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<p align="center"><font face="serif" size="2"></font><font face="serif" size="2"><b>As filed with the Securities and Exchange Commission on August 11, 2006</b></font></p>
<p align="right"><font face="serif" size="2"><b>Registration No.</b>&nbsp;<b>333-</b></font></p>
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    <td><div align="center"><font face="serif" size="4"><b>UNITED STATES</b><br>
        <b>SECURITIES AND EXCHANGE COMMISSION</b><br>
    </font><font face="serif" size="2"><b>Washington, D.C. 20549</b></font></div></td>
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    <td align="center"><div align="center"><font face="serif" size="4"><b>FORM</b>&nbsp;<b>S-1</b><br>
      </font><font face="serif" size="2"><b>REGISTRATION STATEMENT</b><br>
      <b>UNDER</b><br>
      <b>THE SECURITIES ACT OF 1933</b></font></div></td>
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<p align="center"><font face="serif" size="5"><b>MEDECISION, INC.</b><br>
</font><font face="serif" size="1"><b>(Exact name of registrant as specified in its charter)</b></font></p>
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    <td width="33%"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2"><b>Pennsylvania</b></font></div></td>
    <td valign="bottom" width="33%"><font face="serif" size="2"><b>7371</b></font></td>
    <td valign="bottom" width="33%"><font face="serif" size="2"><b>23-2530889</b></font></td>
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    <td width="33%"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">(State or other jurisdiction of<br>
incorporation or organization)</font></div></td>
    <td width="33%" valign="bottom"><font face="serif" size="1">(Primary standard industrial<br>
classification code number)</font></td>
    <td width="33%" valign="bottom"><font face="serif" size="1">(I.R.S. employer<br>
identification number)</font></td>
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<p align="center"><font face="serif" size="2"><b>601 Lee Road</b><br>
<b>Chesterbrook Corporate Center</b><br>
<b>Wayne, Pennsylvania 19087</b><br>
<b>(610) 540-0202</b><br>
</font><font face="serif" size="1"><b>(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant&#146;s Principal Executive Offices)</b></font></p>
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<p align="center"><font face="serif" size="2"><b>David St. Clair</b><br>
<b>Chief Executive Officer and Chairman of the Board of Directors</b><br>
<b>MEDecision, Inc.</b><br>
<b>601 Lee Road</b><br>
<b>Chesterbrook Corporate Center</b><br>
<b>Wayne, Pennsylvania 19087</b><br>
<b>(610) 540-0202</b><br>
</font><font face="serif" size="1"><b>(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)</b></font></p>
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<p align="center"><font face="serif" size="2"><b>Copies to:</b></font></p>
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    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Brian M. Katz, Esq.</font></div></td>
    <td valign="bottom" width="50%"><font face="serif" size="2">Selim Day, Esq.</font></td>
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    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Pepper Hamilton LLP</font></div></td>
    <td valign="bottom"><font face="serif" size="2">Wilson Sonsini Goodrich &amp; Rosati</font></td>
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    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">3000 Two Logan Square</font></div></td>
    <td valign="bottom"><font face="serif" size="2">Professional Corporation</font></td>
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    <td width="50%"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">18<sup>th</sup> &amp; Arch Streets</font></div></td>
    <td valign="bottom"><font face="serif" size="2">1301 Avenue of the Americas, 40th Floor</font></td>
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    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Philadelphia, PA 19103</font></div></td>
    <td valign="bottom"><font face="serif" size="2">New York, NY 10019</font></td>
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    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">(215) 981-4000</font></div></td>
    <td valign="bottom"><font face="serif" size="2">(212) 999-5800</font></td>
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<p align="left"><font face="serif" size="2"><b>Approximate date of commencement of proposed sale to the public:</b> As soon as practicable after the effective date of this Registration Statement.</font></p>
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<p align="left"><font face="serif" size="2">If any of the securities being registered on this Form&nbsp;are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. <img src="emptybox.gif"></font></p>
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<p align="left"><font face="serif" size="2">If this Form&nbsp;is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. <img src="emptybox.gif"> <u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u></font><p></p>
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<p align="left"><font face="serif" size="2">If this Form&nbsp;is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. <img src="emptybox.gif"> <u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u></font><p></p>
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<p align="left"><font face="serif" size="2">If this Form&nbsp;is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. <img src="emptybox.gif"> <u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u></font><p></p>
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<p align="center"><font face="serif" size="2"></font><font face="serif" size="2"><b>CALCULATION OF REGISTRATION FEE</b></font></p>
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    <td width="33%"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1"><b>Title of Each Class</b>&nbsp;<b>of</b><br>
<b>Securities To Be Registered</b></font></div></td>
    <td width="33%" valign="bottom"><font face="serif" size="1"><b>Proposed Maximum</b><br>
<b>Aggregate Offering Price<sup>(1)(2)</sup></b></font></td>
    <td width="33%" valign="bottom"><font face="serif" size="1"><b>Amount of Registration</b><br>
<b>Fee</b></font></td>
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    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Common Stock, par value $0.01 per share</font></div></td>
    <td valign="bottom"><font face="serif" size="2">$ 94,875,000</font></td>
    <td valign="bottom"><font face="serif" size="2">$ 10,152</font></td>
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    <td width="3%"><font face="serif" size="1">(1)</font></td>
    <td><div align="left"><font face="serif" size="1">Estimated solely for purpose of calculating the registration fee for this offering in accordance with Rule 457(o) under the Securities Act of 1933, as amended.</font></div></td>
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    <td width="3%"><font face="serif" size="1">(2)</font></td>
    <td><div align="left"><font face="serif" size="1">Includes offering price of shares that the underwriters have the option to purchase to cover overallotments, if any.</font></div></td>
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<p align="left"><font face="serif" size="2">The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section&nbsp;8(a) of the
Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section&nbsp;8(a), may determine.</font></p>
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<p align="left"><font face="serif" size="2">The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.</font></p>
<p align="left"><font face="serif" size="2">PROSPECTUS (Subject to Completion)&nbsp;Dated August 11, 2006</font></p>
<p align="left"><font face="serif" size="2">&nbsp;</font></p>
<p align="center"><font face="serif" size="2"><b> Shares</b></font></p>
<p align="center"><font face="serif" size="2"><img src="medecisionstackedpms314.jpg"></font></p>
<p align="center"><font face="serif" size="3"><b>Common Stock</b></font></p>
<p align="left"><font face="serif" size="2">This is an initial public offering of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; shares of our common stock. We are offering &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; shares and the selling shareholders are offering &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; shares of our common stock. We will not receive any proceeds from the sale of shares by the selling shareholders. Prior to this
offering, there has been no public market for our common stock. We have applied to have our common stock approved for quotation on the NASDAQ Global Market under the symbol &#147;MEDE.&#148; We expect that the initial public offering price will be between $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; and $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
per share.</font></p>
<p align="left"><font face="serif" size="2"><b>Our business and an investment in our common stock involve significant risks. These risks are described under the caption &#147;Risk Factors&#148; beginning on page 9 of this prospectus.</b></font></p>
<p align="left"><font face="serif" size="2">Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.</font></p>
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    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
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    <td align="right" valign="bottom"><font face="serif" size="1"><i>Per Share</i></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td align="center" valign="bottom"><font face="serif" size="1">Total</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
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    <td><font face="serif" size="1">&nbsp;</font></td>
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    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
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    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
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    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2"><b>Public offering price</b></font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2"><b>$</b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2"><b>$</b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
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    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2"><b>Underwriting discounts</b></font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2"><b>$</b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2"><b>$</b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
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    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2"><b>Proceeds, before expenses, to us</b></font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2"><b>$</b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2"><b>$</b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
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    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2"><b>Proceeds, before expenses, to selling shareholders</b></font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2"><b>$</b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2"><b>$</b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
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<p align="left"><font face="serif" size="2">The underwriters may also purchase up to an additional &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; shares of our common stock from the selling shareholders at the initial public offering price, less the underwriting discounts, within 30 days from the date of this prospectus to cover overallotments.</font></p>
<p align="left"><font face="serif" size="2">The underwriters expect to deliver the shares against payment in New York, New York on &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2006.</font></p>
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    <td><font face="serif" size="1"><i>Sole Bookrunning Manager</i>&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1"><i>Co-Lead
    Manager</i></font></td>
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    <td><div style="margin-left:0%; text-indent:-0%"><font face="serif" size="4"><b>Cowen and Company</b></font></div></td>
    <td align="right" valign="bottom"><font face="serif" size="4"><b>Wachovia Securities</b></font></td>
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    <td>&nbsp;</td>
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    <td><font face="serif" size="4"><b>CIBC World Markets</b>&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="4"><b>Pacific
    Growth Equities, LLC</b></font></td>
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<p align="left"><font face="serif" size="2">___, 2006</font></p>
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<p align="center"><font face="serif" size="2"></font><font face="serif" size="2"></font><font face="serif" size="3"><b>Improving the relationship between patients, payers</b><br>
<b>and providers since 1988</b></font></p>
<p align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
<p align="center"><font face="serif" size="2"><img src="med1936illustrationfinal.jpg"></font></p>
<p align="right"><font face="serif" size="2"><img src="medecisionstackedpms314.jpg"></font></p>
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<p align="center"><font face="serif" size="2"></font><font face="serif" size="2"><b>TABLE OF CONTENTS</b></font></p>
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    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="center" valign="bottom"><font face="serif" size="1"><b>Page</b></font></td>
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    <td><font face="serif" size="1">&nbsp;</font></td>
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    <td><div style="margin-left:3%; text-indent:-3%"><a href="#p1"><font face="serif" size="2">Prospectus Summary</font></a></div></td>
    <td align="right" valign="bottom" width="8%"><a href="#p1"><font face="serif" size="2">1</font></a></td>
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    <td><div style="margin-left:3%; text-indent:-3%"><a href="#p9"><font face="serif" size="2">Risk Factors</font></a></div></td>
    <td align="right" valign="bottom"><a href="#p9"><font face="serif" size="2">9</font></a></td>
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    <td><div style="margin-left:3%; text-indent:-3%"><a href="#p25"><font face="serif" size="2">Cautionary Note Regarding Forward-Looking Statements</font></a></div></td>
    <td align="right" valign="bottom"><a href="#p25"><font face="serif" size="2">25</font></a></td>
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    <td><div style="margin-left:3%; text-indent:-3%"><a href="#p26"><font face="serif" size="2">Use of Proceeds</font></a></div></td>
    <td align="right" valign="bottom"><a href="#p26"><font face="serif" size="2">26</font></a></td>
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    <td><div style="margin-left:3%; text-indent:-3%"><a href="#p26"><font face="serif" size="2">Dividend Policy</font></a></div></td>
    <td align="right" valign="bottom"><a href="#p26"><font face="serif" size="2">26</font></a></td>
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    <td><div style="margin-left:3%; text-indent:-3%"><a href="#p27"><font face="serif" size="2">Conversion and Exercise Transactions</font></a></div></td>
    <td align="right" valign="bottom"><a href="#p27"><font face="serif" size="2">27</font></a></td>
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    <td><div style="margin-left:3%; text-indent:-3%"><a href="#p29"><font face="serif" size="2">Capitalization</font></a></div></td>
    <td align="right" valign="bottom"><a href="#p29"><font face="serif" size="2">29</font></a></td>
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    <td><div style="margin-left:3%; text-indent:-3%"><a href="#p31"><font face="serif" size="2">Dilution</font></a></div></td>
    <td align="right" valign="bottom"><a href="#p31"><font face="serif" size="2">31</font></a></td>
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    <td><div style="margin-left:3%; text-indent:-3%"><a href="#p33"><font face="serif" size="2">Selected Consolidated Financial Data</font></a></div></td>
    <td align="right" valign="bottom"><a href="#p33"><font face="serif" size="2">33</font></a></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><a href="#p34"><font face="serif" size="2">Management&#146;s
      Discussion and Analysis of Financial Condition and Results of Operations</font></a></div></td>
    <td align="right" valign="bottom"><a href="#p34"><font face="serif" size="2">34</font></a></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><a href="#p55"><font face="serif" size="2">Business</font></a></div></td>
    <td align="right" valign="bottom"><a href="#p55"><font face="serif" size="2">55</font></a></td>
  </tr>
  </table>
</div>
<div style="float: right; width: 48%">
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="center" valign="bottom"><font face="serif" size="1"><b>Page</b></font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><a href="#p68"><font face="serif" size="2">Management</font></a></div></td>
    <td align="right" valign="bottom" width="8%"><a href="#p68"><font face="serif" size="2">68</font></a></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><a href="#p83"><font face="serif" size="2">Certain Relationships and Related Party Transactions</font></a></div></td>
    <td align="right" valign="bottom"><a href="#p83"><font face="serif" size="2">83</font></a></td>
  </tr>
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    <td><div style="margin-left:3%; text-indent:-3%"><a href="#p87"><font face="serif" size="2">Principal and Selling Shareholders</font></a></div></td>
    <td align="right" valign="bottom"><a href="#p87"><font face="serif" size="2">87</font></a></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><a href="#p91"><font face="serif" size="2">Description of Capital Stock</font></a></div></td>
    <td align="right" valign="bottom"><a href="#p91"><font face="serif" size="2">91</font></a></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><a href="#p97"><font face="serif" size="2">Shares Eligible for Future Sale</font></a></div></td>
    <td align="right" valign="bottom"><a href="#p97"><font face="serif" size="2">97</font></a></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><a href="#p100"><font face="serif" size="2">Certain Material U.S. Federal Income Tax Considerations for Non-U.S. Holders</font></a></div></td>
    <td align="right" valign="bottom"><a href="#p100"><font face="serif" size="2">100</font></a></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><a href="#p102"><font face="serif" size="2">Underwriting</font></a></div></td>
    <td align="right" valign="bottom"><a href="#p102"><font face="serif" size="2">103</font></a></td>
  </tr>
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    <td><div style="margin-left:3%; text-indent:-3%"><a href="#p106"><font face="serif" size="2">Legal Matters</font></a></div></td>
    <td align="right" valign="bottom"><a href="#p106"><font face="serif" size="2">106</font></a></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><a href="#p106"><font face="serif" size="2">Experts</font></a></div></td>
    <td align="right" valign="bottom"><a href="#p106"><font face="serif" size="2">106</font></a></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><a href="#p106"><font face="serif" size="2">Where You Can Find More Information</font></a></div></td>
    <td align="right" valign="bottom"><a href="#p106"><font face="serif" size="2">106</font></a></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2"><a href="#pf1">Index to Consolidated Financial<br>
Statements</a></font></div></td>
    <td align="right" valign="bottom"><a href="#pf1"><font face="serif" size="2">F-1</font></a></td>
  </tr>
</table>
</div>
<br clear="all">
<p>&nbsp;&nbsp;</p><p align="left"><hr size="1" width="166" noshade><p></p>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2"><b>You should rely only on the information contained in this prospectus. We have not, and the selling shareholders and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different
or inconsistent information, you should not rely on it. We are not, and the selling shareholders and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the
information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.</b></font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2"><b>Information contained on our website is not part of this prospectus.</b></font></p>
</div>
<p align="center"><font face="serif" size="2">i</font></p>
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<div style="page-break-before:always"></div>
<page>
<a name="p1"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font face="serif" size="2"></font><font face="serif" size="2"><b>PROSPECTUS SUMMARY</b></font></p>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2"><i>This summary provides an overview of selected information contained elsewhere in this prospectus and does not contain all of the information you should consider before investing in our common stock. You should carefully read the prospectus and the registration
