UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   Form 10-QSB
                                   (Mark One)

           [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                       For the period ended March 31, 2005

             [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
               For the transition period from _______ to _______.

                        Commission File Number 333-16031

                            INCENTRA SOLUTIONS, INC.
                            ------------------------
        (Exact name of small business issuer as specified in its charter)

                       Nevada                             86-0793960
                       ------                             ----------
            (State or other jurisdiction                 (I.R.S. Employer
        of (incorporation or organization)            Identification No.)

                                1140 PEARL STREET
                             BOULDER, COLORADO 80302
                             -----------------------
                    (Address of principal executive offices)

                                 (303) 449-8279
                                 --------------
                           (Issuer's telephone number)

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Securities  Exchange  Act of 1934  during the  preceding  12
months (or for such shorter period that the registrant was required to file such
reports),  and (2) has been subject to such filing  requirements for the past 90
days. Yes [X] No []

As of May 12, 2005,  126,245,072  shares of the issuer's common stock, $.001 par
value per share,  and 2,466,971 shares of the issuer's Series A preferred stock,
$.001 par value per share, were outstanding.

Transitional Small Business Disclosure Format (check one): Yes [ ]  No [X]

                                       1
<PAGE>


PART I. FINANCIAL INFORMATION


                    INCENTRA SOLUTIONS, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEET
                                 MARCH 31, 2005
                                   (UNAUDITED)

ASSETS
Current assets:
  Cash and cash equivalents                                       $   2,205,908
  Accounts receivable, net of allowance for doubtful
    accounts of $517,000                                             12,280,080
  Other current assets                                                  932,376
                                                                  -------------
Total current assets                                                 15,418,364
                                                                  -------------

Property and equipment, net                                           2,423,675
Capitalized software development costs, net                           1,452,853
Intangible assets, net                                               16,256,339
Goodwill                                                             14,564,785
Other assets                                                            985,228
                                                                  -------------
                                                                     35,682,880
                                                                  -------------

TOTAL ASSETS                                                      $  51,101,244
                                                                  =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Current portion of note payable, capital leases and
    other long-term obligations                                   $   3,069,610
  Accounts payable                                                    9,122,551
  Accrued expenses                                                    3,881,962
  Current portion of deferred revenue                                 1,666,711
                                                                  -------------
Total current liabilities                                            17,740,834
                                                                  -------------

Note payable, capital leases and other long-term
  obligations, net of current portion                                 7,268,248
Derivative warrant liability                                          1,884,039
Deferred revenue, net of current portion                                120,205
                                                                  -------------
                                                                      9,272,492
                                                                  -------------
TOTAL LIABILITIES                                                    27,013,326
                                                                  -------------

Commitments and contingencies

Series A convertible redeemable preferred stock,
  $.001 par value, $31,500,000 liquidation preference,
  2,500,000 shares authorized, 2,466,971 shares issued
  and outstanding                                                    22,655,158
                                                                  -------------

Shareholders' equity:
  Preferred stock, nonvoting, $.001 par value, 2,500,000
    shares authorized, none issued or outstanding                            --
  Common stock, $.001 par value, 200,000,000 shares
    authorized, 127,530,513 shares issued, 126,096,874
    shares outstanding, 1,433,639 shares in treasury                    126,097
  Additional paid-in capital                                        122,132,054
  Accumulated other comprehensive loss                                  (58,049)
  Accumulated deficit                                              (120,767,342)
                                                                  -------------
TOTAL SHAREHOLDERS' EQUITY                                            1,432,760
                                                                  -------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                        $  51,101,244
                                                                  =============


See accompanying notes to unaudited condensed consolidated financial statements.

                                       2
<PAGE>


                    INCENTRA SOLUTIONS, INC. AND SUBSIDIARIES
       CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
                                   (UNAUDITED)

                                                   THREE MONTHS ENDED MARCH 31,
                                                      2005             2004
                                                 -------------    -------------

Revenues:
  Products                                       $   3,231,513    $     371,500
  Services                                           2,775,652        1,992,296
                                                 -------------    -------------
TOTAL REVENUE                                        6,007,165        2,363,796
                                                 -------------    -------------

Cost of revenue:
  Products                                           1,276,375               --
  Services                                           1,787,610        1,212,337
                                                 -------------    -------------
Total cost of revenue                                3,063,985        1,212,337
                                                 -------------    -------------
GROSS MARGIN                                         2,943,180        1,151,459
                                                 -------------    -------------

Selling, general and administrative                  4,027,373        2,055,202
Amortization                                           785,281          237,476
Depreciation                                            71,143           44,917
Impairment of goodwill                                      --           61,428
                                                 -------------    -------------
                                                     4,883,797        2,399,023
                                                 -------------    -------------
LOSS FROM OPERATIONS                                (1,940,617)      (1,247,564)
                                                 -------------    -------------

Other income (expense):
  Interest income                                       22,431           17,429
  Interest expense                                    (561,310)        (693,514)
  Other income                                         366,741           40,744
  Foreign currency transaction gain (loss)              82,189             (312)
                                                 -------------    -------------
                                                       (89,949)        (635,653)
                                                 -------------    -------------

LOSS BEFORE INCOME TAX                              (2,030,566)      (1,883,217)
                                                 -------------    -------------
Income tax expense                                    (318,000)              --
                                                 -------------    -------------
NET LOSS                                            (2,348,566)      (1,883,217)
                                                 -------------    -------------

Deemed dividends on redeemable preferred stock              --         (147,945)
Accretion of redeemable preferred stock to
  redemption amount                                   (654,391)          (7,833)
                                                 -------------    -------------

NET LOSS APPLICABLE TO COMMON SHAREHOLDERS       $  (3,002,957)   $  (2,038,995)
                                                 =============    =============

COMPREHENSIVE LOSS
Net loss                                           $(2,348,566)     $(1,883,217)
Foreign currency translation adjustment                (77,233)              --
                                                 -------------    -------------
                                                   $(2,425,799)     $(1,883,217)
                                                 =============    =============

Weighted average number of common shares
  outstanding - basic and diluted                  110,901,525       19,498,274
                                                 =============    =============
Basic and diluted net loss per share
  applicable to common shareholders              $       (0.03)   $       (0.10)
                                                 =============    =============


See accompanying notes to unaudited condensed consolidated financial statements.

                                       3
<PAGE>


                            INCENTRA SOLUTIONS, INC.
                                AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                              THREE MONTHS ENDED MARCH 31,
                                                                                                 2005             2004
                                                                                             -------------    -------------
<S>                                                                                          <C>              <C>
Cash flows from operating activities:
  Net loss                                                                                   $  (2,348,566)   $  (1,883,217)
  Adjustments to reconcile net loss to net cash used in operating activities:
    Depreciation                                                                                   394,700          403,711
    Amortization of intangible assets and software development costs                               890,454          324,582
    Amortization of non-cash loan discount                                                          10,188            3,822
    Stock-based compensation                                                                       155,515           44,309
    Non-cash interest expense                                                                      526,447               --
    Non-cash interest expense on Series C mandatorily redeemable preferred stock liability              --          656,668
    Non-cash tax expense                                                                           318,000               --
    Share of losses of Front Porch Digital, Inc. and related impairment of goodwill                     --           61,428
    Gain on disposal of assets                                                                          --          (22,634)
    Bad debt expense                                                                                    --           51,263
    Gain on revaluation of derivative warrant liability                                           (341,495)              --
    Changes in operating assets and liabilities, net of business acquisitions:
      Accounts and other receivables                                                              (965,496)        (467,233)
      Other current assets                                                                         (90,777)          39,801
      Other assets                                                                                 (17,462)        (103,285)
      Accounts payable                                                                             296,984          154,229
      Accrued liabilities                                                                          (80,677)         162,746
      Deferred revenue                                                                             424,404         (361,605)
      Other liabilities                                                                            (66,212)          (3,466)
                                                                                             -------------    -------------
            Net cash used in operating activities                                                 (893,993)        (938,881)
                                                                                             -------------    -------------
Cash flows from investing activities:
  Purchases of property and equipment                                                             (155,995)        (849,872)
  Capitalized software development costs                                                          (399,311)         (87,487)
  Proceeds from sale of property and equipment                                                         750           38,358
  Cash acquired in STAR acquisition (Note 2)                                                     1,597,498               --
  Cash acquired in PWI acquisition (Note 2)                                                         74,297               --
  Net change in restricted cash                                                                       (175)            (158)
  Maturies of short-term investments                                                                    --        3,793,099
                                                                                             -------------    -------------
            Net cash provided by investing activities                                            1,117,064        2,893,940
                                                                                             -------------    -------------
Cash flows from financing activities:
  Proceeds from lease line of credit                                                               164,177          373,602
  Payments on capital leases, notes payable and other long term liabilities                     (1,213,386)        (158,388)
  Proceeds from exercise of stock options and purchase of restricted stock                              --               79
                                                                                             -------------    -------------
            Net cash (used in) provided by financing activities                                 (1,049,209)         215,293
                                                                                             -------------    -------------

Effect of exchange rate changes on cash and cash equivalents                                       (36,412)              --
                                                                                             -------------    -------------

            Net (decrease) increase in cash and cash equivalents                                  (862,550)       2,170,352
Cash and cash equivalents at beginning of period                                                 3,068,458        2,201,192
                                                                                             -------------    -------------
Cash and cash equivalents at end of period                                                   $   2,205,908    $   4,371,544
                                                                                             =============    =============

Supplemental disclosures of cash flow information:
  Cash paid during the period for interest                                                   $      99,676    $      16,913

Supplemental disclosures of non-cash investing and financing activities:
  Net assets acquired in STAR acquistion, excluding cash (Note 2)                                6,097,510               --
  Net assets acquired in PWI acquistion, excluding cash (Note 2)                                 4,310,840               --
  Purchases of property and equipment included in accounts payable                                  80,279          283,306
</TABLE>


See accompanying notes to unaudited condensed consolidated financial statements.

                                       4
<PAGE>


                    INCENTRA SOLUTIONS, INC. AND SUBSIDIARIES

         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (UNAUDITED)

(1)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

       ORGANIZATION AND BASIS OF PRESENTATION

       Incentra  Solutions,  Inc. (which is referred to herein together with its
       subsidiaries as the "Company", "we", "us" or "our"), formerly Front Porch
       Digital,  Inc. ("FPDI" or "Front Porch"),  was organized and incorporated
       in the state of Nevada.  On October 25, 2004, the name of the Company was
       changed from Front Porch Digital,  Inc. to Incentra Solutions,  Inc., and
       the  common  stock of the  Company  now  trades  on the  Over-the-Counter
       Bulletin  Board under the trading  symbol  "ICEN".  On March 30, 2005, we
       acquired PWI Technologies,  Inc., a privately-held Washington corporation
       ("PWI").  On February 18, 2005, we acquired  STAR  Solutions of Delaware,
       Inc., a privately-held Delaware corporation ("STAR"). On August 18, 2004,
       we acquired  ManagedStorage  International,  Inc., a Delaware corporation
       incorporated in March 2000 ("MSI"). The MSI acquisition was accounted for
       as a reverse merger, and therefore, MSI was deemed to be the acquirer for
       accounting purposes.  Accordingly,  the consolidated financial statements
       presented herein include the financial  statements of MSI for all periods
       prior  to  August  18,  2004  and the  condensed  consolidated  financial
       statements of the companies from the dates of the acquisitions forward.

