EMAGEON
    INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        12.
    Income
    Taxes    December 31,2004


2005Deferred tax assets:Net operating loss carryforward

$
15,772


$
16,610Deferred revenue


1,990



3,017Reserves and accrued liabilities


1,270



809Other


232



39619,264



20,832Deferred tax liabilities:Depreciation


(632
)


(231
)Developed technology


(1,061
)


(831
)Other


(95
)


(1,788
)


(1,062
)Net deferred tax assets


17,476



19,770Valuation allowance


(17,571
)


(19,770
)Net deferred tax liability

$
(95
)

$
      F-22




---



##### Table of Contents



EMAGEON
    INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
       For the Year Ended
    December 31,2003


2004


2005Tax benefit computed at the
    statutory federal rate

$
(3,862
)

$
(3,561
)

$
(1,731
)State taxes, net of federal tax
    benefit


(341
)


(314
)


(227
)Increase in tax from:Change in deferred tax valuation
    allowance


4,123



3,899



1,591Permanent differences


29



33



184Other


51



(57
)


183Benefit for income taxes

$



$



$
    F-23




---



##### Table of Contents



EMAGEON
    INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    13.
    Debt    December 31,2004


2005Secured promissory note payable to
    finance company in 60 monthly installments of $45,
    including interest at 10.0%, due in December 2006, secured by
    hardware and software at customer site with a net book value at
    December 31, 2005 of $397

$
967


$
508Secured promissory note payable to
    finance company in 60 monthly installments of $38,
    including interest at 9.88%, due in March 2007, secured by
    hardware and software at customer site with a net book value at
    December 31, 2005 of $786


920



536Secured promissory note payable to
    bank in 58 monthly installments of $11, including interest
    at 4.76%, final payment of $10 in September 2007, secured by
    hardware and software at customer site with a net book value at
    December 31, 2005 of $310


358



237Secured promissory note payable to
    bank in 54 monthly installments of $83, including interest
    at 6.13%, due in June 2007, secured by hardware and software at
    customer site with a net book value at December 31, 2005 of
    $1,176


2,260



1,397Promissory note to governmental
    agency payable in 57 monthly installments of $5, including
    interest at 4.0%, final payment of $4 in October 2007


156



103Promissory notes to various
    purchasers under a subordinated debt agreement, payable in
    quarterly installments starting June 25, 2005, net of
    discount of $646 and $0 at December 31, 2004 and 2005


3,339



Total debt


8,000



2,781Current portion


(2,472
)


(2,031
)Long-term debt, less current
    portion

$
5,528


$
750     2006

$
20312007


750$
2,781    F-24




---



##### Table of Contents



EMAGEON
    INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      14.
    Capital
    Lease Obligations        2006

$
8202007


2292008


14Total minimum lease payments


1,063Loan closing costs


(10
)Net total minimum lease payments


1,053Amount representing interest


(85
)Present value of net minimum lease
    payments


968Current maturities of capital
    lease obligations


(732
)Long-term capital lease obligations

$
236  F-25




---



##### Table of Contents



EMAGEON
    INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    15.
    Stockholders
    Equity  Reverse
    Stock Split
  1-for-8.25
  Preferred
    Stock
        Redeemable
    Preferred Stock
      Series B-1 Series B-1 shares
    Warrants
   F-26




---



##### Table of Contents



EMAGEON
    INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          Year Ended
    December 31,2003


2004


2005Weighted





Weighted





WeightedAverage





Average





AverageExercise





Exercise





ExerciseShares


Price


Shares


Price


Shares


PriceCommon stock warrants at beginning
    of period


735,760


$
5.95



1,315,430


$
3.39



1,479,443


$
3.56Forfeited or Canceled


















(552,661
)


0.01Exercised


















(883,981
)


5.67Granted


579,670


$
0.18



164,013


$
4.88



6,185



3.63Outstanding at end of period


1,315,430


$
3.39



1,479,443


$
3.56



48,986


$
5.04Exercisable at end of period


730,952


$
5.81



910,116


$
5.66



48,986


$
5.04     16.
    Stock
    Options     F-27




---



##### Table of Contents



EMAGEON
    INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Accounting for Stock
    Issued to Employees
        Year Ended
    December 31,2003