statement, of which this prospectus is a part, in their entirety before investing in our common stock, including the information discussed under &#147;Risk Factors&#148; beginning on page</i>&nbsp;<i>9 and our financial statements and notes thereto that appear elsewhere in this prospectus. As
used in this prospectus, the terms &#147;we,&#148; &#147;our,&#148; &#147;us,&#148; &#147;the Company&#148; or &#147;our Company&#148; refer to MEDecision, Inc. and its subsidiaries, taken as a whole, unless the context otherwise indicates. Unless otherwise stated, all the information in this prospectus assumes that the
underwriters will not exercise their overallotment option.</i></font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Company Overview</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We are a leading provider of software, services and clinical content to healthcare payers that allow them to improve the quality and affordability of healthcare provided to their members and increase their administrative efficiency. Our Collaborative Care Management
solution analyzes data, automates payer workflow processes and electronically connects payers, providers and patients, providing them with a common view of the patient&#146;s health that helps to foster better clinical decision making. Our solution is built around a suite of modular
and easily configurable software applications and utilizes the Internet to link our payer customers to their members and their members&#146; chosen healthcare providers.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our Collaborative Care Management solution is comprised of two related suites of products &#150; Integrated Medical Management and Collaborative Data Exchange. Our Integrated Medical Management suite allows our healthcare payer customers to identify active care
management opportunities among their members and automate an intervention process based on clinical best practices. Our Integrated Medical Management suite also helps our customers reduce internal administrative costs by automating traditionally manual processes. Our
Collaborative Data Exchange suite allows our customers to securely transmit health records containing critical patient information in an easily understood format to patients and providers at the time they are making treatment decisions. We refer to these health records as
Patient Clinical Summaries. In the future, we expect our Patient Clinical Summaries to integrate additional information provided by patients and a broad range of providers, thereby increasing their value to all constituents.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">As of March&nbsp;31, 2006, our customers included approximately 56 regional and national managed care organizations, including the largest organizations in more than 27 regional markets. In the aggregate, our customers insure or manage care for approximately one out of
every six insured persons in the United States. Depending on the application, we provide our solutions on an annual subscription basis, under limited term licenses or on a per-transaction basis, all of which provide us with recurring revenue. We primarily license our solutions
through direct sales to customers in the United States. Our revenue has increased at a compound annual growth rate of 32.8% since 2001, from $12.4&nbsp;million for the year ended December&nbsp;31, 2001 to $38.6&nbsp;million for the year ended December&nbsp;31, 2005.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Industry Overview</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">According to the Centers for Medicare &amp; Medicaid Services, or CMS, healthcare spending will grow to $4.0 trillion by 2015, or 20% of the United States Gross Domestic Product, representing 7.2% annual growth since 2004. Rising healthcare costs negatively impact a
wide range of constituencies; however, we believe that the broad array of healthcare payers is the most directly impacted. We also believe that payers have two options if they are to maintain their viability. First, payers can proactively manage the delivery of healthcare
services and products to their members to improve the quality and cost of care. Second, they can offset rising healthcare costs by reducing their internal administrative costs through efficiency gains. Accordingly, payers are consistently seeking new strategies to more effectively
manage the care delivery process for their members and reduce their internal operating costs. We believe, based on our research, the market for care management solutions that accomplish these objectives is currently in excess of $1&nbsp;billion per year and is growing at a
compound annual growth rate in excess of 15.8%.</font></p>
</div>
<p>&nbsp;</p>
<p align="left"><font face="serif" size="2">&nbsp;</font></p>
<p align="center"><font face="serif" size="2">1</font></p>
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<page>
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<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We believe that one of the material contributors to rising healthcare costs is overuse, underuse and misuse of medical services and treatments, which we refer to as poor-quality care. We believe that there are two significant causes of this poor-quality care that payers can
positively influence. First, providers often do not have the tools to universally apply clinical best practices, which negatively impacts the quality and cost effectiveness of the treatment. Second, providers frequently lack critical patient information needed to provide optimal care.
Consequently, they often misdiagnose medical conditions, prescribe medications that negatively interact with each other and order duplicative or medically unnecessary tests and procedures.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">As the financial intermediary between the provider and patient, payers are uniquely positioned to monitor the care provided to their members and identify poor-quality care. They also have a vested interest in improving outcomes for their members to reduce the cost of
care. However, we believe that payers generally lack the information technology systems to play these roles effectively and efficiently. Based on our experience, we believe that payers generally rely on a combination of manual processes, third-party point solutions and
proprietary systems for many components of the care management process. As a result, we believe that these processes generally suffer from a variety of weaknesses. First, payers fail to effectively and efficiently identify high-risk patients that warrant active care management.
Second, payers lack information systems to optimally manage their care management programs. As a result, care managers fail to consistently identify poor-quality care and apply the most recent clinical best practices and often make manual errors. Furthermore, payers fail to
capture and analyze valuable historical data and only apply care management to the most obvious, highest cost members. Perhaps most importantly, payers lack systems necessary to share the large volume of patient information in electronic format contained in their legacy
claims processing and care management systems internally and with providers.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
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    <td><div align="left"><font face="serif" size="2"><b>Benefits of Our Solutions</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We believe our solutions allow our payer customers to improve the quality of care and reduce costs by enabling payers to:</font></p>
</div>
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  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2"><b>Identify high-risk members.</b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our solutions automatically organize the data contained in our customers&#146; legacy claims processing and care management systems and apply proprietary algorithms to that data to classify their members based on their risk of incurring
material medical costs. We believe that these solutions increase the effectiveness of our customers&#146; care management programs by more accurately and efficiently identifying members that would benefit from active disease or case management, thereby helping to improve
the quality and to reduce the cost of care.</font></div></td>
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</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2"><b>Promote consistency and reduce manual errors and administrative costs through automation.</b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<br>
Our solutions automate the workflow process for utilization management, case management and disease management. With respect to utilization management, our solutions allow our customers to adjudicate healthcare authorization requests from providers without
manual intervention, thereby handling more cases, focusing on more complex value-added tasks and reducing administrative costs. With respect to case management and disease management, our solutions guide care management specialists through a systematic
intervention process. By doing so, we believe our solutions promote consistent utilization and consistent care management processes that are less prone to manual error.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2"><b>Promote the consistent application of clinical best practices.</b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our solutions enable care management professionals to apply clinical best practices and best processes when adjudicating the medical appropriateness of requested services, evaluating treatment plans and
creating intervention plans. Accordingly, adjudications are more accurate and care management intervention plans are consistently based on clinical best practices helping to improve the quality and to reduce the cost of care.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2"><b>Utilize analytics to improve processes. </b> The reporting tools contained in our solutions allow our customers to analyze historical results to determine which care management interventions were generally the most effective in improving the quality of care and cost
efficiency. These tools allow our customers to continually refine and improve their internal care management rules and guidelines.</font></div></td>
  </tr>
</table>
<p align="left"><font face="serif" size="2">&nbsp;</font></p>
<p align="center"><font face="serif" size="2">2</font></p>
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<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2"><b>Enable enhanced information
            access.</b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our solutions establish
            a single source of clinical information that supports integration
            with our customers&#146; other
          operational systems to ensure that care managers have access to the
          most current information. Our solutions also allow patients and providers
          to obtain a Patient Clinical Summary, which includes patient demographic
          information, medical conditions, medications, providers and treatment
          opportunities in an on-demand, easy to use format. By providing this
          critical patient information
to patients and providers in an easily understood format in real time, we believe
          that we improve the quality and reduce the cost of care. For example,
          in a recently completed study that we commissioned concerning our Patient
            Clinical Summaries conducted by HealthCore, Inc., in cases where
            Patient Clinical
            Summaries
          were utilized in the emergency room, the overall costs paid by the
          payers and the patient dropped by an average of approximately $545
          per emergency department visit, or 19.7% of the average cost of the
          control visits that did not
utilize this information.</font></div></td>
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</table>
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    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
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    <td><div align="left"><font face="serif" size="2"><b>Our Strategy</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our goal is to be the leading provider of care management solutions and to encourage market-wide adoption of our Patient Clinical Summaries. Key elements of our strategy include:</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2"><b>Continue to expand our relationships with customers.</b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have developed strong customer relationships, which we believe provide us with both recurring revenue streams from those customers and cross-selling opportunities. We intend to continue to strengthen
relationships with our existing customers to ensure a consistent renewal rate in the future. We also intend to develop innovative cross-selling programs to continue to increase our revenue per customer.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
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    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2"><b>Innovate new solutions and lead the next generation of Collaborative Care Management.</b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We intend to further develop innovative solutions, both internally and through acquisitions, that improve the quality and cost of care and increase administrative efficiency. In
particular, we intend to lead the market in the development of the next generation of Collaborative Care Management solutions. To that end, we are currently developing new solutions to complement our Patient Clinical Summaries and serve as the foundation for
electronic health records by aggregating payer, provider and patient-contributed information.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2"><b>Apply resources to ensure
            provider adoption of Patient Clinical Summaries.</b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
            released our Collaborative Data Exchange suite in 2005 and currently
            are deploying it for eight managed care organizations. We generate
            a transaction fee for each Patient Clinical  Summary delivered to
            a provider. Accordingly, the growth in revenue for our Collaborative
            Data Exchange suite is contingent upon adoption of Patient Clinical
            Summaries by providers. We intend to continue to creatively apply
            resources in order to encourage provider
adoption of Patient Clinical Summaries.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2"><b>Expand our customer base.</b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have grown our annual revenue to $38.6&nbsp;million in 2005 by licensing our solutions to approximately 56 customers. We estimate that there are at least 300 additional managed care organizations in the United States that could benefit
from our solutions. In addition, we expect that smaller payers, self-insured companies, Medicare and Medicaid organizations and emerging Regional Health Information Organizations will provide us with expanded market opportunities. We intend to continue to invest in
sales and marketing to increase awareness of our solutions within the payer market and obtain additional customers.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2"><b>Continue to build recurring and predictable revenue streams.</b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Historically, we derived most of our revenue from our Advanced Medical Management module, for which our customers purchase five-year term licenses. Although this module provides us with a
recurring revenue stream, the size of the license fee and the fact that we recognize the license fee at the time we enter into the contract has caused this revenue stream to fluctuate, sometimes significantly, from quarter to quarter. In 1999, we began offering our customers
additional solutions and clinical content for which they pay annual subscription licenses or transaction fees. These revenue streams provide us with greater quarterly revenue visibility. We intend to continue to develop new solutions for which our customers will pay
annual subscription licenses or transaction fees.</font></div></td>
  </tr>
</table>
<p>&nbsp;</p>
<p align="left"><font face="serif" size="2">&nbsp;</font></p>
<p align="center"><font face="serif" size="2">3</font></p>
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<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Company Information</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We began operations in 1988 by licensing an automated medical management solution to large regional healthcare insurance companies. This solution was the predecessor to our current Advanced Medical Management module. In 1999, we acquired the assets of an
analytical software company that became the basis of our current Analytics and Disease Management module. In 2000, we expended a significant amount of capital to begin the development of our Transactions and Information Exchange module, completing the initial
development of the module in the third quarter of 2001. In December 2002, we acquired assets that were the foundation for clinical decision support content, which enabled us to create our Clinical Rules and Processes module. In 2005, we began to offer our customers the
ability to electronically transmit Patient Clinical Summaries to providers at the point of care.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>About Us</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We are a Pennsylvania corporation. Our principal executive offices are located at 601 Lee Road, Chesterbrook Corporate Center, Wayne, Pennsylvania 19087. Our telephone number is (610) 540-0202. We maintain a website at http://www.medecision.com (which is not
intended to be an active hyperlink in this prospectus). The information contained on, connected to or that can be accessed via our website is not part of this prospectus.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">This prospectus contains references to a number of trademarks that are our registered trademarks or trademarks for which we have pending registration applications or common law rights. These include OptiCareCert&#153; and OptiCarePath&#153;. All other registered
trademarks and trade names referred to in this prospectus are the property of their respective owners.</font></p>
</div>
<p align="left"><font face="serif" size="2">&nbsp;</font></p>
<p align="center"><font face="serif" size="2">4</font></p>
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<page>
<a name="p5"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font face="serif" size="2"><b>The Offering</b></font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="39%"><font face="serif" size="2">Common stock offered by us</font></td>
    <td valign="bottom"><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="39%"><font face="serif" size="2">Common stock offered by the selling shareholders</font></td>
    <td valign="bottom"><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares (plus &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares if the underwriters exercise their overallotment option in full)</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="39%"><font face="serif" size="2">Common stock to be outstanding after this offering</font></td>
    <td valign="bottom"><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="39%"><font face="serif" size="2">Directed share program</font></td>
    <td><div align="left"><font face="serif" size="2">The underwriters have reserved for sale, at the initial public offering price, up to &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of our common stock being offered for sale to our business associates, employees and friends and
family members of our employees. The number of shares available for sale to the general public in this offering will be reduced to the extent these persons purchased reserved shares. Any reserved
shares not purchased will be offered by the underwriters to the general public on the same terms as the other shares.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="39%"><font face="serif" size="2">Estimated initial public offering price</font></td>
    <td valign="bottom"><div align="left"><font face="serif" size="2">
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; to $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="39%"><font face="serif" size="2">Use of proceeds</font></td>
    <td valign="bottom"><div align="left"><font face="serif" size="2">
We intend to use approximately $9.3&nbsp;million of the net proceeds from this offering to pay accrued and unpaid dividends to the former holders of our Series B and Series C preferred stock upon the
automatic conversion of such shares to common stock upon the consummation of this offering.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="39%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">We intend to use the remaining net proceeds for general corporate purposes, including working capital needs, potential strategic acquisitions and investments. You should read the discussion in the
&#147;Use of Proceeds&#148; section of this prospectus for more information.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="39%"><font face="serif" size="2">Risk factors</font></td>