       Through Front Porch,  we provide a software and management  solution that
       enables searching,  browsing,  editing, storage and on-demand delivery of
       media-rich  content in nearly any digital  format.  Our complete  digital
       archive   solution   includes  our  proprietary   software  bundled  with
       professional services,  hardware/software  procurement and resale, remote
       monitoring/management  services,  complete  support  for our  proprietary
       software  solutions and first call support for  third-party  hardware and
       software  maintenance.  Our software converts audio, video,  images, text
       and data into digital  formats for ease of use and  archiving.

       Through  MSI,  we  deliver  comprehensive  storage  services,   including
       professional  services,  third-party  hardware/software  procurement  and
       resale, financing solutions,  remote  monitoring/management  services and
       first call support for third-party hardware and software maintenance. MSI
       focuses on providing data  protection  solutions and services that ensure
       that its customers'  data is backed-up and recoverable and meets internal
       data  retention   compliance   policies.   MSI's  remote  monitoring  and
       management  services are delivered  from its Storage  Network  Operations
       Center ("NOC") in Broomfield, Colorado, which monitors and manages a wide
       spectrum of diverse storage  infrastructures  on a 24x7 basis  throughout
       the United  States,  the United  Kingdom,  the  Netherlands,  Bermuda and
       Japan.  MSI  delivers  this  service   worldwide  using  its  proprietary
       GridWorks  Operations  Support  System,  which enables  automated  remote
       monitoring and management of complete storage infrastructures and

                                       5
<PAGE>


                    INCENTRA SOLUTIONS, INC. AND SUBSIDIARIES

         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (UNAUDITED)

       back-up  applications.  MSI provides  outsourcing  solutions for customer
       data  protection  needs under  long-term  contracts.  Customers  pay on a
       monthly basis for storage  services based on the number of assets managed
       and/or the  volume of  storage  assets  utilized.  We  believe  customers
       benefit from  improved  operating  effectiveness  with reduced  operating
       costs and reductions in capital expenditures.

       Through  STAR  and PWI,  we  deliver  complete  IT  solutions,  including
       professional  services,  third-party  hardware/software  procurement  and
       resale,  financing  solutions  and the sale and  delivery  of first  call
       support for third-party hardware and software maintenance (including help
       desk operations). Solutions are sold primarily to enterprise customers in
       the  financial  services,  government,   hospitality,  retail,  security,
       healthcare and  manufacturing  sectors.  With offices and sales personnel
       located  primarily  throughout the western United States,  these recently
       acquired  entities  are a  cornerstone  to our North  American  expansion
       plans.

       Our customers are located in North America, Europe, Asia and the Pacific
       Rim.

       The accompanying  unaudited condensed  consolidated  financial statements
       have  been  prepared  by  us in  accordance  with  accounting  principles
       generally  accepted in the United States of America for interim financial
       information  and pursuant to the rules and  regulations of the Securities
       and  Exchange  Commission  ("SEC").   Certain  information  and  footnote
       disclosures   normally  included  in  financial  statements  prepared  in
       accordance with accounting  principles  generally  accepted in the United
       States of  America  have  been  condensed  or  omitted  pursuant  to such
       regulations.  The unaudited condensed  consolidated  financial statements
       reflect  all  adjustments  and  disclosures  that are,  in the opinion of
       management,  necessary for a fair presentation.  All such adjustments are
       of a normal  recurring  nature.  For  further  information,  refer to the
       financial  statements and footnotes included in our Annual Report on Form
       10-KSB for the year ended December 31, 2004.

       Certain amounts in the 2004 financial  statements have been  reclassified
       to conform to the 2005  presentation.  We do not  believe  the effects of
       such  reclassifications  are  material.  Operating  results for the three
       months  ended  March  31,  2005  are not  necessarily  indicative  of the
       operating results to be expected for the year ending December 31, 2005.

       MANAGEMENT'S PLANS

       Our  2005  operating  plan  and  the  execution  thereof  is  focused  on
       increasing  revenue,  controlling  costs, and conserving  cash;  however,
       there can be no  assurance  that we will be able to meet the  operational
       and  financial  requirements  of our operating  plan.  Our 2005 plan also
       includes  growth through our recent  business  acquisitions  (Note 2). We
       cannot predict with certainty the expected revenue,  gross profit margin,
       net loss,  and/or usage of cash and cash equivalents as a result of these
       acquisitions.  However, we believe that our cash and cash equivalents and
       working  capital will provide  sufficient  capital  resources to fund our
       operations, debt service requirements, and working capital needs at least
       through March 31, 2006.

                                       6
<PAGE>


                    INCENTRA SOLUTIONS, INC. AND SUBSIDIARIES

         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (UNAUDITED)

       STOCK-BASED COMPENSATION

       We apply the intrinsic  value-based  method of  accounting  prescribed by
       Accounting  Principles  Board (APB) Opinion No. 25,  ACCOUNTING FOR STOCK
       ISSUED TO EMPLOYEES,  and related  interpretations,  including  Financial
       Accounting  Standards  Board  ("FASB")  Interpretation  No.  44 (FIN 44),
       ACCOUNTING FOR CERTAIN  TRANSACTIONS  INVOLVING  STOCK  COMPENSATION,  AN
       INTERPRETATION OF APB OPINION NO. 25, to account for our fixed-plan stock
       options. Under this method, compensation expense is generally recorded on
       the date of grant  only if the  current  market  price of the  underlying
       stock  exceeds the exercise  price.  Statement  of  Financial  Accounting
       Standards ("SFAS") No. 123,  ACCOUNTING FOR STOCK-BASED  COMPENSATION and
       SFAS No. 148,  ACCOUNTING FOR  STOCK-BASED  COMPENSATION - TRANSITION AND
       DISCLOSURE,   AN  AMENDMENT  OF  FASB  STATEMENT  NO.  123,   established
       accounting and disclosure requirements using a fair value-based method of
       accounting for stock-based  employee  compensation plans. As permitted by
       existing accounting  standards,  we have elected to continue to apply the
       intrinsic  value-based  method of  accounting  described  above, and have
       adopted only the  disclosure  requirements  of Statement 123, as amended.
       The  following  table  illustrates  the  effect  on net  loss if the fair
       value-based  method had been  applied  to all  outstanding  and  unvested
       awards in the three  months  ended March 31,  2005 and 2004.  All amounts
       except per share amounts in (000's):

                                                           THREE MONTHS ENDED
                                                                MARCH 31,
                                                            2005        2004
                                                          ---------   ---------
       Net loss before deemed dividends and accretion
         on preferred stock, as reported                  $  (2,349)  $  (1,883)
       Add stock-based employee compensation expense
         included in reported net loss                          156          44
       Deduct total stock-based employee compensation
         expense determined under fair value-based
         method for all awards                                 (510)        (47)
                                                          ---------   ---------
       Pro forma net loss before deemed dividends and
         accretion on preferred stock                     $  (2,703)  $  (1,886)
                                                          =========   =========
       Net loss per weighted average common share
         outstanding - basic and diluted - pro forma      $   (0.03)  $   (0.10)
                                                          =========   =========

       Net loss per weighted average common share
         outstanding - basic and diluted - as reported    $   (0.03)  $   (0.10)
                                                          =========   =========

       We did not grant any options during the three months ended March 31,
       2005.

       In  determining  the fair value of stock  options  granted by MSI for the
       three  months  ended  March  31,  2004,  we  utilized  the  Black-Scholes
       valuation  model to determine  pro forma  compensation  expense under the
       fair  value  method  with the  following  weighted  average  assumptions:
       dividend  yield  of 0%,  risk  free  interest  rate  of  4.05%,  expected
       volatility  of 0.001%,  and  expected  lives of ten years.  The  weighted
       average fair value of options granted during 2004 was $0.32.

       For purposes of pro forma  disclosures,  the estimated  fair value of the
       options was  amortized to expense over the vesting  period of the related
       option.  Previously recognized compensation expense for forfeited options
       was  included as a  reduction  of  compensation  expense in the period of
       forfeiture.

                                       7
<PAGE>


                    INCENTRA SOLUTIONS, INC. AND SUBSIDIARIES

         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (UNAUDITED)

       FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS

       The  accounts  of  our  international  subsidiary,  Front  Porch  Digital
       International,  SAS, are translated  using the exchange rate in effect at
       the balance sheet date,  and the results of operations  are translated at
       the average  exchange rates during the period. For the three months ended
       March 31, 2005, we reported a cumulative  translation loss of $58,049, as
       a component of accumulated other  comprehensive loss. We are also subject
       to foreign exchange  transaction  exposure when our subsidiary  transacts
       business  in a  currency  other  than its own  functional  currency.  The
       effects of exchange rate  fluctuations  in remeasuring  foreign  currency
       transactions  for the three  months  ended March 31, 2005 and 2004 were a
       gain of $82,189 and a loss of $312, respectively.

       During 2004,  we began  managing our foreign  currency cash flow exposure
       through  the  use of  $/Euro  forward  contracts,  which  are  considered
       derivative  instruments  and  which  are  recorded  as either an asset or
       liability, measured at fair value. Changes in fair value of the contracts
       are  recognized  currently  by us in  the  statements  of  operations. We
       recorded  an  unrealized  gain of  approximately  $74,600 as of March 31,
       2005,  which  represented  the  change in the fair  value of one  foreign
       currency forward  contract  related to the difference  between changes in
       the  spot  and  forward  rates  excluded  from  the  assessment  of hedge
       effectiveness.

       ACCOUNTING FOR OBLIGATIONS AND INSTRUMENTS POTENTIALLY SETTLED IN THE
       COMPANY'S COMMON STOCK

       We account for  obligations and  instruments  potentially  settled in our
       stock in  accordance  with  Emerging  Issues Task Force  ("EITF")  00-19,
       ACCOUNTING  FOR  DERIVATIVE   FINANCIAL   INSTRUMENTS   INDEXED  TO,  AND
       POTENTIALLY  SETTLED IN A COMPANY'S OWN STOCK ("EITF 00-19").  This issue
       addresses the initial  balance sheet  classification  and  measurement of
       contracts that are indexed to, and potentially settled in, our stock.

       Under EITF 00-19,  contracts  are  initially  classified  as equity or as
       either assets or liabilities,  depending on the situation.  All contracts
       are initially measured at fair value and subsequently accounted for based
       on the then current  classification.  Contracts  initially  classified as
       equity do not recognize  subsequent  changes in fair value as long as the
       contracts continue to be classified as equity.  For contracts  classified
       as assets or liabilities, we report changes in fair value in earnings and
       disclose  these  changes  in the  financial  statements  as  long  as the
       contracts  remain  classified  as assets  or  liabilities.  If  contracts
       classified as assets or liabilities are ultimately settled in shares, any
       previously  reported  gains or losses on those  contracts  continue to be
       included in earnings. At March 31, 2005, we reassessed the value of these
       contracts and recorded a gain of $341,495.  The  classification  of these
       contracts is reassessed at each balance sheet date.