2004


2005Weighted





Weighted





WeightedAverage





Average





AverageExercise





Exercise





ExerciseShares


Price


Shares


Price


Shares


PriceOptions at beginning of period


1,299,217


$
3.93



1,779,527


$
4.14



2,166,901


$
4.46Forfeited


(15,341
)


4.54



(51,842
)


4.26



(33,517
)


4.90Exercised


(3,432
)


4.37



(22,972
)


2.76



(448,141
)


3.76Granted


499,083



4.70



462,188



5.85



443,317



10.74Outstanding at end of period


1,779,527


$
4.14



2,166,901


$
4.46



2,128,560


$
5.91Exercisable at end of period


978,280


$
3.88



1,328,091


$
3.94



1,262,281


$
4.35     Options Outstanding


Options ExercisableWeighted


Weighted





WeightedAverage


Average





AverageRemaining


Exercise





ExerciseRange of Exercise
    Prices

Number


Contractual Life


Price


Number


Price$1.73 to $2.07


205,202



5.49 years


$
1.85



205,202


$
1.85$4.70 to $7.17


1,648,798



6.95 years



5.25



1,057,079



4.84$12.72 to $14.90


274,560



9.74 years



12.93







2,128,560



7.17 years


$
5.91



1,262,281


$
4.35  F-28




---



##### Table of Contents



17.
    Operating
    Leases  Lessee Arrangements.
  2006

$
1,4192007


1,4712008


1,4802009


1,4622010


5952011 and Beyond


865$
7,292   Lessor Arrangements.
    2006

$
2,3502007


629Total minimum future rentals

$
2,979   18.
    Selected
    Quarterly Financial Data (Unaudited)  QuartersFirst


Second


Third


Fourth2005Revenue

$
11,336


$
18,570


$
19,606


$
24,279Gross profit


3,430



9,495



9,011



8,891Operating income (loss)


(4,199
)


1,565



1,465



(4,076
)Net income (loss)

$
(4,818
)

$
1,900


$
1,831


$
(3,910
)Net income (loss) per
    share  basic and diluted

$
(0.42
)

$
0.09


$
0.09


$
(0.19
)2004Revenue

$
7,117


$
12,117


$
10,322


$
16,246Gross profit


1,349



5,586



1,819



4,868Operating income (loss)


(3,400
)


44



(4,200
)


(1,894
)Net loss

$
(3,592
)

$
(144
)

$
(4,533
)

$
(2,203
)Net loss per
    share  basic and diluted

$
(1.48
)

$
(0.06
)

$
(1.69
)

$
(0.82
)  F-29




---



##### Table of Contents



SIGNATURES    Emageon Inc.
  By:
    /s/  Charles A. Jett, Jr.         Signature

Title/s/  Charles A. Jett,
    Jr.Charles
    A. Jett, Jr.

Chairman of the Board, President
    and
    Chief Executive Officer
    (principal executive officer)/s/  W. Randall
    PittmanW.
    Randall Pittman

Chief Financial Officer and
    Treasurer
    (principal accounting and financial officer)/s/  Arthur P.
    BeattieArthur
    P. Beattie

Director/s/  Roddy J.H. ClarkRoddy
    J.H. Clark

Director/s/  Fred C. Goad,
    Jr.Fred
    C. Goad, Jr.

Director/s/  Chris H. HorgenChris
    H. Horgen

Director/s/  Mylle H. MangumMylle
    H. Mangum

Director/s/  John W. ThompsonJohn
    W. Thompson

Director/s/  Hugh H. Williamson,
    IIIHugh
    H. Williamson, III

Director




---



##### Table of Contents



EMAGEON
    INC.
 SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS AND
    RESERVES
 (in thousands)
  Additions





Balance atBalance


Charged to


Charged to





End ofDescription




Beginning of Period


Costs and Expenses


Other Accounts


Deductions


PeriodAllowance for doubtful accounts
    deducted from accounts receivable in the balance sheet


2005


$
75


$
57


$



$
(6
)(1)

$
1262004



50



123







(98
)(1)


752003







104







(54
)(1)


50Valuation allowance deducted from
    net deferred tax asset in the balance sheet


2005


$
17,571


$
1,591


$
608(2
)

$



$
19,7702004



13,672



3,899











17,5712003



9,312



4,123



237(2
)






13,672     (1)
    
    Uncollectible accounts written off(2)
    
    Deferred tax assets arising from Ultravisual merger in 2003 and
    Camtronics acquisition in 2005.