    <td valign="bottom"><div align="left"><font face="serif" size="2">
See &#147;Risk Factors&#148; beginning on page&nbsp;9 and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in shares of our common
stock.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="39%"><font face="serif" size="2">Proposed NASDAQ Global Market symbol</font></td>
    <td valign="bottom"><div align="left"><font face="serif" size="2">
MEDE</font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The number of shares of our common stock to be outstanding after this offering is based on 23,201,425 shares of our common stock outstanding as of August&nbsp;10, 2006 and excludes:</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">5,900,163 shares of our common stock issuable upon exercise of outstanding options to purchase shares of our common stock subject to the terms of our Amended and Restated Stock Option Plan as of August&nbsp;10, 2006 at a weighted average exercise price of $2.14 per
share;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">110,000 shares of our common stock issuable upon exercise of outstanding options to purchase shares of our common stock subject to the terms of our Series C Stock Equity Incentive Plan as of August&nbsp;10, 2006 at a weighted average exercise price of $1.13 per share
(such awards were originally exercisable for Series C preferred stock but will be replaced by options to purchase common stock on a one-for-one basis upon the consummation of this offering);</font></div></td>
  </tr>
</table>
<p>&nbsp;</p>
<p align="left"><font face="serif" size="2">&nbsp;</font></p>
<p align="center"><font face="serif" size="2">5</font></p>
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<page>
<a name="p6"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2"> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; shares of our common stock reserved for future grants under our 2006 Equity Incentive Plan, which will become effective immediately prior to when we become subject to the reporting requirements of the Securities Exchange Act of 1934; and</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">863,720 shares of our common stock issuable upon exercise of warrants to purchase shares of our common stock outstanding as of August&nbsp;10, 2006 at a weighted average exercise price of $1.41 per share.</font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Unless otherwise indicated, all information in this prospectus assumes:</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">an initial public offering price of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share, the mid-point of the estimated offering price range shown on the front cover page of this prospectus;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the conversion of all outstanding shares of our Series&nbsp;A preferred stock, including the estimated accrued and unpaid dividends thereon immediately prior to the consummation of this offering, into 4,686,247 shares of our common stock, which will automatically occur
immediately prior to the consummation of this offering;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the conversion, upon the filing of the Registration Statement on Form S-1 of which this prospectus is a part, of 1,266,991 shares and 1,528,199 shares of Series B and Series C preferred stock (including accrued and unpaid dividends thereon) into 2,480,476 and 2,243,861
shares of common stock pursuant to the conversion agreements discussed in &#147;Conversion and Exercise Transactions&#148; elsewhere in this prospectus;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the conversion of all of the then outstanding shares of our Series B preferred stock and Series C preferred stock into 6,798,640 shares of our common stock, which will automatically occur immediately prior to the consummation of this offering;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the issuance of 435,000 shares of our common stock at a weighted average exercise price of $1.31 per share upon the exercise of outstanding warrants that would otherwise terminate upon the consummation of this offering;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the conversion of all outstanding options to purchase shares of Series C preferred stock into options to purchase common stock at the then applicable conversion rate of the Series C preferred stock in effect upon the consummation of this offering;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the effectiveness of our amended and restated articles of incorporation and second amended and restated bylaws upon the completion of this offering; and</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">no exercise by the underwriters of their overallotment option to purchase &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; additional shares of common stock in this offering.</font></div></td>
  </tr>
</table>
<p align="left"><font face="serif" size="2">&nbsp;</font></p>
<p align="center"><font face="serif" size="2">6</font></p>
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<page>
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<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font face="serif" size="2"><b>Summary Consolidated Financial Data</b></font></p>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The following table summarizes our consolidated financial data for the periods indicated. The data for each of the three month periods ended March&nbsp;31, 2006 and 2005 have been derived from our unaudited consolidated financial statements, which, in the opinion of
management, contain all adjustments necessary to fairly present the information set forth below. The data for each of the three years ended December&nbsp;31, 2005, 2004 and 2003 have been derived from our audited consolidated financial statements. You should read this
information in conjunction with the &#147;Selected Consolidated Financial Data&#148; and &#147;Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations&#148; sections of this prospectus and our consolidated financial statements and the related notes elsewhere in
this prospectus. Our historical results are not necessarily indicative of results for any future period.</font></p>
</div>
<p align="left"><font face="serif" size="2">&nbsp;</font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="5" align="center" valign="bottom"><font face="serif" size="1"><b>Three Months Ended</b><br>
<b>March</b>&nbsp;<b>31,</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="8" align="center" valign="bottom"><font face="serif" size="1"><b>Year Ended December</b>&nbsp;<b>31,</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="5" valign="bottom"><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="8" valign="bottom"><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2006</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2005</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2005</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2004</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2003</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="5" align="center" valign="bottom"><font face="serif" size="1"><b>(unaudited)</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="14" align="center" valign="bottom"><font face="serif" size="1"><b>(in thousands, except share and per share data)</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2"><b>Consolidated Statement of Operations Data:</b></font></div></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="6%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="6%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="6%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="6%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="6%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2"><i>Revenue</i></font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Term license revenue</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">415</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">652</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">9,729</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">6,260</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2,439</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Subscription, maintenance and<br>
transaction fees</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">5,308</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">3,542</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">17,187</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">14,666</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">12,600</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Professional services</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">3,103</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,786</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">11,680</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">7,102</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">5,488</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><div style="margin-left:9%; text-indent:-3%"><font face="serif" size="2">Total revenue</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">8,826</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">5,980</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">38,596</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">28,028</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">20,527</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Cost of revenue</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">3,555</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">3,268</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">15,315</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">13,072</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">9,331</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Gross margin</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">5,271</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2,712</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">23,281</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">14,956</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">11,196</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2"><i>Operating expenses</i></font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Sales and marketing</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2,205</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,250</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">7,778</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">4,668</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">3,211</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Research and development</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,561</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">600</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2,627</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">3,243</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">3,903</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">General and administrative</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2,475</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,804</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">9,707</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">6,320</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">4,343</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><div style="margin-left:9%; text-indent:-3%"><font face="serif" size="2">Total operating expenses</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">6,241</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">3,654</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">20,112</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">14,231</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">11,457</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">(Loss) income from operations</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(970</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(942</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">3,169</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">725</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(261</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
  </tr>
  <tr valign="top">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">(Gain)
          loss on change
          in fair value of redeemable convertible preferred stock conversion
          options</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(158</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(118</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">4,334</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,850</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(42</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
  </tr>
  <tr valign="top">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Interest
          expense, net</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">60</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">41</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">274</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">175</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">249</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Loss before benefit for income taxes</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(872</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(865</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(1,439</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(1,300</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(468</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
  </tr>
  <tr valign="top">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Benefit for income taxes</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">416</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">386</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">6,491</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Net (loss) income</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(456</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(479</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">5,052</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(1,300</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(468</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
  </tr>
  <tr valign="top">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Accretion of convertible preferred shares and redeemable convertible preferred shares</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(821</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(644</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(6,226</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(2,983</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(3,275</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Loss available to common shareholders</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(1,277</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(1,123</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(1,174</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(4,283</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(3,743</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Loss per share available to common shareholders, basic and diluted</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(0.19</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(0.17</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(0.18</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(0.67</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(0.60</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
  </tr>
  <tr valign="top">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Weighted average shares used to compute loss available to common shareholders per common share, basic and diluted</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">6,549,699</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">6,441,869</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">6,458,129</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">6,378,732</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">6,215,840</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
</table>
<p align="left"><font face="serif" size="2">&nbsp;</font></p>
<p align="center"><font face="serif" size="2">7</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="p8"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The following table presents a summary of our unaudited balance sheet data as of March&nbsp;31, 2006:</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">On an actual basis;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">On a pro forma basis to give effect to:</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the restoration of our Treasury shares to our authorized but unissued common stock;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the issuance of 2,480,476 shares and 2,243,861 shares of our common stock upon the conversion of 1,266,991 and 1,528,199 shares of our Series B and Series&nbsp;C preferred stock, respectively, (including the accrued and unpaid dividends thereon), pursuant to
conversion agreements with the holders of such shares;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the issuance of 435,000 shares of our common stock at a weighted average exercise price of $1.31 per share upon the exercise of outstanding warrants that would otherwise terminate upon the consummation of this offering;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the conversion of all outstanding shares of our Series&nbsp;A preferred stock, including the estimated accrued and unpaid dividends thereon immediately prior to the consummation of this offering, into 4,686,247 shares of our common stock, which will automatically
occur immediately prior to the consummation of this offering;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the conversion of all of the then outstanding shares of our Series B preferred stock and Series C preferred stock into 6,798,640 shares of our common stock, which will automatically occur immediately prior to the consummation of this offering;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the incurrence of an approximately $1.5&nbsp;million charge due to the accretion on the Series A preferred stock, Series B preferred stock and Series C preferred stock after March 31, 2006; and </font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the use of approximately $9.3&nbsp;million of the net proceeds of this offering to pay the accrued and unpaid dividends to the former holders of our Series B and Series&nbsp;C preferred stock upon the automatic conversion of such shares to common stock upon the
consummation of this offering.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">On a pro forma as adjusted basis to give effect to the sale by us of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; shares of our common stock in this offering at an assumed initial public offering price of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; per share, the midpoint of the range set forth on the cover page of this prospectus, after deducting the
estimated underwriting discounts and commissions and our estimated offering expenses.</font></div></td>
  </tr>
 <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="8" align="center" valign="bottom"><font face="serif" size="1"><b>March</b>&nbsp;<b>31, 2006</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="8" valign="bottom"><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Actual</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Pro Forma</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Pro Forma</b><br>
<b>As Adjusted</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="8" align="center" valign="bottom"><font face="serif" size="1"><b>(unaudited)</b><br>
<b>(in thousands)</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="bottom">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2"><b>Consolidated Balance Sheet Data:</b></font></div></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="6%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="6%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="6%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="bottom">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Cash and cash equivalents</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">$</font></td>
    <td align="right"><font face="serif" size="2">4,612</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">$</font></td>
    <td align="right"><font face="serif" size="2">(4,687</font></td>
    <td width="2%"><font face="serif" size="2">)</font></td>
  </tr>
  <tr valign="bottom">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Total assets</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right"><font face="serif" size="2">33,025</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right"><font face="serif" size="2">33,025</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="bottom">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Short-term