       IMPAIRMENT OF LONG-LIVED ASSETS

       Long-lived,  tangible and intangible  assets that do not have  indefinite
       lives, such as fixed assets and intellectual  property,  are reviewed for
       impairment whenever events or changes in circumstances indicate that the

                                       8
<PAGE>


                    INCENTRA SOLUTIONS, INC. AND SUBSIDIARIES

         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (UNAUDITED)

       carrying amount of such assets may not be recoverable.  Determination  of
       recoverability is based on an estimate of undiscounted  future cash flows
       resulting  from  the  use of the  asset  and  its  eventual  disposition.
       Measurement of an impairment loss for such long-lived  assets is based on
       the fair value of the asset.

       Goodwill  and  other  intangible  assets  with  indefinite  lives are not
       amortized and are subject to write downs charged to results of operations
       only when their  carrying  amounts are  determined  to be more than their
       estimated fair values based upon impairment tests that are required to be
       made annually or more frequently under certain circumstances. Fair values
       are  determined  based on models  that  incorporate  estimates  of future
       probability and cash flows.

       For the three months  ended March 31, 2005 we believe that no  impairment
       existed.  For the  three  months  ended  March  31,  2004,  MSI  recorded
       impairment losses of $61,428.

       REVENUE RECOGNITION

       Revenue  is  recognized  when  all of the  following  criteria  are  met:
       persuasive  evidence of an  agreement  exists,  delivery  has occurred or
       services have been  rendered,  the sales price is fixed or  determinable,
       and collectibility is reasonably assured.

       We license  software under license  agreements  and provide  professional
       services, including training,  installation,  consulting and maintenance.
       License fee revenues are  recognized  when a license  agreement  has been
       signed,  the software  product has been  shipped,  the fees are fixed and
       determinable, collection is reasonably assured, and no significant vendor
       obligations remain.

       We allocate  revenue to each  component of a contract  based on objective
       evidence  of its  fair  value,  as  established  by  management.  Because
       licensing of software is  generally  not  dependent  on the  professional
       services   portion  of  the  contract,   software  revenue  is  generally
       recognized  upon  delivery,  unless a contract  exists with the  customer
       requiring customer acceptance.

       Fees for maintenance  agreements are recognized ratably over the terms of
       the agreements.  Maintenance is generally billed in advance, resulting in
       deferred revenue.

       We also provide  software  related  professional  services.  Services are
       generally  provided  on  a  time  and  materials  basis  and  revenue  is
       recognized as the services are provided.

       Revenues  from storage  services are  recognized at the time the services
       are  provided  and are  billed  on a monthly  basis.  Fees  received  for
       up-front  implementation  services are deferred and  recognized  over the
       term of the  arrangement.  Deferred revenue is recorded for billings sent
       to or paid by customers  for which we have not yet  performed the related
       services.

       Revenues  from product  sales are  recognized  when  shipped.  Consulting
       revenues are recognized when the services are performed.

                                       9
<PAGE>


                    INCENTRA SOLUTIONS, INC. AND SUBSIDIARIES

         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (UNAUDITED)

       SOFTWARE DEVELOPMENT COSTS

       We account for costs  related to software  developed for internal use and
       marketed for external use in accordance with SFAS No. 86,  ACCOUNTING FOR
       THE COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED, OR OTHERWISE MARKETED.
       MSI's  Gridworks  software  product  is  used  internally  for  providing
       services  to  our  customers  and  is  also  marketed   separately  as  a
       stand-alone  product.  FPDI's  DIVArchive  software  product is  marketed
       solely  as a  stand-alone  product.  As  required  by  SFAS  No.  86,  we
       capitalize costs in developing  software products upon determination that
       technological  feasibility has been established for the product,  if that
       product is to be sold, leased or otherwise marketed. Costs incurred prior
       to the establishment of technological feasibility are charged to research
       and development expense. When the product or enhancement is available for
       general release to customers,  capitalization  is ceased,  and previously
       capitalized  costs are amortized  based on current and future revenue for
       the product, but with an annual amortization amount at least equal to the
       straight-line  amortization over an estimated useful life of three years.
       For the three months ended March 31, 2005 and 2004,  capitalized software
       development  costs,  which  related  primarily  to  enhancements  to  our
       Gridworks  and  DIVArchive  software  solutions,   totaled  $399,311  and
       $87,486, respectively. These costs are amortized on a straight-line basis
       over the  estimated  life,  typically  three years.  For the three months
       ended March 31, 2005 and 2004,  $117,734  and $87,106,  respectively,  of
       software development costs were charged to expense. As of March 31, 2005,
       the unamortized portion of software development costs was $1,452,853.

       INCOME TAXES

       Income tax  expense  recognized  for the  period  ended  March 31,  2005,
       represented income tax expense on Front Porch Digital International,  SAS
       ("FPD  International"),   our  wholly-owned  French  subsidiary.  We  are
       currently in the process of creating an agreement with FPD  International
       for the  allocation  of  costs  related  to its  sale of our  proprietary
       software solutions.  Any such agreement is required to be approved by the
       French  taxing  authorities.  We expect that we will be able to implement
       this agreement,  and therefore  allocate the appropriate costs to our FPD
       International,  which we anticipate would serve to  significantly  reduce
       any income tax exposure for the remainder of the year. However, there can
       be no  assurance  that the French  taxing  authorities  will approve this
       agreement with FPD  International and that we will be able to reduce this
       income tax expense.


(2)    ACQUISITIONS

       (A)    ACQUISITION OF STAR SOLUTIONS OF DELAWARE, INC.

       On February 18, 2005 (the "STAR  Closing  Date"),  we acquired all of the
       outstanding  capital stock of STAR. The acquisition was effected pursuant
       to an  Agreement  and Plan of Merger (the "STAR Merger  Agreement").  The
       results of  operations  of STAR were first  included in our  consolidated
       financial statements beginning on February 18, 2005.

       Pursuant to the STAR Merger  Agreement,  the purchase price  consisted of
       (i) a cash  payment  of  $1,422,000,  (ii)  the  issuance  of  12,617,555
       unregistered  shares of our common stock valued at $3,136,364 (based upon
       the market  price three days before and after the  acquisition  date) and
       (iii) the issuance of an unsecured  convertible  promissory note for $2.5
       million  (the "STAR  Note").  In  addition,  we paid  $78,000 to the sole
       remaining stockholder of STAR in exchange for all shares of capital stock
       of STAR held by such stockholder.  We paid  approximately $0.4 million in
       investment banking fees associated with the transaction.

       Interest on the STAR Note  accrues at an annual  rate of 0.5%,  which has
       been  discounted  to reflect a fair value rate of interest.  Principal is
       payable as follows:  (i) $125,861 on May 1, 2005, (ii) eight  consecutive
       quarterly payments of $251,722, commencing on August 1, 2005, and (iii) a
       single  payment  of  $377,583  on August 1, 2007  (each of the  foregoing
       dates,  a "STAR Payment Due Date").  All or a portion of the  outstanding
       principal  and  interest  due under the STAR Note may be converted by the
       holder  into  shares  of  common  stock at any time  from the end of each
       calendar quarter immediately preceding a STAR Payment Due Date until and

                                       10
<PAGE>


                    INCENTRA SOLUTIONS, INC. AND SUBSIDIARIES

         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (UNAUDITED)

       including  one day prior to such STAR Payment Due Date.  The STAR Note is
       initially  convertible at a conversion  price equal to the greater of (i)
       $0.40 or (ii) seventy  percent (70%) of the average  closing price of our
       common stock, as reported on the Over-The-Counter Bulletin Board, for the
       ten (10) consecutive trading days ending on and including the last day of
       the calendar  quarter  immediately  preceding the applicable STAR Payment
       Due Date. As of the March 31, 2005, the STAR Note was convertible  into a
       maximum of 6,250,000  shares of common stock.  Our obligations  under the
       STAR Note are not secured by any of our assets.

       The STAR Note  provides that all unpaid  principal  and accrued  interest
       shall, at the option of the holder and without notice, become immediately
       due and payable upon the occurrence of an event of default (as defined in
       the STAR Note).  Such events of default  include the occurrence of any of
       the following  events:  (i) failure to pay within ten (10) days after the
       applicable  due date any  amounts  payable  under the STAR Note,  (ii) an
       assignment for the benefit of creditors,  or (iii) failure to perform any
       material  covenant  under the STAR  Merger  Agreement,  the  registration
       rights agreement or the consulting agreement described below or any other
       material agreement between us and the seller.  Principal amounts not paid
       when due (subject to  applicable  cure periods) bear interest at the rate
       of twelve percent (12%) per annum.

       Concurrent with the  consummation of the  acquisition,  we entered into a
       registration rights agreement with the seller,  pursuant to which, at any
       time after March 1, 2006,  the seller shall have the right to cause us to
       register  under the  Securities  Act of 1933,  as amended,  the shares of
       common  stock issued to him in the  acquisition  and the shares of common
       stock  issuable  upon  conversion of the STAR Note.  The  agreement  also
       provides that,  after March 1, 2006,  the seller shall have  'piggy-back'
       registration rights.

       The following represents the preliminary purchase price allocation at the
       date of the STAR acquisition:

                Cash and cash equivalents                  $ 1,598,000
                Other current assets                           687,000
                Property and equipment                          20,000
                Other assets                                     7,000
                Goodwill                                     8,174,000
                Other intangible assets (3-5 year lives)       530,000
                Current liabilities                         (1,421,000)
                Other liabilities                           (1,900,000)
                                                           -----------
                Total purchase price                       $ 7,695,000
                                                           ===========

       The purchase price is not considered final as of the date of this report,
       as we along with our independent  valuation  advisors are still reviewing
       all  of  the  underlying   assumptions  and  calculations   used  in  the
       allocation.  However, we believe the final purchase price allocation will
       not be materially different than that presented herein.

                                       11
<PAGE>


                    INCENTRA SOLUTIONS, INC. AND SUBSIDIARIES

         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (UNAUDITED)

       In  addition,  on February 18, 2005,  STAR  obtained a revolving  line of
       credit from a bank that provides for  borrowings  until March 1, 2007, of
       up to $5,000,000 (Note 7(c)).

       (B)    ACQUISITION OF PWI TECHNOLOGIES, INC.

       On March 30,  2005 (the  "PWI  Closing  Date"),  we  acquired  all of the
       outstanding  capital stock of PWI. The acquisition was effected  pursuant
       to a Stock Purchase Agreement, dated as of the PWI Closing Date (the "PWI
       Stock Purchase Agreement").

       The purchase price of PWI consisted of $2.3 million in cash and 8,419,340
       shares of our common  stock valued at  $1,683,868  (based upon the market
       price three days before and after the acquisition date). In addition, the
       former  PWI  shareholders  have  the  opportunity  to earn an  additional
       $200,000  in cash  and  $1.0  million  in our  common  stock  based  upon
       achieving certain earn out  requirements.  Should PWI exceed the earn-out
       requirements,  its former  shareholders can earn additional  common stock
       having  a value  equal  to PWI's  EBITDA  contribution  over the earn out
       requirement.  We paid  approximately  $0.3 million in investment  banking
       fees in connection with the transaction.

       Concurrently  with  the  consummation  of  the  acquisition,  we  granted
       registration  rights with respect to the shares of common stock issued in
       the acquisition.  Pursuant to the registration  rights agreement executed
       on the PWI Closing Date, at any time after March 31, 2006, the holders of
       such  rights  shall  have the  right to cause us to  register  under  the
       Securities Act of 1933, as amended, the shares of our common stock issued
       on the PWI Closing Date and the shares of common stock issuable  pursuant
       to the earn-out  described above. The agreement also provides that, after
       March 31, 2006, the holders shall have 'piggy-back'  registration  rights
       with respect to such shares.

       In  connection  with  the  consummation  of the  acquisition,  the  Chief
       Executive Officer of PWI prior to the acquisition was appointed President
       of PWI. PWI entered into an "at-will"  employment  agreement  dated as of
       the PWI Closing Date that  provides  that the  President  will receive an
       initial  annual base salary of $211,500.  The  employment  agreement also
       provides that the President may terminate the agreement  upon thirty (30)
       days prior written notice and that PWI may terminate employment,  with or
       without  cause,  at any  time  upon  written  notice.  In  addition,  the
       President's right to receive his pro rata share of the earn-out described
       above is subject to his continued  employment with PWI for a period of at
       least  one year  from the date of the  agreement,  except in cases of his
       death or disability.

       In  connection  with  the  acquisition,  we paid  $250,000  for  advisory
       services.

       The following represents the preliminary purchase price allocation at the
       date of the PWI acquisition:

                                       12
<PAGE>


                    INCENTRA SOLUTIONS, INC. AND SUBSIDIARIES

         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (UNAUDITED)


                Cash and cash equivalents                  $    74,000
                Other current assets                         7,010,000
                Property and equipment                         174,000
                Other assets                                    28,000
                Goodwill                                     6,391,000
                Other intangible assets (3-5 year lives)       280,000
                Current liabilities                         (7,157,000)
                Other liabilities                           (2,415,000)
                                                           -----------
                Total purchase price                       $ 4,385,000
                                                           ===========

       The purchase price is not considered final as of the date of this report,
       as we along with our independent  valuation  advisors are still reviewing
       all  of  the  underlying   assumptions  and  calculations   used  in  the
       allocation.  However, we believe the final purchase price allocation will
       not be materially different than that presented herein.

       Financing  for the cash  component of the purchase was provided by a bank
       through an existing line of credit  ("LOC") that was  established as part
       of the acquisition of STAR. In connection with the financing, the LOC was
       amended  to make PWI a  co-borrower  under the  agreements  and to modify
       certain  financial  covenants to  accommodate  the addition of PWI to the
       LOC.

       (C)    ACQUISITION OF MANAGEDSTORAGE INTERNATIONAL, INC.

       On August 18, 2004 (the "MSI Acquisition  Date"),  we acquired all of the
       outstanding capital stock of MSI, a Delaware corporation. The transaction
       was  structured  as a  reorganization  of MSI with and into  Front  Porch
       Merger  Corp.,  a Delaware  corporation  and  newly-formed,  wholly-owned
       subsidiary  of the  Company.  The  acquisition  of  MSI  by us  has  been
       accounted for as a reverse  merger  because on a post-merger  basis,  the
       former MSI shareholders  held,  immediately  following the acquisition on
       the MSI Acquisition Date, a majority of our outstanding common stock on a
       voting and diluted basis.  As a result,  MSI is deemed to be the acquirer
       for  accounting  purposes.   Accordingly,   the  condensed   consolidated
       financial statements presented herein include the financial statements of
       MSI for all periods prior to the MSI  Acquisition  Date and the financial
       statements of the  consolidated  companies from the MSI Acquisition  Date
       forward.  Historical share and per share amounts for periods prior to the
       MSI  Acquisition  Date have been  retroactively  restated  to reflect the
       exchange ratio  established in the transaction,  in a manner similar to a
       reverse stock split with the  difference in par values being  recorded as
       an  offset to  additional  paid in  capital.  The  restated  consolidated
       accumulated  deficit of the  accounting  acquirer  (MSI) has been carried
       forward  after the MSI  Acquisition.  The MSI  Acquisition  has also been
       accounted for as a step acquisition as it occurred in multiple steps over
       the period from July 31, 2002, when MSI sold its French subsidiary to us.
       After the  acquisition,  the former MSI shareholders  beneficially  owned
       approximately 64% of the common stock, giving effect to the conversion of
       the Series A Preferred Stock.

                                       13
<PAGE>


                    INCENTRA SOLUTIONS, INC. AND SUBSIDIARIES

         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (UNAUDITED)

       (D)    PROFORMA RESULTS

       The following  unaudited  pro forma  financial  information  presents our
       combined  results  of  operations as if the acquisitions described in (A)
       (B) and (C) above had occurred as of the beginning of each of the periods
       reported  below.  The unaudited pro forma  financial  information  is not
       intended to represent or be  indicative of  the  consolidated  results of
       operations that would have been reported by us had the acquisitions  been
       completed  as of the  beginning of  the  periods  presented,  and  should
       not be taken as  representative  of  our future  consolidated  results of
       operations  or financial  condition.  Pro forma  results  were as follows
       for the periods  ended March 31, 2005 and 2004:

                                                         THREE MONTHS ENDED
                                                      MARCH 31,      MARCH 31,
                                                        2005           2004
                                                    ------------   ------------
       Revenue                                      $ 16,452,125   $ 14,276,667
       Cost of revenue                                11,971,102     10,127,554
                                                    ------------   ------------
       Gross margin                                    4,481,023      4,149,113

       Operating expenses                              6,377,743      5,821,234
                                                    ------------   ------------
       Loss from operations                           (1,896,720)    (1,672,121)

       Other income (expense), net                      (184,604)      (845,761)
       Income tax                                       (319,607)            --
                                                    ------------   ------------
       Net loss                                       (2,400,931)    (2,517,882)

       Dividends on redeemable preferred stock                --       (147,945)
       Accretion of redeemable preferred stock
         to redemption amount                           (654,391)        (7,833)

                                                    ------------   ------------
       Net loss applicable to common shareholders   $ (3,055,322)  $ (2,673,660)
                                                    ============   ============

(3)    PROPERTY AND EQUIPMENT

       Property and equipment as of March 31, 2005, consisted of:

       Computer equipment                                           $ 5,008,661
       Software                                                       2,672,012
       Office furniture and equipment                                    88,740
       Leasehold improvements                                         1,586,779
                                                                    -----------
                                                                      9,356,192
       Less accumulated depreciation                                 (6,932,517)
                                                                    -----------
                                                                    $ 2,423,675
                                                                    ===========

       For the three  months ended March 31, 2005 and 2004,  total  depreciation
       expense was $394,700 and $403,711,  respectively,  of which  $323,555 and
       $358,793, respectively, was included in cost of revenue.

       Included in the balance above is property and  equipment  under a capital
       lease  with  a  cost  of  $1,532,143  and  accumulated  depreciation  and
       amortization of $714,385.


                                       14
<PAGE>


                    INCENTRA SOLUTIONS, INC. AND SUBSIDIARIES

         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (UNAUDITED)

(4)    CONCENTRATION OF CREDIT RISK

       We sell our products and services throughout North America,  Europe, Asia
       and the  Pacific  Rim.  We perform  periodic  credit  evaluations  of our
       customers'  financial  condition and generally do not require collateral.
       Credit  losses have been within our  expectations.  For the three  months
       ended March 31, 2005, aggregate revenues from customers located in Europe
       or Asia and North America both amounted to $3.0 million,  or 50% of total
       revenue.  For the three months ended March 31,  2004,  our revenues  from
       customers  located in Europe or Asia amounted to $0.4 million,  or 17% of
       total revenue,  while  revenues from  customers  located in North America
       totaled  $2.0  million,  or 83% of total  revenue.  On a pro forma basis,
       giving effect to the  acquisitions  as if they had occurred on January 1,
       2005, for the three months ended March 31, 2005  aggregate  revenues from
       customers  located  in  Europe  or  Asia  amounted  to $3.0  million,  or
       approximately 18% of total revenue, while revenues from customers located
       in North America totaled $13.4 million.

       No one customer exceeded 10% of total revenues for the three months ended
       March  31,  2005.  Two  different  customers  represented  22% and 13% of
       accounts  receivable as of March 31, 2005.  On a pro forma basis,  giving
       effect to the  acquisitions  as if they had  occurred on January 1, 2005,
       two  customers  exceeded  10% of total  pro forma  revenue  for the three
       months ended March 31, 2004, representing 24% and 10%.

       For the three months ended March 31, 2004,  revenues  from two  customers
       each exceeding 10% of total revenues each aggregated 15%.

(5)    PER SHARE DATA

       We report our earnings  (loss) per share in accordance with SFAS No. 128,
       ACCOUNTING  FOR  EARNINGS  PER SHARE (SFAS 128).  Basic loss per share is
       calculated using the net loss allocable to common shareholders divided by
       the weighted  average  common shares  outstanding  during the period.  In
       accordance  with  accounting   requirements  for  reverse  mergers,   the
       historical  loss per share of MSI prior to the MSI  Acquisition  has been
       retroactively  restated to reflect our capital structure.  Due to our net
       loss,  shares  from  the  assumed  conversion  of  outstanding  warrants,
       options,  convertible  preferred  stock  and  convertible  debt have been
       omitted  from the  computations  of diluted  loss per share for the three
       months  ended  March  31,  2005  and 2004  because  the  effect  would be
       antidilutive.  Shares issuable from common stock  equivalents  that could
       potentially  dilute  earnings  per  share  in the  future  that  were not
       included in the  computation  of loss per share  because their effect was
       anti-dilutive  totaled  approximately  101.3  million  and 2.5 million at
       March 31, 2005 and 2004, respectively.

(6)    SERIES A CONVERTIBLE PREFERRED STOCK

       In  connection  with  the MSI  Acquisition,  we  designated  2.5  million
       authorized  shares of  preferred  stock as Series A Preferred  shares and
       issued  2,466,971  of  such  shares.  Warrants  are  outstanding  for the
       purchase of the remaining  33,029 Series A Preferred shares at a purchase
       price of $10.35 per share.

                                       15
<PAGE>


                    INCENTRA SOLUTIONS, INC. AND SUBSIDIARIES

         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (UNAUDITED)

       The Series A Preferred  shares are  convertible  at any time upon written
       notice to us into shares of common stock on a  twenty-for-one  basis.  So
       long as at least 500,000  originally  issued shares of Series A Preferred
       are outstanding,  the holders of Series A Preferred shares have the right
       to appoint three  directors to our Board of Directors.  As a result,  our
       Board of  Directors  has been  expanded to seven  members to  accommodate
       these three  directors.  On or after August 16,  2008,  the holders of at
       least 80% of the  Series A  Preferred  shares may elect to have us redeem
       the  Series  A  Preferred  for a price  equal to the  greater  of (i) the
       original issue price of $12.60 per share ($31.5 million in the aggregate)
       plus accrued  dividends,  to the extent  dividends are declared by us, or
       (ii) the fair market  value of the number of shares of common  stock into
       which such shares of Series A Preferred are  convertible.  Other material
       terms  of the  Series  A  Preferred  shares  include  a  preference  upon
       liquidation or dissolution of the Company, weighted-average anti-dilution
       protection and pre-emptive rights with respect to subsequent issuances of
       securities by us (subject to certain exceptions).