          debt</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right"><font face="serif" size="2">1,437</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right"><font face="serif" size="2">1,437</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="bottom">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Deferred revenue</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right"><font face="serif" size="2">11,227</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right"><font face="serif" size="2">11,227</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="bottom">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Total current liabilities</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right"><font face="serif" size="2">23,897</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right"><font face="serif" size="2">23,897</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="bottom">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Long-term
          debt</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right"><font face="serif" size="2">2,479</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right"><font face="serif" size="2">2,479</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="bottom">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Preferred stock</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right"><font face="serif" size="2">36,665</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="bottom">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Total stockholders&#146; (deficiency) equity</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">$</font></td>
    <td align="right"><font face="serif" size="2">(33,240</font></td>
    <td><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">$</font></td>
    <td align="right"><font face="serif" size="2">951</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
</table>
<p align="left"><font face="serif" size="2">&nbsp;</font></p>
<p align="left"><font face="serif" size="2">&nbsp;</font></p>
<p align="center"><font face="serif" size="2">8</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="p9"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font face="serif" size="2"></font><font face="serif" size="2"><b>RISK FACTORS</b></font></p>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2"><i>Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below and all of the other information set forth in this prospectus before deciding to invest in shares of our common stock. If any of the events or
developments described below actually occur, our business, financial condition or results of operations could be negatively affected. In that case, the trading price of our common stock could decline, and you could lose all or part of your investment in our common stock.</i></font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Risks Related to our Business</b></font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Our business may not continue to grow if the size of the market for care management solutions and market acceptance of our solutions does not continue to grow.</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our growth is dependent upon the overall growth of the market for care management solutions, which is in the early stages of development and is rapidly evolving. In addition, our growth is dependent on the continued adoption of new software and technologies,
including electronic health records, by managed care organizations. In new and rapidly evolving industries such as ours, there is significant uncertainty and risk as to the demand for, and market acceptance of, recently introduced solutions and services. Achieving and
maintaining market acceptance for new or updated solutions and services is likely to require substantial marketing efforts and the expenditure of significant funds to create awareness and demand by potential customers. There can be no assurance that the revenue opportunities
from new or updated solutions and services will allow us to recover amounts we spend for their development, marketing and roll-out. If the market refuses to adopt our solutions or if a competitor develops a solution or service that is preferred by the market, the demand for
our solutions will decrease, and we may not be able to sustain or increase our levels of revenue or profitability in the future.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Consolidation in the healthcare industry could adversely affect our business, financial condition and results of operations.</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Many healthcare industry participants are combining or considering combining with other participants to create fewer and larger customers and potential customers, each of which would likely have greater market power and leverage in negotiating contracts for our
solutions and services. Moreover, as provider networks and managed care organizations consolidate and the number of market participants decreases, competition to provide solutions and services such as ours will become more intense, and the importance of establishing
relationships with key industry participants will increase. These industry participants may try to use their market power to negotiate price reductions for our solutions and services. If we are forced to reduce our prices, our revenue would decrease and our profitability would
decline.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>The reliance and adoption of electronic Patient Clinical Summaries by healthcare providers may not be widespread and there is no assurance that other competing solutions will not prove more attractive to healthcare providers.</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Although our success in marketing our Patient Clinical Summaries will be measured by sales to healthcare payers, the growth of our revenue is reliant on the adoption of electronic Patient Clinical Summaries by doctors and other healthcare providers. In the future, there
may be more effective alternatives to our Patient Clinical Summaries for patient records, including solutions marketed by our competitors, physician sponsored electronic health records and other more traditional means of medical record storage. The future success of our
business model is, in large part, linked to the adoption by healthcare professionals of our Patient Clinical Summaries. If these professionals ultimately prefer a different method by which to gain medical information about their patients, then our results of operations and
financial condition could be adversely affected.</font></p>
</div>
<p>&nbsp;</p>
<p align="center"><font face="serif" size="2">9</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="p10"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>If Regional Health Information Organizations do not gain widespread acceptance, our future growth and revenue may suffer.</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our growth prospects are dependent, in part, on the implementation of Regional Health Information Organizations as a facility for the retrieval of patient data and delivery of Patient Clinical Summaries. If federal, state and other regional legislative and regulatory
authorities delay or oppose implementing these clinical data exchanges, it will be more difficult for us to incorporate data from healthcare providers into our Patient Clinical Summaries. This limitation could negatively affect the usefulness of our products and could
significantly limit the growth of our market. In addition, this limitation could lead to greater competition for what would become a smaller market in which to license our current solutions, resulting in additional expenses in marketing our solutions and adverse effects on our
results from operations and our ability to provide Patient Clinical Summary based products. Furthermore, our solutions may not be well suited for the type of organization, if any, that ultimately gains widespread acceptance for the dissemination of patient health information.
This situation could cause us to incur additional expenses to customize our solutions to be acceptable to these new market participants without any short-term revenue, or future prospect of revenue, to cover these costs. As a result, we may not achieve our expected growth or
sustain or increase our revenue or profitability in the future.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Some of our customers compete with us, and some provide solutions that are similar to those we offer.</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Some of our customers sell or license care management solutions that compete with ours or have current intentions to develop them. For example, some payer customers currently offer electronic data transmission services to healthcare providers that allow them to
download patient health information in a format similar to the format offered by our solutions through affiliated clearinghouses, Internet portals and other means of communications. In addition, some of our customers have extensive internal development resources and provide
their organizations with solutions similar to ours. For example, some of our customers internally develop functions such as patient analytics and data warehousing. The ability of payers to implement competing technology or to provide services similar to ours may adversely
affect our ability to sell our solutions to these entities or the terms and conditions we are able to negotiate in our agreements with them, which may lower the revenue and profits that we currently realize from these transactions.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>If we fail to comply with broad patient privacy and medical information security laws and regulations, our business and financial condition will be adversely affected.</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">As part of the operation of our business, our customers provide us, or our solutions interface, with patient-identifiable medical information. Government legislation and industry rulemaking, particularly the Health Insurance Portability and Accountability Act of 1996, or
HIPAA, and standards and requirements published by industry groups such as the Joint Commission on Accreditation of Healthcare Organizations, require the use and implementation of security, privacy and other standards and requirements for the receipt, creation,
maintenance and transmission of certain electronic protected health information. Generally, HIPAA regulations directly affect what are referred to as Covered Entities. Most of our customers are Covered Entities, and we function in many of our relationships as a business
associate, under business associate agreements with those customers. The federal agencies charged with enforcement authority under HIPAA have taken the position that a Covered Entity can be subject to HIPAA penalties and sanctions for certain material breaches of a
business associate agreement. The penalties for a violation of HIPAA by a Covered Entity can be significant and include both civil and criminal penalties and fines and could have an adverse impact on our business, financial condition and results of operations, if such penalties
ever were imposed on customers of ours due to a defect in one of our solutions or the unauthorized release of patient-identifiable medical information. We have policies and procedures that we believe assure material compliance with all federal and state confidentiality
requirements for the handling of protected health information that we receive from Covered Entities and with our obligations under business associate agreements. If, however, we do not follow those policies and procedures, or if they are not sufficient to prevent the
unauthorized disclosure of protected health information, we could be subject to liability and lawsuits, termination of our customer contracts or our operations could be shut down.</font></p>
</div>
<p>&nbsp;</p>
<p align="center"><font face="serif" size="2">10</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="p11"></a>
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<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Moreover, because all HIPAA regulations are subject to change or interpretation and because certain other HIPAA standards are not yet published, we cannot predict the full future impact of HIPAA on our business and operations. In the event that the HIPAA
regulations and compliance requirements materially change or are interpreted in a way that requires any material change to the way in which we do business, our business, financial condition and results of operations could be adversely affected.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Furthermore, states may pass legislation regulating how a patient&#146;s medical information may be shared among payers and providers that are more stringent than the equivalent federal laws. The passage of state laws that affect information sharing may affect the ability of
our customers to use our solutions, therefore reducing demand for our solutions, which would negatively impact our revenue and financial condition. We may need to incur significant costs to monitor active state legislation and to lobby legislators to prevent the passage of state
legislation that would adversely affect our ability to sell our solutions.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>If HIPAA regulations are changed to require patients to provide written consent to the sharing of their information for treatment and health care operations, our future growth and revenue may suffer.</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Currently under HIPAA, written consent from patients is not required when sharing patient health information among Covered Entities and business associates for &#147;treatment&#148; purposes and &#147;healthcare operations.&#148; Patients may choose to &#147;opt out&#148; of an information
sharing process, if desired, to protect their privacy. However, if federal or state legislation modifies existing privacy regulations to require a patient to provide written consent prior to any provider&#146;s or payer&#146;s retrieval of a patient&#146;s health care information from certain sources
for treatment or healthcare operations, it may significantly decrease the amount of information that we could gather in our Patient Clinical Summaries. This situation would decrease the usefulness of our Patient Clinical Summaries and the demand for such products. Any
decreased demand would reduce our future revenue and negatively impact our business and future growth.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Initiatives encouraging increased use of information technology in the healthcare sector may result in increased competition.</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">There are currently numerous federal, state and private initiatives and studies seeking ways to increase the use of information technology in healthcare to improve care while reducing costs. These and other initiatives may encourage more competitors to develop, sell or
license solutions and services to our current and potential customers. In addition, competition from information technology solutions and services made available to healthcare payers on a not-for-profit or other low-cost basis by or on behalf of governmental entities could have
an adverse impact on sales of our solutions and services. The effect that these initiatives may have on our business is difficult to predict, and we can provide no assurances that we will adequately respond to the increased competition resulting from these initiatives or that we
will be able to take advantage of any resulting opportunities.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Increased government involvement in the healthcare sector may limit the ability of potential customers to purchase and use our solutions.</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Healthcare system reform in the United States under the Medicare Prescription Drug, Improvement and Modernization Act of 2003 and other federal and state initiatives, such as a national healthcare system, could increase government involvement in healthcare, lower
reimbursement rates and otherwise change the business environment of our customers and the other entities with which we have a business relationship and may limit their ability to purchase and use our solutions and services. We cannot predict whether or when future
healthcare reform initiatives at the federal or state level or other initiatives affecting our business will be proposed, enacted or implemented or the impact those initiatives may have on our business, financial condition or results of operations. Our customers and the other entities
with which we have a business relationship could react to these initiatives by curtailing or deferring purchases of our solutions and/or services. Additionally, government regulation could alter the manner in which physicians and other healthcare providers, hospitals, healthcare
payers and other healthcare participants provide care to patients, maintain patient medical information and interact with one another, thereby limiting the utility of our solutions and services to existing and potential customers and curtailing broad acceptance of our solutions and
services.</font></p>
</div>
<p>&nbsp;</p>
<p align="center"><font face="serif" size="2">11</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="p12"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Increased governmental regulation of the Internet could materially affect our business.</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The Internet and its associated technologies are subject to significant government regulation. Given our use of the Internet to deliver our solutions and services, our failure, or the failure of our payer customers and business partners, to accurately anticipate the application
of laws and regulations affecting how we deliver our solutions and services, or any other failure to comply with such applicable laws and regulations, could create legal liability for us. This situation could result in adverse publicity or decreased revenue, each of which could
materially and adversely affect our business. In addition, new laws and regulations, or new interpretations of existing laws and regulations, may be adopted or implemented with respect to the Internet or other online services that may materially affect the way we and our
customers handle user privacy, patient confidentiality, consumer protection and other similar issues. Such adoption or implementation could cause our current solutions or services to fail to comply with then applicable laws or regulations, and would require the revision of our
current solutions or services or the development of new solutions or services in compliance with such laws or regulations. Such revision or new development could be costly and take a significant amount of time which could reduce our revenue and profitability and otherwise
materially adversely affect our financial condition.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">New laws and regulations or new interpretations of existing laws and regulations could impact the rates charged by Internet service providers to companies such as ours. Such laws and regulations could result in increased costs to provide our solutions to our customers,
which could reduce our profitability and otherwise materially adversely affect our financial condition.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>We may be liable for the misdiagnoses, mistreatment, injury or other harm to patients resulting from the use of data that we provide to healthcare providers.</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We provide, and facilitate providing, information for use by healthcare providers in treating patients. Our healthcare payer customers&#146; data is the primary source of a majority of this information. If this data is incorrect or incomplete, the patient could be misdiagnosed or
mistreated resulting in adverse consequences, including death, giving rise to claims against us. In addition, certain of our solutions relate to patient health information, and a court or government agency may take the position that our delivery of this information, including
through licensed physicians or other healthcare providers, exposes us to personal injury liability or other liability for wrongful delivery or handling of healthcare services or erroneous health information. While we maintain liability insurance coverage in an amount that we
believe is sufficient for the risks associated with our business, we cannot assure you that this coverage will prove to be adequate or will continue to be available on acceptable terms, if at all. A claim brought against us that is uninsured or under-insured could harm our
business, financial condition and results of operations. Even unsuccessful claims could result in substantial costs and diversion of management resources and could cause the trading price of our common stock to decline.</font></p>
</div>
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    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>We derive a significant portion of our revenue from a limited number of customers, and if we are unable to maintain these customer relationships or attract additional customers, our revenue will be adversely affected.</i></b></font></div></td>
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<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our sales to Health Care Service Corporation and its affiliates, on an aggregate basis, accounted for approximately 25% of our revenue for fiscal year 2005. Collectively, our top five customers accounted for approximately 50% of our revenue for the fiscal year 2005.
Although we are seeking to broaden our customer base, we anticipate that a small number of customers will continue to account for a large percentage of our revenue. The loss of one or more of our key customers, or fewer or smaller orders from them, would adversely affect
our revenue.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">In addition, the number of potential customers in the electronic healthcare information market is limited, and therefore our total customer base is limited. As of March&nbsp;31, 2006, we had contracts with 45 entities that represented approximately 56 regional and national
managed care organizations. If we lose one contract, we may lose more than one entity as a customer. Our contracts with our customers are typically five-year agreements. We do, however, enter into contracts with our customers that do not require long-term commitments,
such as annual maintenance contracts or contracts for our transactional solutions. If we are not</font></p>
</div>
<p align="center"><font face="serif" size="2">12</font></p>
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<p align="left"><font face="serif" size="2">able to attract additional customers, license new solutions to our existing customers or obtain contract renewals from our customers, our revenue could decline.</font></p>
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    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>We derive a significant portion of our revenue from recurring revenue streams, and if we are unable to maintain these customer relationships, our revenue will be adversely affected.</i></b></font></div></td>
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<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Each of our license agreements with third-party customers provides us with a revenue stream that generally recurs. Historically, a substantial portion of our customers have renewed their licenses at the end of each license term, which is typically five years. During the
year ended December&nbsp;31, 2005, our customers renewed approximately 100% of the aggregate contract value up for renewal during that period. The combination of recurring revenue and high renewal rates has provided us with a substantial annual revenue base. However, our
customers may not continue to renew at this rate, and if they do renew, the value of the contracts may be less. Thus, there is no assurance we will be able to sustain these renewal rates, and if we are unable to sustain them, our revenue and profits could be adversely affected.</font></p>
</div>
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    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>We have grown rapidly, and if we fail to manage our growth, our business may suffer.</i></b></font></div></td>
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<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Although we commenced operations 17 years ago, recently we have experienced, and continue to experience, significant growth in our operations. This growth has entailed hiring key personnel, developing and introducing several new products into the market and
establishing new customer and licensing relationships. We anticipate further expansion of our operations to address our potential growth as we continue to address market opportunities. This expansion has placed, and we expect will continue to place, a substantial strain on our
management, operational and financial resources. In order to manage future growth, we will be required to improve existing, and to implement new, operating and management systems, procedures and controls. We also need to hire, train and manage additional qualified
personnel. A significant factor in our growth has been a substantial increase in consumer demand for our products. If we do not effectively manage our growth, we may not adequately satisfy this demand. In addition, the quality of our offerings or our ability to develop and
bring our offerings to market on a timely or cost effective basis could suffer. This could negatively impact our reputation, revenue and results of operations.</font></p>
</div>
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    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>We have a history of losses and cannot assure you that we will remain profitable, and as a result, we may have to cease operations and liquidate our business.</i></b></font></div></td>
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</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our expenses have exceeded our revenue
    in three of the last five years, and no net income has been available to
    common shareholders in any of the last five years. Our stockholders&#146; deficiency
    on March&nbsp;31, 2006 was $33.2&nbsp;million. Our future profitability depends
    on  revenue continuing to exceed expenses, but we cannot ensure that this
    will continue. If it does not continue, we could be forced to curtail operations
    and sell or liquidate our business, and you could lose some or all of your
    investment.</font></p>
</div>
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    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>We have a history of quarterly fluctuations in our revenue and operating results and expect these fluctuations to continue, which may result in volatility in our stock price.</i></b></font></div></td>
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<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">As a result of fluctuations in our revenue and operating expenses, our quarterly operating results may vary significantly. We may not be able to curtail our spending quickly enough if our revenue falls short of our expectations. We expect that our operating expenses will
increase substantially in the future as we expand our selling and marketing activities, increase our new product development efforts and hire additional personnel. Our operating results may fluctuate in the future as a result of the factors described below and elsewhere in this
prospectus:</font></p>
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    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">customers&#146; budgetary constraints and the procedures that they must follow in order to purchase solutions and services;</font></div></td>
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    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the existence and growth of markets for our solutions and services;</font></div></td>
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    <td><font face="serif" size="2">&nbsp;</font></td>
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    <td><font face="serif" size="2">&nbsp;</font></td>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">potential reductions in the funds available to pay for our solutions;</font></div></td>
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    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the size and timing of orders from customers;</font></div></td>
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<p>&nbsp;</p>
<p align="center"><font face="serif" size="2">13</font></p>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the specific mix of software and services in customer orders;</font></div></td>
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    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the period of time necessary for a customer to select and purchase our solutions;</font></div></td>
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    <td><font face="serif" size="2">&nbsp;</font></td>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">changes in pricing policies by us or our competitors;</font></div></td>
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    <td><font face="serif" size="2">&nbsp;</font></td>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the timing of new solution announcements and solution introductions by us or our competitors;</font></div></td>
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    <td><font face="serif" size="2">&nbsp;</font></td>
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    <td><font face="serif" size="2">&nbsp;</font></td>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">changes in revenue recognition or other accounting guidelines employed by us and/or established by the Financial Accounting Standards Board or other rule making bodies;</font></div></td>
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    <td><font face="serif" size="2">&nbsp;</font></td>
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    <td><font face="serif" size="2">&nbsp;</font></td>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the financial stability of our customers;</font></div></td>
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</table>
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    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">our ability to develop, introduce and market new solutions, applications and solution enhancements;</font></div></td>
  </tr>
</table>
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    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">market acceptance of new solutions, applications and solution enhancements;</font></div></td>
  </tr>
</table>
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    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">our success in expanding our sales and marketing programs;</font></div></td>
  </tr>
</table>
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    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">deferrals of customer orders in anticipation of new solutions;</font></div></td>
  </tr>
</table>
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    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">execution of, or changes to, our strategy; and</font></div></td>
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</table>
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    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">general market and economic conditions affecting businesses generally.</font></div></td>
  </tr>
</table>
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    <td><font face="serif" size="2">&nbsp;</font></td>
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    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Lengthy sales cycles for some of our solutions and the adoption of transaction-based solutions may result in unanticipated fluctuations in the revenue that we receive from such solutions.</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The duration of the sales cycle for our solutions and services is difficult to predict and depends on a number of factors, including the nature and size of the potential customer and the size of the purchase contemplated by the potential customer. Our sales and marketing
efforts with respect to healthcare payers generally involve a lengthy sales cycle due to these organizations&#146; complex decision-making processes. Additionally, in light of increased governmental involvement in the healthcare industry and related changes in the operating
environment for healthcare organizations, our current and potential customers may react to these changes by curtailing or deferring investments, including those for our products and services. If potential customers take longer than we expect to decide whether to purchase our
solutions or to adopt our transaction-based solution, the expenses we incur in attempting to market our solutions could increase and our revenue could decrease, which could harm our business, financial condition and results of operations and the trading price of our common
stock could decline.</font></p>
</div>
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    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>If our information systems or the Internet experience security breaches or are otherwise perceived to be insecure, our business could suffer.</i></b></font></div></td>
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</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The difficulty of securely transmitting confidential information and patient-related personal health information over the Internet has been a significant barrier to existing or potential customers&#146; willingness to engage in communications over the Internet. Our business
model relies on our customers&#146; ability and willingness to use the Internet to transmit confidential patient health information. Any compromise of Internet security may deter customers from using the Internet for these purposes and from using our solutions or services.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We may be required to expend significant capital and other resources to protect against security breaches and hackers or to alleviate problems caused by breaches. Despite the implementation of security measures, it also is possible that third-parties could penetrate the
network security of our solutions or otherwise misappropriate confidential patient health information and other data that may be stored on or transmitted using our solutions. In that event, our operations could be interrupted, and we could be subject to allegations of liability and
the effects of regulatory action. We may need to devote significant financial and other resources to defend ourselves from such allegations, to protect against security breaches and to alleviate problems caused by such breaches, whether or not such breaches were a result of a
deficiency in our solutions or services.</font></p>
</div>
<p>&nbsp;</p>
<p align="center"><font face="serif" size="2">14</font></p>
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    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Consumer groups with concerns about privacy issues relating to the use and storage of personally-identifiable data, such as patient medical information, may influence healthcare professionals to refrain from adopting our solutions.</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Consumer sentiment regarding healthcare privacy issues is constantly evolving. Such consumer sentiment may affect our customers&#146; interest in our current or future products. In some cases, consumer groups and individual consumers have already begun to express
concern over the storage and/or use of personally-identifiable patient information. Accordingly, privacy concerns of consumers may influence healthcare professionals to refrain from adopting our solutions, which could in turn harm our prospects. Moreover, strong consumer
attitudes may precipitate significant adverse opinions, which may lead to new regulations. If we fail to successfully monitor and address the privacy concerns of consumers, our business and prospects would be harmed.</font></p>
</div>
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    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>We must develop and implement new or updated solutions and services in order to generate revenue from existing and new customers and compete effectively against our competitors.</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We must introduce and license new solutions and improve the functionality of our existing core solutions and services in a timely manner in order to retain existing customers and attract new customers. The pace of change in the markets we serve is rapid, and there are
frequent new solution and service introductions by our competitors and by vendors whose solutions and services we use in providing our own solutions and services. If we do not successfully identify and respond to technological and regulatory changes and evolving industry
standards in a timely manner, our core solutions and services may become obsolete or unattractive to potential or existing customers. Technological changes also may result in the offering of competitive solutions and services at prices lower than we are charging for ours,
which could result in our losing sales unless we lower our prices. Furthermore, our development and implementation of proposed solutions and services may take longer and cost more than originally expected, requiring more testing than anticipated and the addition of
personnel and other resources. Any such failure or delay could adversely affect our competitive position and our profitability or could make our current solutions obsolete or unattractive to potential or existing customers.</font></p>
</div>
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    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Competition for our employees is intense, and we may not be able to attract and retain the highly skilled employees that we need to support our business.</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The industry in which we operate is characterized by a high level of employee mobility and aggressive recruiting of skilled personnel. There can be no assurance that our current employees will continue to work for us. Our ability to provide high-quality solutions to our
customers depends in large part upon our employees&#146; experience and expertise. We must attract and retain highly qualified personnel, including doctors and nurses, with a deep understanding of the healthcare and healthcare information technology industries. We compete with
a number of companies for experienced personnel and many of these companies, including customers and competitors, have greater resources than we have and may be able to offer more attractive terms of employment. In addition, we invest significant time and expense in
training our employees, which increases their value to customers and competitors who may seek to recruit them and increases the costs of replacing them. If we fail to retain our employees, the quality of our products and services and our ability to provide such products and
services could diminish and this could have a material adverse effect on our business, financial condition and results of operations and as a result, the trading price of our common stock may decline.</font></p>
</div>
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    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>If we lose the services of our key personnel, we may be unable to replace them, and our business, financial condition and results of operations could be adversely affected.</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our success largely depends on the continued skills, experience, efforts and policies of our management and other key personnel and our ability to continue to attract, motivate and retain highly qualified employees. In particular, the services of David St. Clair, our
Chairman of the Board of Directors and Chief Executive Officer; John H. Capobianco, our President and Chief Operating Officer; and Carl Smith, our Executive Vice President and Chief Financial Officer are integral to the execution of our business strategy. If one or more of
our key employees leaves our employment, we will have to find a replacement with the combination of skills</font></p>
</div>
<p align="center"><font face="serif" size="2">15</font></p>
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<p align="left"><font face="serif" size="2">and attributes necessary to execute our strategy. Because competition for skilled employees is intense, and the process of finding qualified individuals can be lengthy and expensive, we believe
that the loss of the services of key personnel could adversely affect our business, financial condition and results of operations. We cannot assure you that we will continue to retain such
personnel.</font></p>
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    <td><font face="serif" size="2">&nbsp;</font></td>