(7)    DEBT

       (A)    SENIOR SECURED CONVERTIBLE NOTE

       On the MSI Acquisition Date,  liabilities  assumed in the MSI Acquisition
       included the fair value of a  convertible  note.  This  convertible  note
       originated  on May 13,  2004,  when we  consummated  a private  placement
       pursuant to which we issued a secured  convertible  term note due May 13,
       2007 in the principal  amount of $5,000,000 (the "Laurus  Note"),  and we
       issued a common stock purchase  warrant  entitling the holder to purchase
       4,435,000  shares of common  stock (the  "Laurus  Warrant")  at $0.48 per
       share.  The Laurus Note and the Laurus Warrant were sold to Laurus Master
       Fund, Ltd. ("Laurus"),  for a purchase price of $5,000,000. The principal
       and unpaid interest on the Laurus Note is convertible  into shares of our
       common  stock at a price of $0.30  per  share,  subject  to  antidilution
       adjustments.

       In connection  with the issuance of the Laurus Note, we recorded the fair
       value  of  the  Laurus  Warrant  as a debt  discount  in  the  amount  of
       approximately  $1.8 million based upon the  Black-Scholes  option-pricing
       model,  resulting in an imputed  interest  rate of 37%.  This discount is
       being amortized to earnings as additional  interest expense over the term
       of the Laurus Note. Accordingly,  we have recorded $139,545 of additional
       non-cash  interest  expense  relating to the amortization of the discount
       during the quarter ended March 31, 2005.

       In accordance with EITF 00-19, we initially  accounted for the fair value
       of the Laurus  Warrant  as  equity.  As  discussed  below,  in the fourth
       quarter  of 2004,  due to an  October  2004  change  in the  Laurus  Note
       conversion  terms, our authorized and unissued shares available to settle
       the Laurus  Warrant (after  considering  all other  commitments  that may
       require  the  issuance  of stock  during  the  maximum  period the Laurus
       Warrant could remain outstanding) were determined to be insufficient.  As
       a result,  we reassessed and reclassified the value of the Laurus Warrant
       to a liability at the reassessment date. At March 31, 2005, we reassessed
       the  value  of the  Laurus  Warrant  liability  and  recorded  a gain  of
       $341,495. The fair value of the Laurus Warrant is evaluated at the end of
       each reporting period with any resulting change in the fair value being


                                       16
<PAGE>


                    INCENTRA SOLUTIONS, INC. AND SUBSIDIARIES

         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (UNAUDITED)

       reflected in the consolidated statements of operations.

       The Laurus Note provides for monthly payments of interest at the rate per
       annum equal to the prime rate plus 1%,  which is subject to  reduction if
       the  market  price  of  our  common  stock  exceeds  certain   designated
       thresholds.  However,  the rate  cannot  be less than 5% per  annum.  The
       Laurus Note also provides for monthly  amortization  of principal,  which
       commenced on September 1, 2004, of $45,455  (increased  to  approximately
       $159,000 per month  beginning in March 2005) with the balance  payable on
       the maturity date.  Laurus has the option to receive shares of our common
       stock in lieu of debt service  payments at the market price of our common
       stock at the date of conversion.  The Laurus Note is  collateralized by a
       security  interest in all of our assets.  The Laurus Warrant entitles the
       holder to purchase,  at any time  through May 13,  2011,  up to 4,435,000
       shares of our  common  stock at a price of $0.48 per  share,  subject  to
       antidilution adjustments.

       Pursuant to a Securities  Purchase  Agreement (the  "Securities  Purchase
       Agreement")  between us and Laurus,  for so long as 25% of the  principal
       amount  of the  Laurus  Note  is  outstanding,  we may  not  directly  or
       indirectly declare or pay any dividends without the prior written consent
       of Laurus.  The Securities  Purchase  Agreement also requires the written
       consent  of  Laurus  in  connection   with  any   liquidation,   material
       reorganization  or issuance  of certain  additional  indebtedness  of the
       Company.

       On October 26,  2004,  we entered  into an  Amendment  and  Waiver,  (the
       "Amendment and Waiver"), with Laurus that amended the Securities Purchase
       Agreement and certain other  documents (the "Loan  Documents") and waived
       certain events of default under certain of the Loan  Documents.  Pursuant
       to the  Amendment  and Waiver,  the  parties  agreed to reduce the "Fixed
       Conversion  Price" set forth in the  Laurus  Note from $0.50 to $0.30 per
       share  and to amend  the  Master  Security  Agreement  to  provide  for a
       "Lockbox  Deposit  Account" to be maintained  by us and our  subsidiaries
       under  the  Master  Security   Agreement.   Lockbox  remittances  do  not
       automatically  reduce the debt outstanding unless an event of default has
       occurred.  Laurus  further agreed to (i) release to us  approximately  $3
       million,  which  represented  all funds then  remaining  in a  restricted
       account (less outstanding accrued interest and fees); (ii) postpone until
       the maturity date of the Laurus Note the monthly  principal payable by us
       under the Laurus  Note from  November 1, 2004  through  February 1, 2005;
       (iii) waive certain events of default,  and all fees and default interest
       rates applicable to such events of default;  (iv) extend the time for our
       subsidiaries  to be joined as a party to the Master  Security  Agreement;
       (v) waive all fees and default  interest  arising from our failure to pay
       the liquidated damages set forth in the Registration Rights Agreement and
       further waive any liquidated damages due and payable to Laurus by us.

       In consideration of the waivers, we issued a seven-year warrant to Laurus
       to purchase  500,000 shares of our common stock with an exercise price of
       $0.50 per share.  We further  agreed to register under the Securities Act
       the resale of the shares of common stock  issuable  upon  exercise of the
       new warrant and the  additional  shares of our common  stock  issuable to
       Laurus upon  conversion  of the Laurus Note due to the  adjustment of the
       Fixed Conversion Price. We valued the additional Warrant at $89,000,

                                       17
<PAGE>


                    INCENTRA SOLUTIONS, INC. AND SUBSIDIARIES

         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (UNAUDITED)

       which  represents  the  total  liquidated  damages  waived by Laurus as a
       result  of the  Amendment  and  Waiver.  We  recorded  this  amount  as a
       liability  and  additional  interest  expense  during the  quarter  ended
       December 31, 2004. On February 17, 2005, we entered into an Amendment and
       Waiver (the  "Second  Amendment  and  Waiver")  with  Laurus.  The Second
       Amendment  and  Waiver  waived   certain  events  of  default  under  the
       Registration  Rights  Agreement  (as amended on October 25, 2004) and the
       Laurus Note.  Pursuant to the Second Amendment and Waiver,  Laurus agreed
       to waive all fees and default  interest  arising  from our failure to pay
       the liquidated damages set forth in the Registration Rights Agreement and
       to waive any  liquidated  damages due and payable to Laurus in connection
       with our  failure  to  maintain  the  effectiveness  of the  Registration
       Statement.

       On  February  18,  2005,  we  entered  into a  Waiver  and  Subordination
       Agreement   with  Laurus  (the   "Laurus   Subordination").   The  Laurus
       Subordination   waived  our  obligation  under  the  Securities  Purchase
       Agreement  to  cause  STAR to  become  a  party  to the  Master  Security
       Agreement.  Pursuant to the Laurus  Subordination,  Laurus also agreed to
       subordinate to a lender its security interest in the accounts  receivable
       and  other  rights  to  payments,  general  intangibles,   equipment  and
       inventory of STAR.

       In  consideration  of the waivers and  subordination  by Laurus described
       above, we agreed to issue to Laurus an immediately exercisable seven-year
       warrant to purchase 3,625,000 shares of common stock at an exercise price
       of $0.26 per share,  at any time on or prior to  February  17,  2012 (the
       "Additional Warrant") and further agreed to register under the Securities
       Act the resale of the shares of common stock  issuable  upon  exercise of
       the Additional  Warrant. A registration  statement was filed on April 14,
       2005 and was declared effective by the Securities and Exchange Commission
       on April 25, 2005. At March 31, 2005,  we accrued  $300,000 for the value
       of the Additional  Warrant based on the terms of the Securities  Purchase
       Agreement  relating to the amount of liquidated  damages  payable for not
       meeting the deadlines required under the Registration Rights Agreement.

       (B)    CAPITAL LEASES

       On November  20,  2003,  we entered  into a capital  lease line of credit
       agreement  (the "Lease Line") for $1,500,000  with a third-party  lender.
       The  term of the  agreement  is for  term  leases  ranging  from 12 to 18
       months.  The  interest  rate on the Lease  Line  ranges  from  10.514% to
       10.731%. As of March 31, 2005, we have drawn $1,470,507 on the Lease Line
       and $29,493 of the Lease Line had expired unused. The Lease Line is to be
       repaid in monthly  principal  and interest  installments,  with the final
       payment  due in October  2005.  The unpaid  balance at March 31, 2005 was
       $279,695.

       On March 2, 2005,  we entered into an amendment to the Lease Line.  Under
       this  amendment,  we may draw an  additional  $500,000  (the "New  Credit
       Facility") for equipment  purchases  through June 30, 2005. The amendment
       also grants us a call option to purchase  equipment  from the lessor.  If
       any part of the New Credit  Facility amount is unfunded on June 30, 2005,
       we are required to pay the lessor 5% of such unfunded  amount upon demand
       by the  lessor.  The  term  of the  agreement  is for 15  months  with an
       interest rate of 14.96%. During March 2005, we have drawn $164,177 on the

                                       18
<PAGE>


                    INCENTRA SOLUTIONS, INC. AND SUBSIDIARIES

         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (UNAUDITED)


       New Credit  Facility.  The New Credit Facility is to be repaid in monthly
       principal and interest installments. The unpaid balance at March 31, 2005
       was $153,259.

       (C)    REVOLVING LINE OF CREDIT

       On February 18,  2005,  STAR  obtained a revolving  line of credit from a
       bank,  which  provides for  borrowings,  from time to time until March 1,
       2007,  of up to  $5,000,000.  In connection  with the line of credit,  on
       February 18, 2005,  STAR  entered  into a credit  agreement  (the "Credit
       Agreement")  with the bank and  executed in favor of the bank a revolving
       line of credit note (the "LOC  Note"),  a continuing  security  agreement
       (rights  to  payment  and  inventory)  ("Security  Agreement  #1")  and a
       security agreement (equipment)  ("Security Agreement #2, and collectively
       with  Security  Agreement  #1,  the  "Security  Agreements").  The Credit
       Agreement,  the LOC Note and the  Security  Agreements  are  collectively
       referred  to as the  "Loan  Documents."  On March 30,  2005,  the line of
       credit was amended to make PWI a co-borrower thereunder.

       Pursuant to the Credit  Agreement,  the maximum  principal  amount of all
       borrowings under the line of credit cannot exceed 80% of STAR's and PWI's
       eligible accounts receivable.  The Credit Agreement further provides that
       all borrowed amounts shall, at the option of the bank and without notice,
       become  immediately  due and payable upon the  occurrence  of an event of
       default (as defined in the Credit Agreement).  Principal amounts not paid
       when due bear  interest at 4% above the per annum rate of interest of the
       LOC Note.

       The LOC Note provides that interest on all outstanding  principal amounts
       shall  accrue at a rate per  annum  equal to the  prime  rate plus  1.5%.
       Interest  on the LOC Note is  payable  monthly  on the  first day of each
       month during the term of the LOC Note, commencing April 1, 2005. Pursuant
       to the  Security  Agreements,  borrowings  under the line of  credit  are
       secured by a first priority lien on all of STAR's and PWI's assets. If an
       event of default  occurs under the Security  Agreements  or the LOC Note,
       the bank has the right to accelerate  payments under the LOC Note and, in
       addition to any other  remedies  available to it, to  foreclose  upon the
       assets securing the LOC Note. In addition,  the LOC Note contains certain
       financial  covenants for which compliance is measured  quarterly.  During
       the three months ended March 31, 2005, we drew  $3,519,452 on the line of
       credit.  We were  not in  compliance  with one of our  covenants  for the
       quarter ended March 31, 2005 and obtained a waiver for this covenant from
       the bank through June 30, 2005.

(8)    SUBSEQUENT EVENTS

       (A)    REVERSE STOCK SPLIT

       On April 12, 2005,  our Board of Directors  (the "Board") and the holders
       of the  required  number of  shares  of our  capital  stock  approved  an
       amendment  to our  Articles of  Incorporation  to effect a reverse  stock
       split,  pursuant to which every ten (10) shares (the "Old Shares") of our
       outstanding  common stock are to be exchanged for one new share (the "New
       Shares") of common stock.

                                       19
<PAGE>


                    INCENTRA SOLUTIONS, INC. AND SUBSIDIARIES

         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (UNAUDITED)

       The number of Old Shares for which each New Share is to be  exchanged  is
       referred to as the  "Exchange  Number".  The reverse  stock split will be
       effected  simultaneously  for all shares of common stock and the Exchange
       Number  will be the  same  for all  shares  of  common  stock.  Upon  the
       effectiveness  of the reverse  stock split,  each option or warrant right
       for common  stock will  entitle  the holder to acquire a number of shares
       equal to the number of shares  that the holder  was  entitled  to acquire
       prior to the reverse  stock split  divided by the Exchange  Number at the
       exercise  price in effect  immediately  prior to the reverse stock split,
       multiplied by the Exchange Number.

       The Board will have the authority to determine the effective  date of the
       reverse stock split, without further stockholder approval.

       The Board also reserved the right,  notwithstanding  stockholder approval
       and without further action by the  stockholders,  not to proceed with the
       reverse stock split, if, at any time prior to filing the amendment to the
       Articles of  Incorporation  with the  Secretary  of State of the State of
       Nevada,  the Board, in its sole  discretion,  determines that the reverse
       stock  split is no longer in the best  interests  of the  Company and its
       stockholders.  The Board may consider a variety of factors in determining
       whether or not to implement the reverse stock split,  including,  but not
       limited to,

       o  overall trends in the stock market;

       o  recent changes and anticipated trends in the per share market price of
          the common stock, business and transactional developments;

       o  our actual and projected financial performance; and

       o  our anticipated merger with another entity.


       The  reverse  stock  split  will  not  change  the  proportionate  equity
       interests of our stockholders,  nor will the respective voting rights and
       other rights of stockholders be altered,  except for possible  immaterial
       changes due to our issuance of  additional  shares in lieu of  fractional
       shares.  The Common Stock issued pursuant to the reverse stock split will
       remain fully paid and  non-assessable.  We will continue to be subject to
       the periodic  reporting  requirements  of the Securities  Exchange Act of
       1934, as amended.

       (B)    AMENDMENT TO EQUITY INCENTIVE PLAN

       On April 1,  2005,  our  stockholders  approved  by  written  consent  an
       amendment to our 2000 Equity  Incentive Plan (the "Plan") to increase the
       maximum  number of shares of our  common  stock  available  for  issuance
       thereunder from 6,000,000 shares to 22,625,000 shares. Such amendment was
       approved  by the Board on August  16,  2004.  As a result of the  reverse
       stock split described  above,  the authorized  shares in the Plan will be
       adjusted accordingly.

                                       20
<PAGE>


                    INCENTRA SOLUTIONS, INC. AND SUBSIDIARIES

         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (UNAUDITED)


       (C)    AMENDMENT TO SENIOR SECURED CONVERTIBLE NOTE

       On May 4, 2005,  we entered into an  amendment  with Laurus to the Laurus
       Note  pursuant to which the  conversion  price for the first  $200,000 of
       principal  converted  on or after  April 28,  2005 was  reduced to eighty
       seven percent (87%) of the five (5) lowest  closing  prices of the common
       stock during the twenty-two  (22) trading days  immediately  prior to the
       date of such conversion;  provided,  however,  that such conversion price
       shall  not  be  less  than  $0.14.  Any  beneficial  conversion  features
       resulting  from the  change in  conversion  terms will be  recognized  in
       earnings at the time of the conversion.

       ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

       GENERAL

       When  used  in  this  discussion,  the  word  "believes",  "anticipates",
       "expects"   and   similar    expressions   are   intended   to   identify
       forward-looking  statements. Such statements are subject to certain risks
       and  uncertainties  that could cause actual results to differ  materially
       from those projected.

       Our business and results of operations  are affected by a wide variety of
       factors that could  materially  and adversely  affect the Company and its
       actual results,  including,  but not limited to: (1) the  availability of
       additional  funds to enable us to successfully  pursue its business plan;
       (2) the  uncertainties  related to the  effectiveness of our technologies
       and the development of the our products and services;  (3) our ability to
       maintain,  attract and integrate management personnel; (4) our ability to
       complete the development  and continued  enhancement of its products in a
       timely  manner;  (5) our  ability  to  effectively  market  and  sell its
       products  and services to current and new  customers;  (6) our ability to
       negotiate  and maintain  suitable  strategic  partnerships  and corporate
       relationships; (7) the intensity of competition; and (8) general economic
       conditions.  As a result of these and other  factors,  we may  experience
       material  fluctuations  in future  operating  results on a  quarterly  or
       annual basis,  which could  materially and adversely affect its business,
       financial condition, operating results and stock price.

       Any  forward-looking  statements herein speak only as of the date hereof.
       We  undertake  no  obligation  to  publicly  release  the  results of any
       revisions to these forward-looking statements that may be made to reflect
       events  or  circumstances  after  the  date  hereof  or  to  reflect  the
       occurrence of unanticipated events.

       OVERVIEW

       We are a supplier of complete  solutions for enterprise's data protection
       needs. We supply a broad range of storage products and storage management
       services to broadcasters,  enterprises and information technology service
       providers worldwide.  We market our products and services to broadcasters
       under the trade name Front Porch Digital  ("Front  Porch") and to service
       providers and  enterprise  clients  under the trade names  ManagedStorage
       International  ("MSI"),  STAR  Solutions  ("STAR")  and PWI  Technologies
       ("PWI").  Front Porch provides unique software and professional  services

                                       21
<PAGE>


       solutions  for  digital  archive  management  to  broadcasters  and media
       companies.   MSI  provides   outsourced  storage   solutions,   including
       engineering,   hardware  and  software  procurement  and  remote  storage
       operations  services.  STAR and PWI are leading systems  integrators that
       provide Information Technology ("IT") products, professional services and
       outsourcing  solutions to enterprise  customers  located primarily in the
       western United States.

       Through Front Porch,  we provide a software and management  solution that
       enables searching,  browsing,  editing, storage and on-demand delivery of
       media-rich  content in nearly any digital format.  The software  converts
       audio, video,  images, text and data into digital formats for ease of use
       and archiving.  With more than 95 installations worldwide, our DIVArchive
       software  has become a leading  digital  archive  management  application
       among European and Asian broadcast and media companies, and is gaining an
       increasing share of the North American market.  Front Porch's  DIVArchive
       and BitScream applications provide the essential integration layer within
       the digital content creation and broadcast  environments.  As a result of
       its  software-based  solution that was built on intelligent,  distributed
       architecture,  Front Porch's archive management and transcoding solutions
       are  flexible,   scalable,  easily  upgradable,   failure  resilient  and
       well-integratable   with   leading   automation   and  asset   management
       applications.

       Through  MSI,  we  deliver   comprehensive   storage  services  including
       professional   services,   hardware/software   procurement   and  resale,
       financing solutions and remote  monitoring/management  services. We focus
       on providing data protection  solutions and services that ensure that our
       customers'  data is backed-up  and  recoverable  and meets  internal data
       retention  compliance  policies.  MSI's remote  monitoring and management
       services are delivered from its Storage Network Operations Center,  which
       monitors and manages a multitude of diverse storage  infrastructures on a
       24x7 basis  throughout the United  States,  United  Kingdom,  Bermuda and
       Tokyo.  MSI delivers this  worldwide  service  utilizing its  proprietary
       GridWorks  Operations  Support  System,  which enables  automated  remote
       monitoring and management of complete storage infrastructures and back-up
       applications.  MSI  provides  outsourcing  solutions  for  customer  data
       protection  needs under long-term  contracts.  Customers pay on a monthly
       basis for storage  services  based on the number of assets managed and/or
       the volume of storage  assets  utilized.  These  customers  benefit  from
       reduced operating costs and reductions in capital expenditures.

       Through  STAR  and PWI,  we  deliver  complete  IT  solutions,  including
       professional  services,  third-party  hardware/software  procurement  and
       resale,  financing  solutions  and the sale and  delivery  of first  call
       support for third-party hardware and software maintenance (including help
       desk operations). Solutions are sold primarily to enterprise customers in
       the  financial  services,  government,   hospitality,  retail,  security,
       healthcare and  manufacturing  sectors.  With offices and sales personnel
       located  primarily  throughout the western United States,  these recently
       acquired  entities  are a  cornerstone  to its North  American  expansion
       plans.

       The following  discussion and analysis of financial condition and results
       of  operations  is based upon our pro forma and  historical  consolidated
       financial  statements,  which  have  been  prepared  in  accordance  with
       accounting principles generally accepted in the United States of America.
       The  preparation  of these  consolidated  financial  statements  requires
       management  to make  estimates  and  judgments  that affect the  reported
       amounts  of assets,  liabilities,  revenues  and  expenses,  and  related
       disclosure  of contingent  assets and  liabilities.  These  estimates are
       based on historical  experience and on various other assumptions that are
       believed to be reasonable under the  circumstances,  the results of which

                                       22
<PAGE>


       form the basis for making  judgments  about the carrying values of assets
       and liabilities that are not readily apparent from other sources.  Actual
       results may differ from these estimates  under  different  assumptions or
       conditions.