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    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Our failure to compete successfully could cause our revenue or market share to decline.</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The market for our solutions and services is intensely competitive and is characterized by rapidly evolving industry standards, technology and user needs and the frequent introduction of new solutions and services. Some of our competitors may be more established,
benefit from greater name recognition and have substantially greater financial, technical and marketing resources than we do. In addition, a number of companies new to our market have introduced or developed solutions and services that are competitive with one or more
components of the solutions that we offer. We expect that additional competitors will continue to enter this market. Moreover, we expect that competition will continue to increase as a result of consolidation in both the information technology and healthcare technology
industries. If one or more of our competitors or potential competitors were to merge or partner with one of our competitors, the change in the competitive landscape could adversely affect our ability to compete effectively. Furthermore, our potential customer base is composed
of a limited number of healthcare insurance payers. This limited number of potential customers, and the fact that many of our competitors already may have an existing relationship with many of them, is likely to further increase the level of competition within our industry and
may lead to increased price competition. We compete on the basis of several factors, including:</font></p>
</div>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">solution depth and functionality;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">ease of deployment, integration and configuration;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">domain expertise;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">depth of clinical content;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">service support;</font></div></td>
  </tr>
</table>
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    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">solution price;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">breadth of sales infrastructure; and</font></div></td>
  </tr>
</table>
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    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">breadth of customer support.</font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">There can be no assurance that we will be able to compete successfully against current and future competitors or that the competitive pressures that we face will not materially adversely affect our business, financial condition and results of operations.</font></p>
</div>
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    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Acquisitions, business combinations and other transactions may be difficult to complete and, if completed, may have negative consequences for our business and our shareholders.</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We may pursue acquisitions of existing companies in order to grow our business and to diversify our solutions and services if we determine that such acquisitions are likely to serve our strategic goals. We cannot assure you that we will be able to locate any suitable
acquisition opportunities. Further, even if we find such opportunities, we cannot assure you that we will be able to integrate successfully any future acquisitions, that these acquired companies will operate profitably or that we will realize the potential benefits from these
acquisitions. To date, our Company and its management has had limited experience with the integration of acquired businesses. If we do not successfully integrate acquired companies, the attention of our management may be diverted and our business, financial condition and
results of operations could be adversely affected.</font></p>
</div>
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    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Complex software such as ours often contains undetected defects or errors, which could lead to an increase in our costs or a reduction in our revenue.</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">It is possible that errors may be found in our solutions after the introduction of new software or enhancements to existing software have been made. We continually introduce new solutions and</font></p>
</div>
<p align="center"><font face="serif" size="2">16</font></p>
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<p align="left"><font face="serif" size="2">enhancements to our solutions, and, despite testing by us, it is possible that errors might occur in our software. If we detect any errors before we introduce a solution, we might have to delay
deployment for an extended period of time while we address the problem. If we do not discover software errors that affect our new or current solutions or enhancements until after they are
deployed, we would need to provide enhancements to correct such errors. Errors in our software could result in:</font></p>
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    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">harm to our reputation;</font></div></td>
  </tr>
</table>
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  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">lost sales;</font></div></td>
  </tr>
</table>
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    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">delays in commercial release;</font></div></td>
  </tr>
</table>
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    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">solution liability claims;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">delays in or loss of market acceptance of our solutions;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">license terminations or renegotiations; and</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">expenses and diversion of resources to remedy errors.</font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Furthermore, our customers might use our software solutions together with solutions from other companies. As a result, when problems occur, it might be difficult to identify the software solution that is the source of the problem. Even when our software solutions do not
cause these problems, the existence of these errors might cause us to incur significant costs, divert the attention of our technical personnel from our solution development efforts, impact our reputation and cause significant customer relations problems.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>If we are deemed to infringe on the proprietary rights of third-parties, we could incur unanticipated expenses and be prevented from providing our solutions and services.</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Many participants in our industry have an increasing number of patents and patent applications, as well as copyrights and trade secrets, and have frequently demonstrated a readiness to take legal action based on allegations of patent and other intellectual property
infringement. We could face an adverse claim and litigation alleging infringement by us of the intellectual property rights of others.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We could be subject to intellectual property infringement claims for our current or future solutions and services if our solutions&#146; functionality overlaps with competitive solutions. While we do not believe that we have infringed or are infringing on any proprietary rights
of third-parties, we cannot assure you that infringement claims will not be asserted against us or that those claims will be unsuccessful.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">If infringement claims are brought against us, we would likely incur substantial costs and suffer the diversion of management resources defending any infringement claims. We cannot be certain that we will have the financial resources to defend ourselves against any
patent or other intellectual property litigation. If we were found to infringe on the intellectual property rights of others, we might be forced to pay significant license fees or royalties or damages for infringement, including, if the claimant successfully claims willful
infringement, potential treble damages. Moreover, we cannot assure you that a license for any intellectual property of third-parties that might be required for the operation of our solutions or services will be available on commercially reasonable terms, or at all. In addition, we
could be forced to stop providing certain solutions and services or using certain technology or trademarks if we are enjoined or face an injunction from a court, or our use of such items could be restricted on terms that we find unacceptable. Even the mere announcement of
intellectual property litigation against us could cause our stock price to drop, regardless of the ultimate outcome of the dispute. We would likely incur substantial costs and suffer the diversion of management resources defending any infringement claims. Furthermore, a party
making a claim against us could secure a judgment awarding substantial damages, as well as injunctive or other equitable relief that could effectively block our ability to provide solutions or services. In addition, we cannot assure you that licenses for any intellectual property
of third-parties that might be required for the operation of our solutions or services will be available on commercially reasonable terms, or at all.</font></p>
</div>
<p>&nbsp;</p>
<p align="center"><font face="serif" size="2">17</font></p>
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  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Our failure to license and effectively integrate third-party technologies could harm our business.</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">For some of the technology that is used in our solutions and in providing our services, we depend upon licenses from third-party vendors. We must continue licensing those technologies to operate and license our solutions and to service our customers. These
technologies might not continue to be available to us on commercially reasonable terms, if at all. Most of these licenses are for a limited duration and can be renewed only by mutual consent. In addition, most of these licenses may be terminated if we breach the terms of the
license and fail to cure the breach within a specified period of time. Our inability to obtain any of these licenses could delay development of new solutions and services or cause us to cease operating one or more solutions or services until equivalent replacement technology can
be identified, licensed and integrated. There is no assurance that we would be able to find an equivalent replacement technology, and, if we did, the resources required to obtain and implement an equivalent replacement technology could be significant and could harm our
business, financial condition and results of operations.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Most of the technology that we license from third-parties is licensed pursuant to agreements that are non-exclusive. Therefore, our competitors may obtain the right to use the technology covered by such licenses and use the technology to compete directly with us. Our
use of third-party technologies exposes us to increased risks, including, but not limited to, risks associated with the integration of such technology into our solutions and services, the diversion of our resources from the development of our own proprietary technology and our
inability to generate revenue from such licensed third-party technology sufficient to offset associated acquisition and maintenance costs. In addition, if our vendors choose to cease providing any of our licensed third-party technology or discontinue support of the licensed third-
party technology in the future, we might not be able to offer our related modules and services. Furthermore, if these third-parties are unsuccessful in their continued research and development efforts or we are unsuccessful in our internal technology development efforts, we
might not be able to modify or adapt our own solutions to effectively compete in our industry.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>We have limited intellectual property protection and may be unable to adequately protect or enforce our intellectual property rights. This could substantially impair our ability to compete and achieve our business goals.</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our success and business plan are predicated on our proprietary systems and technology. Accordingly, protecting our intellectual property rights related to our systems and technology is critical to our continued success and our ability to maintain our competitive position.
We protect our proprietary systems through a combination of trademark, trade secret and copyright law, confidentiality agreements and technical measures. We currently have one pending patent application and we also filed an application under the Patent Cooperation Treaty,
which preserves our rights to seek a corresponding patent in certain foreign countries should we determine that foreign patent protection is desirable. However, we can give no assurance that such patents will ever be issued or, if such patents are issued, that their claims will
have sufficient scope to ensure protection of any of our solutions or services or to offer a competitive advantage. We cannot be sure that the steps we have taken will prevent misappropriation of our technology or infringement of our intellectual property rights. We cannot
ensure that others will not independently develop similar or alternative technologies or duplicate any of our or our licensors&#146; technologies, or that we will develop additional proprietary technologies that are patentable or protectable intellectual property. In addition, the process
of completing patents could divert our resources away from designing new solutions or otherwise developing our solutions.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">To protect our intellectual property rights, we may in the future need to assert claims of infringement or misappropriation of such rights against third-parties. The outcome of litigation to enforce our intellectual property rights is highly unpredictable, could result in
substantial costs and diversion of resources and could have a material adverse effect on our financial condition and results of operations regardless of the final outcome of such litigation. Such infringement or misappropriation of our intellectual property would have an adverse
effect on our competitive position. We may also have to engage in litigation in the future to enforce or protect our intellectual property rights or to defend against claims of invalidity, and we may likely incur substantial out of pocket costs and the diversion of management&#146;s
time and attention in so doing.</font></p>
</div>
<p>&nbsp;</p>
<p align="center"><font face="serif" size="2">18</font></p>
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<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Despite our efforts to protect our unpatented and unregistered intellectual property rights, we may not be successful or the safeguards may not be adequate to detect or deter misappropriation of our technology or to prevent an unauthorized third-party from copying or
otherwise obtaining and using our products, technology or other information that we regard as proprietary. Policing unauthorized use of our solutions, services and proprietary technology is very difficult, and nearly impossible on a worldwide basis. If we are not able to protect
our intellectual property rights or if our intellectual property is otherwise impaired, it could result in significant harm to our future growth plans and the success of our business could be materially and adversely affected.</font></p>
</div>
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  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Factors beyond our control could cause interruptions in our operations, which would adversely affect our reputation in the marketplace and our business, financial condition and results of operations.</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">To succeed, we must be able to operate our systems without interruption. Certain of our communications and information services are provided through our third-party service providers, which we do not control. Our operations are vulnerable to interruption by damage
from a variety of sources, many of which are not within our control, including without limitation:</font></p>
</div>
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  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">power loss and telecommunications failures;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">software and hardware errors, failures or crashes;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">loss or interruption of Internet access;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">computer viruses and similar disruptive problems; and</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">fire, flood and other natural disasters.</font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Any significant interruptions in our services or operations would damage our reputation in the marketplace, may result in liability to our customers and have a negative impact on our business, financial condition and results of operations.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Performance problems with our solutions or services or our customers&#146; system failures, whether caused by hardware, software or other problems, could cause us to lose business or incur liabilities.</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our customer satisfaction and our business could be harmed if our customers experience transmission delays or failures or loss of data in their systems as a result of our solutions or services. These systems, and the software used in these systems, are complex and,
despite testing and quality control, we cannot be certain that problems will not occur or that they will be detected and corrected promptly and permanently when they do occur.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We have developed contingency plans for handling customer system failures and other customer emergencies; however, we have limited backup facilities if these systems are not functioning. The occurrence of a major catastrophic event or other system failure at any of
our facilities or at one of our third-party facilities could interrupt our services or result in the loss of stored data, which could have a material adverse impact on our business or cause us to incur material liabilities. If we are unable to deliver our solutions to our customers as a
result of the failure of a customer&#146;s system, our inability to deliver will negatively impact our financial condition. Although we maintain insurance for our business, we cannot assure that our insurance will be adequate to compensate us for all losses that may occur or that this
coverage will continue to be available on acceptable terms or in sufficient amounts.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>We may not generate sufficient future taxable income to allow us to realize our deferred tax assets.</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We have a significant amount of tax loss carryforwards that will be available to reduce the taxes we would otherwise owe in the future. We have recognized the value of a portion of these future tax deductions in our consolidated balance sheet at December&nbsp;31, 2005.