       BUSINESS OUTLOOK

       The following  summarized  discussion of financial  results for the three
       months  ended  March 31,  2005 and 2004 is of our  results on a pro forma
       basis,  giving effect to the  acquisitions as if they had occurred at the
       beginning of all periods  presented.  We believe the pro forma results of
       operations  provide  additional and more relevant  information  about the
       operating  performance  of our business and gives a better  indication of
       our results of operations,  and the size and  scalability of our business
       on a forward looking basis.

       For the three  months ended March 31, 2005,  pro forma  revenues  totaled
       $16.4  million as compared  to $14.3  million  for the  comparable  prior
       period.  The rate of  year-over-year  growth  in  revenues  for the three
       months  ended  2005 was  approximately  15%.  The  significant  growth in
       revenue was a result of increased sales and deliveries of our proprietary
       DIVArchive   solution,   third-party   hardware   and  software  and  our
       professional  services.  In  addition,  we have a recurring  revenue base
       created by our proprietary  Gridworks  Operations System Support solution
       that provides added stability and predictability in revenue, as well as a
       significant  growth  opportunity  through  the  expansion  of services to
       existing  customers,  the continued  increase in the amount of data under
       protection,  as well as new  enterprise  and  service  provider  customer
       opportunities.

       We continue to invest in hardware and the development of our software and
       digital archiving in the data storage and  infrastructure  areas.  During
       the quarter  ended March 31, 2005,  we invested  $0.2 million in software
       development and $0.2 million for data storage infrastructure development.

       During the three  months  ended March 31,  2005,  our pro forma loss from
       operations  increased by approximately  $0.2 million,  to $1.9 million as
       compared  to a pro forma loss of $1.7  million for the  comparable  prior
       year period.  We incurred a  significant  increase in audit,  accounting,
       investment  banking,  investor  relations  and legal charges in the first
       quarter  of 2005  related to our recent  acquisition  activities  and the
       costs of  registering  under the  Securities  Act the resale of shares of
       common  stock  owned by certain  stockholders,  including  Laurus.  These
       costs,  which amounted to approximately $0.4 million in the first quarter
       of 2005, were not incurred in the comparable prior year.

       During the three  months  ended March 31,  2005,  we realized a EBITDA(1)
       loss of approximately $0.1 million, on a pro forma basis. If


--------
(1)    EBITDA is defined as earnings before  interest,  taxes,  depreciation and
amortization and cumulative effect of changes in accounting principles. Although
EBITDA is not a measure of  performance  or liquidity  calculated  in accordance
with generally accepted accounting  principles (GAAP), we believe the use of the
non-GAAP financial measure EBITDA enhances an overall  understanding of our past
financial  performance and is a widely-used measure of operating  performance in
practice.  In addition, we believe the use of EBITDA provides useful information
to the  investor  because  EBITDA  excludes  significant  non-cash  interest and
amortization  charges related to past  financings by us that, when excluded,  we
believe  produces more meaningful  operating  information.  EBITDA also excludes
depreciation and amortization expenses.  However,  investors should not consider
this measure in isolation or as a substitute for net income,  operating  income,
cash flows from operating  activities or any other measure for  determining  our
operating  performance or liquidity that are calculated in accordance with GAAP,
and this measure may not necessarily be comparable to similarly  titled measures
employed by other companies.  A reconciliation  of EBITDA to the most comparable
GAAP financial  measure on a pro forma basis,  net loss before deemed  dividends
and accretion on preferred stock is set forth below.

--------------------------------------------------------------------------------

                             * EBITDA Reconciliation
                        THREE MONTHS ENDED MARCH 31, 2005
                             All amounts in (000's)

Pro forma net loss before deemed dividends and
   accretion on preferred stock                                 $   (2,401)
Depreciation and amortization                                        1,347
Taxes                                                                  320
Interest (cash portion)                                                171
Interest (non-cash portion)                                            462
                                                                ----------
EBITDA                                                                (101)
                                                                ----------
Former owner costs                                                     314
Non-cash stock based compensation                                      156
Referral fees                                                           43
                                                                ----------
EBITDA, as adjusted                                             $      412
                                                                ==========

                                       23
<PAGE>


       EBITDA is  adjusted to remove the  impacts of the former  owner's  costs;
       non-cash stock  compensation  expense and referral fee amortization,  the
       adjusted  EBITDA  would be a positive  $0.4  million for the three months
       ended  March  31,  2005.  Also included in EBITDA for three months  ended
       March  31,  2005,  is  a  gain  of  approximately  $341,000  due  to  the
       revaluation of the derivative warrant liability

       We intend  to  further  leverage  our  unique  intellectual  property  by
       continuing  to leverage  our  position  as a leading  provider of archive
       software  solutions.  In  addition,  we intend to expand its  product and
       service  offerings  to  position  itself as a provider of a wide range of
       services and products to the broadcast and media markets. We believe that
       we can increase  revenues  from  existing  and new  customers by offering
       complete  archive  solutions,  including  storage  hardware and software,
       servers and peripheral  devices,  as well as first call support services.
       To facilitate this strategy, we intend to increase our volume of products
       available  for resale to customers  both  directly  and through  existing
       channel partners. We also plan to increase our expenditures for sales and
       marketing  initiatives to meet what appears to be an increasing volume of
       digital  archive   implementations  in  the  North  American  market  and
       throughout the rest of the world.

       We also  believe  we can  increase  our  sales  of  managed  services  by
       introducing  these  services  to  the  customers  of  our  newly-acquired
       businesses.  Professional  services  will also be enhanced as we leverage
       our  engineering  resources  across our entire  customer base. We plan to
       increase our sales  resources  focused on the enterprise  market and will
       resell a variety of storage products directly to businesses.

       As we continue to grow, we will need to sustain and possibly increase the
       investment  of capital  into its  software  technologies,  Gridworks  and
       DIVArchive,  to ensure they maintain their  competitive  advantage and to
       further enhance their inter-operability and feature sets.

       RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2005 COMPARED TO THE
       THREE MONTHS ENDED MARCH 31, 2004

              REVENUE.  Total  revenue for the three months ended March 31, 2005
       increased  $3.6  million,  or 154%,  to $6.0  million  compared  to total
       revenue  of $2.4  million  for the three  months  ended  March 31,  2004.
       Revenue from the sale of our products  increased to $3.2 million compared
       to revenue of $0.4 million for the  comparable  prior year  period.  This
       increase was  attributable  to the additional  revenues of $3.2 resulting
       from the  acquisitions  of Front  Porch and STAR  offset by a decrease of

                                       24
<PAGE>


       $0.4  million  due to a sale of MSI's  Gridworks  in 2004.  Revenue  from
       delivery of our services increased $0.8 million,  or 39%, to $2.8 million
       compared to $2.0 million for the  comparable  prior year period.  Service
       revenue increased $1.0 million due to the acquisitions of Front Porch and
       STAR offset by a decline in the MSI service  revenues of $0.2 million due
       to a customer who filed bankruptcy in December 2003 and did not renew the
       service upon contract expiration.

               For the quarter  ended March 31, 2005, a  significant  portion of
       our revenues were derived from the European and Asian geographic markets.
       During that period,  aggregate  revenues from customers located in Europe
       or Asia amounted to $3.0 million, or 50% of total revenue, while revenues
       from customers  located in North America totaled $3.0 million,  or 50% of
       total  revenue.  For the quarter  ended  March 31,  2004,  revenues  from
       customers located in Europe and Asia amounted to $0.4 million,  or 17% of
       total revenue,  while  revenues from  customers  located in North America
       totaled $2.0 million, or 83% of total revenue.

               GROSS MARGIN. Total gross margin for the three months ended March
       31, 2005 increased $1.8 million to $2.9 million, or 49% of total revenue,
       as compared to gross margin of $1.2 million, or 49% of total revenue, for
       the  comparable  prior year  period.  Product  gross margin for the three
       months  ended  March 31, 2005  totaled  $2.0  million,  or 61% of product
       revenue.  Service  gross margin for the three months ended March 31, 2005
       totaled $0.9 million,  or 36% of service  revenue.  Gross margin was flat
       year over year as the high margins experienced by Front Porch on sales of
       its  DIVArchive  solutions were offset by lower margins on hardware sales
       at STAR.

               SELLING,  GENERAL AND ADMINISTRATIVE  EXPENSES.  Selling, general
       and administrative ("SG&A") expenses for the three months ended March 31,
       2005  increased by  approximately  $2.0 million to $4.0 million from $2.0
       million for the  comparable  prior year period.  Actual SG&A expenses for
       the three months ended March 31, 2005  included  $2.5 million in salaries
       and related benefits for employees not directly related to the production
       of revenue,  $0.5  million in general  office  expenses,  $0.5 million in
       professional  fees,  $0.2  million  for  travel-related  costs,  and $0.2
       million in facilities  costs. SG&A expenses of $2.1 million for the prior
       period  ending  March 31, 2004  included  $1.2  million in  salaries  and
       related  benefits for employees not directly related to the production of
       revenue, $0.4 million in general office expenses,  $0.2 million in travel
       related  costs,  $0.1  million  in  professional  fees,  $0.1  million of
       facilities  costs and $0.1 million of bad debt  expense.  The increase in
       SG&A expenses during the three months ended March 31, 2005 was due to the
       inclusion of $2.3  million of SG&A  expenses for Front Porch for the full
       quarter and Star from  February  18, 2005 through the end of the quarter.
       This  increase was offset by $0.4 million of reduced SG&A expenses at MSI
       including  a decrease of $0.2  million in payroll and related  costs as a
       result of reductions in staffing levels,  $0.1 million in  travel-related
       costs  associated  with the staffing level  reduction and $0.1 million in
       bad debt expense.

               DEPRECIATION AND AMORTIZATION.  Amortization  expense consists of
       amortization  of   intellectual   property,   capitalized   research  and
       development  costs  and other  intangible  assets.  Depreciation  expense
       consists  of   depreciation   of  furniture,   equipment,   software  and
       improvements.  Depreciation  and amortization  expense was  approximately
       $1.3  million and $0.7  million for the three months ended March 31, 2005
       and 2004,  respectively,  of which $0.4  million is  included  in cost of
       revenue for both periods  ending March 31, 2005 and 2004. The increase is
       primarily  due  to the  increase  in  amortization  associated  with  the
       intangible  assets created in the  acquisitions of Front Porch,  STAR and
       PWI.

                                       25
<PAGE>


               OPERATING LOSS.  During the three months ended March 31, 2005, we
       incurred a loss from  operations  of $1.9  million as  compared to a loss
       from  operations  of $1.2  million for the three  months  ended March 31,
       2004.  This  increase  was the result of an increase  in gross  margin by
       approximately  $1.8  million  for the three  months  ended March 31, 2005
       offset by an increase in selling,  general and administrative expenses of
       approximately $2.5 million.