The realization of our deferred tax assets is dependent upon our generation of future taxable income during the periods in which we are permitted, by law, to use those assets. We exercise judgment in evaluating our ability to realize the recorded value of these assets, and
consider a variety of factors, including the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Our evaluation of the</font></p>
</div>
<p align="center"><font face="serif" size="2">19</font></p>
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<p align="left"><font face="serif" size="2">realizability of deferred tax assets must consider both positive and negative evidence, and the weight given to the potential effects of positive and negative evidence is based on the extent to
which the evidence can be verified objectively. While we believe that sufficient positive evidence exists to support our determination that the realization of a portion of our deferred tax assets is
more likely than not, we cannot assure you that we will have profitable operations in the future that will allow us to fully realize those assets.</font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
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    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Our auditors reported to us that there was a material weakness in our internal controls over financial reporting.</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our independent auditors identified and informed us that we had a material weakness (as defined under the standards established by the Public Company Accounting Oversight Board &#150; U.S.) with respect to our accounting and reporting of certain complex transactions.
As a result of this material weakness, we restated our financial statements as of and for the years ended December&nbsp;31, 2004 and 2003. Our selected financial data as of and for the years ended December&nbsp;31, 2002 and 2001 were derived from financial statements which we
restated as a result of this material weakness and which were audited by Grant Thornton, LLP, our independent auditors.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">To address this material weakness and those weaknesses identified by our former independent registered public accounting firm discussed elsewhere in this prospectus, we have expanded our accounting staff with additional skills and experience and have begun to engage
outside professionals to provide support and guidance in areas where we cannot economically maintain the required skills and experience internally. Although these measures are designed to address the issues raised by our independent auditors, and we intend to continue the
expansion of our accounting staff and engagements of outside professionals if and as we believe necessary, these and any future measures may not enable us to remedy this material weakness or avoid other deficiencies in the future. In addition, this material weakness and any
other deficiencies will need to be addressed as part of the evaluation of our internal controls over financial reporting pursuant to Section&nbsp;404 of the Sarbanes-Oxley Act of 2002 and may impair our ability to comply with Section&nbsp;404. See the immediately following risk factor
in this prospectus regarding our reporting obligations and internal controls over financial reporting.</font></p>
</div>
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    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>If we fail to comply with the reporting obligations of the Securities Exchange Act of 1934 and Section 404 of the Sarbanes-Oxley Act of 2002, or if we fail to achieve and maintain adequate internal controls over financial reporting, our business results of operations and financial
condition, and investors&#146; confidence in us, could be materially adversely affected.</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">As a public company, we will be required to comply with the periodic reporting obligations of the Securities Exchange Act of 1934, including preparing annual reports, quarterly reports and current reports. Our failure to prepare and disclose this information in a timely
manner could subject us to penalties under federal securities laws, expose us to lawsuits and restrict our ability to access financing. In addition, we will be required under applicable law and regulations to integrate our systems of internal controls over financial reporting. We
plan to evaluate our existing internal controls with respect to the standards adopted by the Public Company Accounting Oversight Board. During the course of our evaluation, we may identify areas requiring improvement and may be required to design enhanced processes and
controls to address issues identified through this review. This could result in significant delays and costs to us and require us to divert substantial resources, including management time from other activities.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We expect to dedicate significant management, financial and other resources in connection with our compliance with Section 404 of the Sarbanes-Oxley Act of 2002 in the second half of 2006 and in 2007. We expect these efforts to include a review of our existing
internal control structure. As a result of this review, we may either hire or outsource additional personnel to expand and strengthen our finance function. We cannot be certain at this time that we will be able to comply with all of our reporting obligations and successfully
complete the procedures, certification and attestation requirements of the Section 404 of the Sarbanes-Oxley Act of 2002 by the time that we are required to file our annual report on Form 10-K for the year ended December 31, 2007. If we fail to achieve and maintain the
adequacy of our internal controls and do not address the deficiencies identified by our auditors, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with the</font></p>
</div>
<p align="center"><font face="serif" size="2">20</font></p>
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<p align="left"><font face="serif" size="2">Sarbanes-Oxley Act of 2002. Moreover, effective internal controls are necessary for us to produce reliable financial reports and are important to help prevent fraud. As a result, our failure to
satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 on a timely basis could result in the loss of investor confidence in the reliability of our financial statements, which in
turn could harm our business and negatively impact the trading price of our common stock.</font></p>
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    <td><div align="left"><font face="serif" size="2"><b>Risks Related to our Offering</b></font></div></td>
  </tr>
</table>
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    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
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    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>We will incur significant increased costs as a result of operating as a public company, and our management and key employees will be required to devote substantial time to new compliance initiatives.</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We have never operated as a public company. As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002, as well as new rules and regulations
implemented by the Securities and Exchange Commission and the NASDAQ Global Market, impose various new requirements on public companies, including requiring changes in corporate governance practices. Our management and other personnel will devote substantial
amounts of time to these new compliance initiatives. These rules and regulations will significantly increase our legal and financial compliance costs and will make some activities more time-consuming and costly. We will also incur additional costs associated with our public
company reporting requirements and the remediation of any material weaknesses we identify through these efforts. We expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be
required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. We currently are evaluating and monitoring developments with respect to these rules and regulations, and we cannot predict or estimate the amount
of additional costs we may incur or the timing of such costs. If our profitability is adversely affected because of these additional costs, it could have a negative effect on the trading price of our common stock.</font></p>
</div>
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    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>We cannot assure you that a market will develop for our common stock or what the market price of our common stock will be.</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Before this offering, there was no public trading market for our common stock, and we cannot assure you that one will develop or be sustained after this offering. If a market for our common stock does not develop or is not sustained, it may be difficult for you to sell
your shares of common stock at an attractive price, if at all. We cannot predict the prices at which our common stock will trade. The initial public offering price for our common stock will be determined through our negotiations with the underwriters and may not bear any
relationship to the market price at which our common stock will trade after this offering or to any other established criteria of the value of our business. It is possible that, in future quarters, our operating results may be below the expectations of securities analysts and
investors. As a result of these and other factors, the price of our common stock may materially decline.</font></p>
</div>
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    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Anti-takeover provisions of Pennsylvania law and our articles of incorporation and bylaws could delay and discourage takeover attempts that shareholders may consider to be favorable.</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Certain provisions of our amended and restated articles of incorporation and second amended and restated bylaws that will be in effect upon completion of this offering and applicable provisions of the Pennsylvania Business Corporation Law may make it more difficult
for a third-party to, or prevent a third-party from, acquiring control of us or effecting a change in our board of directors and management. These provisions include:</font></p>
</div>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the classification of our board of directors into three classes, with one class&nbsp;elected each year;</font></div></td>
  </tr>
</table>
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  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">a prohibition on cumulative voting in the election of directors;</font></div></td>
  </tr>
</table>
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  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the ability of our board of directors to issue preferred stock without shareholder approval;</font></div></td>
  </tr>
</table>
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  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the ability of our shareholders to take action only at a meeting of our shareholders and not by written consent;</font></div></td>
  </tr>
</table>
<p>&nbsp;</p>
<p align="center"><font face="serif" size="2">21</font></p>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the prohibition on shareholders calling a special meeting of our shareholders;</font></div></td>
  </tr>
</table>
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    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the requirement that shareholders comply with advance notice procedures in order to nominate candidates for election to our board of directors or to provide shareholder proposals for consideration at any meeting of our shareholders; and</font></div></td>
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</table>
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    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the prohibition of our entering into certain business combinations with holders of 20% or more of our voting securities without prior approval of our board of directors, unless a majority of our disinterested shareholders approves the transaction.</font></div></td>
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<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The Pennsylvania Business Corporation Law further provides that because our amended and restated articles of incorporation and second amended and restated bylaws provide for a classified board of directors, shareholders may remove directors only for cause. These
and other provisions of the Pennsylvania Business Corporation Law and our amended and restated articles of incorporation and second amended and restated bylaws could delay, defer or prevent us from experiencing a change of control or changes in our board of directors and
management and may adversely affect our shareholders&#146; voting and other rights. Any delay or prevention of a change of control transaction or changes in our board of directors and management could deter potential acquirers or prevent the completion of a transaction in which
our shareholders could receive a substantial premium over the then current market price for their shares of our common stock.</font></p>
</div>
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    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>The price of our common stock may be highly volatile.</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">In the past several years, technology stocks have experienced high levels of volatility and significant declines in value from their historic highs. The trading price of our common stock following this offering may fluctuate substantially. The price of our common stock
that will prevail in the market after this offering may be higher or lower than the price you pay to purchase shares of our common stock. The prevailing price depends on many factors, some of which are beyond our control and may not be related to our operating performance.
These fluctuations could cause you to lose all or part of your investment in our common stock. Factors that could cause fluctuations in the trading price of our common stock include the following:</font></p>
</div>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">price and volume fluctuations in the overall stock market from time to time;</font></div></td>
  </tr>
</table>
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  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">significant volatility in the market price and trading volume of software companies in general, and healthcare information software companies in particular;</font></div></td>
  </tr>
</table>
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  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">actual or anticipated changes in our earnings or fluctuations in our operating results;</font></div></td>
  </tr>
</table>
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  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">actual or anticipated changes in the expectations of securities analysts;</font></div></td>
  </tr>
</table>
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  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">general economic conditions and trends affecting the United States and/or the world economy generally;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the success of our competitors and fluctuations in their stock prices;</font></div></td>
  </tr>
</table>
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  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">major catastrophic events;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">sales of large blocks of our stock; and</font></div></td>
  </tr>
</table>
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  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">departures of key personnel.</font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">In the past, following periods of volatility in the market price of a company&#146;s securities, securities class&nbsp;action litigation has often been brought against that company. If our stock price is volatile, we may become the target of securities litigation. Securities litigation
could result in substantial costs and divert our management&#146;s attention and resources from our business, which could cause the trading price of our common stock to decline.</font></p>
</div>
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  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Sales of outstanding shares of our common stock into the market in the future could cause the market price of our common stock to drop significantly, even if our business is doing well.</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">If our existing shareholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market after the 180-day contractual lock-up and other legal restrictions on resale</font></p>
</div>
<p align="center"><font face="serif" size="2">22</font></p>
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<p align="left"><font face="serif" size="2">discussed in this prospectus lapse, the trading price of our common stock could decline below the initial public offering price. After this offering, approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; shares of our common
stock will be outstanding, assuming no exercise of the underwriters&#146; overallotment option. Of these shares, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; shares of our common stock (including the shares of our common stock sold in
this offering) will be freely tradable, without restriction, in the public market. Cowen and Company, LLC may, in its sole discretion, permit our directors, officers, employees and current
shareholders who are subject to the 180-day contractual lock-up to sell shares prior to the expiration of the lock-up agreements. The lock-up is subject to extension under certain circumstances.
See &#147;Shares Eligible for Future Sales&#151;Lock-Up Agreements&#148; elsewhere in this prospectus.</font></p>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">After the lock-up agreements pertaining
    to this offering expire 180 days from the date of this prospectus, up to
    an additional 29,539,057 shares will be eligible for sale in the public market,
    17,545,206 of which are held by directors, executive officers and other affiliates
    and
    will be subject to volume limitations under Rule 144 under the Securities
    Act of 1933 as amended, or the Securities Act, and various vesting agreements.