               INTEREST EXPENSE. Interest expense was $0.6 million for the three
       months ended March 31, 2005 compared to $0.7 million for the three months
       ended March 31, 2004. The decrease in interest  expense was  attributable
       to a decrease  of $0.7  million  of  non-cash  interest  expense on MSI's
       previously  outstanding  Series C preferred stock,  offset in part, by an
       increase  in  non-cash  interest  of $0.2  million  related to  warrants,
       non-cash  interest of $0.2 million for amortization of debt discounts and
       deferred  financing  costs and $0.1  million of cash  interest  on senior
       secured  convertible  notes and capital leases.  Interest expense in 2004
       included  non-cash  interest  expense of $0.7 million on MSI's previously
       outstanding  Series C preferred  stock and an  immaterial  amount of cash
       interest on capital leases.

               OTHER INCOME AND  EXPENSE.  Other income was $0.4 million for the
       three months ended March 31, 2005 compared to  approximately  $41,000 for
       the three months  ended March 31, 2004.  Other income of $0.4 million for
       2005 included $0.3 million of income resulting from reassessing the value
       of contracts recorded under EITF 00-19 for outstanding  warrants and $0.1
       million of investment income from leased equipment to customers and gains
       from sales of fixed assets. Other income of approximately $41,000 for the
       three months ended March 31, 2004 included  investment income from leased
       equipment to customers and gains from sales of fixed assets.

               FOREIGN CURRENCY TRANSACTION GAIN. As discussed above, we conduct
       business  in various  countries  outside  the United  States in which the
       functional  currency  of the  country  is not  the U. S.  dollar.  We are
       subject to foreign exchange  transaction  exposure because we provide for
       intercompany funding between the U.S. and international operations,  when
       we and/or our French  subsidiary  transact  business in a currency  other
       than  our  own  functional   currency.   The  effects  of  exchange  rate
       fluctuations in remeasuring  foreign currency  transactions for the three
       months ended March 31, 2005 resulted in a gain of approximately  $22,000.
       In addition,  we entered into a forward contract,  which expired on April
       1, 2005. We recorded an unrealized gain of  approximately  $60,000 on the
       contract for the three months ended March 31, 2005, which represented the
       change  in the fair  value  for the  foreign  currency  forward  contract
       related to the difference  between  changes in the spot and forward rates
       excluded from the assessment of hedge effectiveness.

              INCOME TAX EXPENSE.  We incurred  income tax expense for the three
       months  ended  March 31,  2005 of $0.3  million.  This income tax expense
       represents  non-cash  deferred  income tax expense  related to our French
       subsidiary, Front Porch Digital International,  S.A.S. These income taxes
       were incurred  during the three months ended March 31, 2005 and represent
       the  utilization of the  subsidiary's  deferred tax assets (net operating
       losses) during that period, which was recorded as a deferred tax asset in
       purchase accounting.

               NET LOSS  APPLICABLE  TO COMMON  SHAREHOLDERS.  During  the three
       months ended March 31, 2005, we incurred a net loss  applicable to common
       shareholders  of $3.1  million as  compared to a net loss  applicable  to
       common  shareholders of $2.0 million for the three months ended March 31,
       2004.  The increase in net loss for the three months ended March 31, 2005
       was primarily due to an increase in accretion on the outstanding Series A
       preferred stock of $0.7 million and tax expense of $0.3 million.

       LIQUIDITY AND CAPITAL RESOURCES

       At March 31, 2005, we had $2.2 million of cash and cash  equivalents.  We
       used net cash of $0.9  million in operating  activities  during the three
       months  ended  March  31,  2005,  primarily  as a result  of the net loss

                                       26
<PAGE>


       incurred  during the  period.  We  provided  net cash of $1.1  million in
       investing  activities  during the three months  ended March 31, 2005,  of
       which $1.7 million  represented  the cash  acquired from the STAR and PWI
       acquisition transactions, which was offset by $0.6 million used primarily
       to  purchase  or  develop  computer  software  and  equipment.  Financing
       activities  used net cash of $1.0  million  during the three months ended
       March 31, 2005 primarily from the repayment of capital leases,  long-term
       obligations and notes payable of $1.2 million, which was partially offset
       by proceeds of $0.2 million from a lease line of credit.

       We expect our  anticipated  cash flow from  operations  combined with our
       current  cash and cash  equivalents  will meet our  working  capital  and
       capital expenditure  requirements for at least the next twelve months. In
       addition,  in  connection  with the  business  acquisitions  in the first
       quarter  of  2005,  we  secured  a $5  million  Senior  Secured Revolving
       Commercial Loan from a bank to finance the cost of the  acquisitions  and
       to  provide  additional  working  capital  and  additional  capacity  for
       future acquisitions.  Considering  these  acquisitions  and  the  related
       funding combined with our current  cash  position,  we  believe  we  have
       sufficient  capital  available   for   the  execution   of  our  business
       strategy and our continued growth and expansion.  However,  there  can be
       no  assurance  that  we  will not need to access the capital  markets for
       additional  financing  to  fund  our   organic  growth   and   subsequent
       acquisitions   and   that  sufficient  capital  will  be  available  upon
       acceptable terms.

       Our actual financial  results may differ  materially from the stated plan
       of  operations.  Factors  which  may  cause a change  from  our  plans of
       operation  vary,  but  include,  without  limitation,  decisions  of  our
       management  and board of  directors  not to  pursue  the  stated  plan of
       operations  based on its  reassessment  of the plan and general  economic
       conditions.  Additionally,  there can be no  assurance  that our business
       will generate cash flows at or above current levels.  Accordingly, we may
       choose to defer capital  expenditure plans and extend vendor payments for
       additional cash flow flexibility.

       ITEM 3. CONTROLS AND PROCEDURES

       DISCLOSURE   CONTROLS   AND   PROCEDURES.   Our   management,   with  the
       participation of our chief executive officer and chief financial officer,
       has evaluated the effectiveness of our disclosure controls and procedures
       (as such term is  defined  in Rules  13a-15(e)  and  15d-15(e)  under the
       Securities  Exchange Act of 1934, as amended (the "Exchange  Act")) as of
       the end of the period covered by this report.  Based on such  evaluation,
       our chief executive  officer and chief  financial  officer have concluded
       that,  as of  the  end  of  such  period,  our  disclosure  controls  and
       procedures  are  effective  in  recording,  processing,  summarizing  and
       reporting, on a timely basis,  information required to be disclosed by us
       in the reports that it files or submits under the Exchange Act.

       INTERNAL  CONTROL  OVER  FINANCIAL  REPORTING.  There  have  not been any
       changes in our internal control over financial reporting (as such term is
       defined in Rules  13a-15(f) and 15d-15(f)  under the Exchange Act) during
       the  first  quarter  of  2005  that  have  materially  affected,  or  are
       reasonably  likely  to  materially  affect,  our  internal  control  over
       financial reporting.

                                       27
<PAGE>

      PART II. OTHER INFORMATION

      ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS:

      In  February  2005,  we issued  12,617,555  shares of common  stock to the
      stockholders  of STAR in  connection  with our  acquisition  of all of the
      outstanding shares of STAR. The transaction, including the type and amount
      of  consideration  paid  by us,  is  described  in  Note 2 and  previously
      reported  on a Current  Report on Form 8-K filed with the  Securities  and
      Exchange  Commission on February 23, 2005.  The shares issued by us in the
      transaction  were issued in reliance on the  exemption  from  registration
      provided by Section 4(2) of the Securities Act of 1933, as amended, on the
      basis that such issuance did not involve a public offering, no underwriter
      fees or  commissions  were paid in connection  with such issuance and such
      persons represented to us that they were 'accredited investors' as defined
      in Regulation D under the Securities Act of 1933, as amended.

      In February 2005, in  consideration  of the waivers and  subordination  by
      Laurus  discussed in Note 7, we issued Laurus an  immediately  exercisable
      seven-year  warrant to  purchase  3,625,000  shares of common  stock at an
      exercise price of $0.26 per share, at any time on or prior to February 17,
      2012.   The  warrant  was  issued  in  reliance  on  the  exemption   from
      registration  provided by Section 4(2) of the  Securities  Act of 1933, as
      amended,  on the  basis  that  such  issuance  did not  involve  a  public
      offering,  no underwriter fees or commissions were paid in connection with
      such  issuance  and  such  persons   represented  to  us  that  they  were
      'accredited investors' as defined in Regulation D under the Securities Act
      of 1933, as amended.

      In March 2005,  we issued  8,419,340  shares of common stock in connection
      with  its  acquisition  of all of  the  outstanding  shares  of  PWI.  The
      transaction, including the type and amount of consideration paid by us, is
      described in Note 2 and  previously  reported on a Current  Report on Form
      8-K filed with the  Securities  and Exchange  Commission on April 4, 2005.
      The shares issued by us in the transaction  were issued in reliance on the
      exemption from registration provided by Section 4(2) of the Securities Act
      of 1933,  as amended,  on the basis that such  issuance  did not involve a
      public  offering,   no  underwriter  fees  or  commissions  were  paid  in
      connection with such issuance and such persons represented to us that they
      were  'accredited   investors'  as  defined  in  Regulation  D  under  the
      Securities Act of 1933, as amended.

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

      On April 1,  2005 and April  12,  2005,  respectively,  the  holders  of a
      majority  of the  issued  and  outstanding  shares  of our  capital  stock
      approved (i) the amendment to our 2000 Equity  Incentive  Plan to increase
      the  maximum  number  of shares of common  stock  available  for  issuance
      thereunder  from 6,000,000 to 22,625,000  shares and (ii) the amendment to
      our Articles of  Incorporation to effect a stock  combination,  or reverse
      stock  split,  pursuant to which every ten (10) shares of our  outstanding
      common stock would be exchanged  for one new share of common  stock.  Such
      actions were previously approved by our board of directors.

      Stockholders beneficially owning an aggregate of approximately 107 million
      shares of our common stock,  representing  approximately 61% of the voting
      power of our company,  delivered  their  written  consent to the foregoing
      actions.  A preliminary  Information  Statement on Schedule 14C describing
      such actions was filed with the Securities and Exchange  Commission on May
      5, 2005. The actions will not become  effective until at least twenty (20)
      days after we mail to our stockholders of record a definitive  Information
      Statement on Schedule 14C.

      ITEM 6. EXHIBITS.

      The  exhibits  required  by this  item are  listed  on the  Exhibit  Index
      attached hereto.

                                       28
<PAGE>


                                   SIGNATURES

            In  accordance  with  the  requirements  of the  Exchange  Act,  the
      registrant  has  caused  this  report to be  signed  on its  behalf by the
      undersigned, thereunto duly authorized.

      Dated: May 16, 2005                 INCENTRA SOLUTIONS INC.

                                          By:   /s/ Thomas P. Sweeney III
                                                -------------------------
                                                  Thomas P. Sweeney III
                                                 Chief Executive Officer
                                              (principal executive officer)


                                          By:      /s/ Paul McKnight
                                                -------------------------
                                                      Paul McKnight
                                                 Chief Financial Officer
                                                (principal financial and
                                                   accounting officer)


<PAGE>


                                 EXHIBIT INDEX

31.1     Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as
         adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2     Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as
         adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1     Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as
         adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2     Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as
         adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.