    In addition, the shares subject to outstanding warrants and the shares underlying
    options that are either subject to the
terms of our Amended and Restated Stock Option Plan or our Series C Stock Equity
    Incentive Plan or reserved for future issuance under our 2006 Equity Incentive
    Plan will become eligible for sale in the public market to the extent permitted
    by the provisions of various option agreements and warrants, the lock-up
    agreements and Rules 144 and 701 under the Securities Act. If these additional
    shares are sold, or if it is perceived that they will be sold, in the public
    market, the trading price of our common stock could decline. For additional
  information, see &#147;Shares Eligible for Future Sale.&#148;</font></p>
</div>
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  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>If you purchase shares of our common stock in this offering, you will experience substantial and immediate dilution.</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">If you purchase shares of our common stock in this offering, you will experience substantial and immediate dilution of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; per share, because the price that you pay will be substantially greater than the net tangible book value per share of our common stock that you
acquire. This dilution is due in large part to the fact that our earlier investors paid substantially less than the initial public offering price when they purchased their shares of our capital stock. You will experience additional dilution upon the exercise of options to purchase
common stock under our equity incentive plans, if we issue restricted stock or other equity-based incentives to our employees under these plans or if we otherwise issue additional shares of our common stock.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>If research analysts fail to research or publish reports about our business or if they issue unfavorable commentary or fail to recommend the purchase of our common stock, the price of our common stock could decline.</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The trading market for our common stock will depend in part on the research performed by, and the reports published by, research analysts concerning our business. These research analysts are independent and are outside of our and our underwriters&#146; control. The
trading price of our common stock could decline if research analysts fail to research and publish, cease publishing or publish negative reports on our business or otherwise fail to recommend the purchase of our common stock.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>We do not intend to pay dividends to our common shareholders for the foreseeable future.</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We have never declared or paid any dividends on our common stock and do not intend to do so for the foreseeable future. We intend to retain all of our earnings for the foreseeable future to finance the operation and expansion of our business. As a result, you may only
receive a return on your investment in our common stock if the market price of our common stock increases. See &#147;Dividend Policy&#148; elsewhere in this prospectus.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>We have broad discretion in the use of the net proceeds of this offering.</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We intend to use approximately $9.3&nbsp;million of the net proceeds from this offering to pay accrued and unpaid dividends to the former holders of our Series B and Series C preferred stock upon the automatic conversion of such shares to common stock upon the
consummation of this offering. We intend to use the remaining net proceeds from this offering, as determined by our management in its sole discretion, for</font></p>
</div>
<p align="center"><font face="serif" size="2">23</font></p>
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<p align="left"><font face="serif" size="2">general corporate purposes, including working capital needs and potential strategic acquisitions and investments. We have not determined the specific allocation of the net proceeds of this
offering among these additional uses. Our management will have broad discretion over the use and investment of the net proceeds of this offering, and, accordingly, investors in this offering will
need to rely upon the judgment of our management with respect to the use of proceeds, with only limited information concerning management&#146;s specific intentions.</font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Insiders will continue to have substantial control over us after this offering, which could limit your ability to influence the outcome of key transactions, including a change of control.</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our directors, executive officers and each of our shareholders who own greater than 5% of our outstanding common stock and their affiliates, in the aggregate, will beneficially own approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;% of the outstanding shares of our common stock after this offering.
As a result, these shareholders, if acting together, would be able to influence or control matters requiring approval by our shareholders, including the election of directors and the approval of mergers, acquisitions or other extraordinary transactions. They may also have interests
that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests. This concentration of ownership may have the effect of delaying, preventing or deterring a change of control of our company, could deprive our shareholders of
an opportunity to receive a premium for their common stock as part of a sale of our company and might ultimately affect the market price of our common stock.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>We may issue additional securities in the future, including shares, debt or equity-linked debt, which may depress our stock price.</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our issuance of additional securities could:</font></p>
</div>
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  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">cause substantial dilution of the percentage ownership of our shareholders at the time of the issuance;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">cause substantial dilution of our earnings per share;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">subject us to the risks associated with increased leverage, including a reduction in our ability to obtain financing or an increase in the cost of any financing we obtain;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">subject us to restrictive covenants that could limit our flexibility in conducting future business activities; and</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">adversely affect the prevailing market price for our outstanding securities.</font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We do not intend to seek security holder approval for any such acquisition or security issuance unless required by applicable law or regulation or the terms of existing securities. If these securities are issued, such issuances may cause the trading price of our stock to
decline.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>We may not be able to raise additional funds on terms that are acceptable to us when such funds are needed for our business or to exploit opportunities.</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our future liquidity and capital requirements will depend upon numerous factors, including the success of our businesses, our existing and new solutions and service offerings, competing technologies and market developments, potential future acquisitions and additional
repurchases of our common stock. We may need to raise additional funds to support expansion, develop new or enhanced solutions and services, respond to competitive pressures, acquire complementary businesses or technologies or take advantage of unanticipated
opportunities. If required, we may raise such additional funds through public or private debt or equity financing, strategic relationships or other arrangements. There can be no assurance that such financing will be available on acceptable terms, if at all, or that such financing
will not be dilutive to our shareholders.</font></p>
</div>
<p align="center"><font face="serif" size="2">24</font></p>
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<p align="center"><font face="serif" size="2"></font><font face="serif" size="2"><b>CAUTIONARY NOTE</b>&nbsp;<b>REGARDING FORWARD-LOOKING STATEMENTS</b></font></p>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">This prospectus contains forward-looking statements that involve risks and uncertainties. These forward-looking statements, which are usually accompanied by words such as &#147;may,&#148; &#147;might,&#148; &#147;will,&#148; &#147;should,&#148; &#147;could,&#148; &#147;would,&#148; &#147;intends,&#148; &#147;estimates,&#148; &#147;predicts,&#148;
&#147;potential,&#148; &#147;continue,&#148; &#147;believes,&#148; &#147;anticipates,&#148; &#147;plans,&#148; &#147;expects&#148; and similar expressions, relate to, without limitation, statements about our market opportunities, our strategy, our competition, our projected revenue and expense levels and the adequacy of our available
cash resources. This prospectus also contains forward-looking statements attributed to third-parties relating to their estimates regarding our industry. You should not place undue reliance on any of the forward-looking statements contained in this prospectus.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The cautionary statements contained in &#147;Risk Factors&#148; and other similar statements contained elsewhere in this prospectus identify important factors with respect to such forward-looking statements, including certain risks and uncertainties that could cause our actual
results, performance or achievements to differ materially from those expressed or forecasted in, or implied by, such forward-looking statements.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Although we believe that the expectations reflected in these forward-looking statements are based upon reasonable assumptions, no assurance can be given that such expectations will be attained or that any deviations will not be material. In light of these risks,
uncertainties and assumptions, the forward-looking events and circumstances discussed in this prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. We disclaim any obligation or
undertaking to disseminate any updates or revision to any forward-looking statement contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.</font></p>
</div>
<p align="center"><font face="serif" size="2">25</font></p>
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<p align="center"><font face="serif" size="2"><b>USE OF PROCEEDS</b></font></p>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We estimate that we will receive net proceeds from the sale of the shares of our common stock in this offering of approximately $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million, assuming an initial public offering price of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; per share and after deducting estimated underwriting discounts and
commissions and estimated offering expenses. A $1.00 increase (decrease) in the assumed public offering price of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; per share would increase (decrease) the net proceeds to us from this offering by $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (assuming the number of shares set forth on the cover page of this
preliminary prospectus remains the same). We will not receive any of the proceeds from the sale of shares of common stock sold by the selling shareholders, including any shares of our common stock sold by the selling shareholders if the underwriters exercise their
overallotment option.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We will use approximately $9.3&nbsp;million of the net proceeds of this offering to pay the accrued and unpaid dividends to the former holders of our Series B and Series C preferred stock upon the automatic conversion of such shares to common stock upon the
consummation of this offering.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We intend to use the remaining net proceeds of this offering for general corporate purposes, including working capital needs. We believe opportunities may exist to expand our current business through strategic acquisitions and investments in technology, and we may
use a portion of the proceeds for these purposes. We are not currently a party to any contracts or letters of intent, nor do we have any arrangements or understandings, with respect to any strategic acquisitions or investments.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Pending the uses described above, we intend to invest the net proceeds of this offering in short-term, interest-bearing, investment-grade securities. We cannot predict whether the proceeds invested will yield a favorable return.</font></p>
</div>
<p align="center"><font face="serif" size="2"><b>DIVIDEND POLICY</b></font></p>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We have never declared or paid any dividends on our common stock. We currently intend to retain any future earnings to finance our operations and the further expansion and development of our business, and, therefore, do not intend to declare or pay cash dividends on
our capital stock in the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors and will depend upon a number of factors, including our results of operations, financial condition, future prospects, contractual restrictions,
restrictions in any future loan covenants, restrictions imposed by applicable law and other factors our board of directors deems relevant.</font></p>
</div>
<p align="center"><font face="serif" size="2">26</font></p>
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<p align="center"><font face="serif" size="2"></font><font face="serif" size="2"><b>CONVERSION AND EXERCISE TRANSACTIONS</b></font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Current Capitalization</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">As of August&nbsp;10, 2006, we had outstanding:</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">2,333,333 shares of Series A preferred stock;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">4,022,252 shares of Series B preferred stock;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">4,851,549 shares of Series C preferred stock; and</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">6,557,201 shares of common stock.</font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">As of August&nbsp;10, 2006, we had
    warrants outstanding for the purchase of an aggregate of 1,298,720 shares
    of our common stock. As of August&nbsp;10, 2006, we also had outstanding
    options to purchase 6,010,163 shares of our common stock. These options include
    110,000  options issued pursuant to our Series C Stock Equity Incentive Plan,
    which awards will be replaced by options to purchase common stock on a one-for-one
    basis upon the consummation of this offering.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our articles of incorporation provide that upon the consummation of the first public offering of our common stock resulting in net proceeds to us of at least $30&nbsp;million and the satisfaction of other conditions:</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">all of the outstanding shares of our Series A preferred stock will automatically convert into shares of our common stock at a rate of 1.071 shares of our common stock for each share of our Series A preferred stock, subject to adjustment for certain future events;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">all of the outstanding shares of our Series B preferred stock will automatically convert into shares of our common stock at a rate of 1.261 shares of our common stock for each share of our Series B preferred stock, subject to adjustment for certain future events; and</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">all of the outstanding shares of our Series C preferred stock will automatically convert into shares of our common stock at a rate of 1.000 shares of our common stock for each share of our Series C preferred stock, subject to adjustment for certain future events.</font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Outstanding shares of our Series A, Series B and Series C preferred stock are entitled to receive dividends in an amount equal to 9%, 9% and 10%, respectively, on the stated values of those shares, which are set forth in the rights and preferences of the preferred stock.
On August&nbsp;10, 2006, the aggregate dividends payable to the holders of all of the outstanding shares of our Series A, Series B and Series C preferred stock was approximately $3.0&nbsp;million, $10.5&nbsp;million and $2.6&nbsp;million, respectively. We plan to use part of the net proceeds of
this offering to pay the Series B and Series C preferred stock dividends. The holders of our Series A preferred stock have elected to convert the accrued dividends on their shares into shares of our common stock upon the consummation of this offering.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Upon the consummation of this offering,
    there will be no outstanding shares of our preferred stock. As discussed
    above, based on the number of such shares currently outstanding, assuming
    the effectiveness of the conversion agreements discussed below, these shares
    of our Series A, Series B and Series C preferred stock (including estimated
     accrued and unpaid dividends on the Series A preferred stock outstanding
    upon the consummation of this offering) would convert into 4,686,247 shares,
    3,475,290 shares and 3,323,350 shares of common stock, respectively, upon
    the consummation of this offering.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Conversion Agreements</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We entered into conversion agreements with the holders of our outstanding Series B and Series C preferred stock. Eight of these holders, Britannia Holdings Limited, Carl E. Smith, David St. Clair, Grotech Partners V, L.P. (affiliated with Grotech Capital Partners),
Grotech V Maryland Fund, L.P. (affiliated with Grotech Capital Partners), Liberty Ventures I, L.P. (affiliated with Liberty Ventures Partners), Liberty Ventures II, L.P. (affiliated with Liberty Ventures Partners) and Stockwell Fund, L.P., are our affiliates by virtue of their
positions as employees of ours, membership on our board of directors and/or the beneficial ownership of our common stock and their affiliation with a member of our board of directors. See</font></p>
</div>
<p align="center"><font face="serif" size="2">27</font></p>
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<p align="left"><font face="serif" size="2">&#147;Management,&#148; &#147;Certain Relationships and Related Party Transactions&#148; and &#147;Principal and Selling Shareholders&#148; elsewhere in this prospectus.</font></p>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Under the terms of each conversion agreement, each holder was entitled to elect prior to July&nbsp;12, 2006 to convert up to 31.5% of such holder&#146;s outstanding shares of Series B and Series C preferred stock into shares of our common stock. As part of this conversion, the
accrued but unpaid dividends on the converted shares were taken into account in calculating the number of shares of common stock issuable upon conversion of the shares of Series B and Series C preferred stock. The provisions of the conversion agreements became effective
upon the filing of the Registration Statement on Form&nbsp;S-1 of which this prospectus is a part and, therefore, the preferred stock and common stock presented above as outstanding as of August&nbsp;10, 2006 do not take into account the conversion. Under such arrangements, an
aggregate of 1,266,991 shares and 1,528,199 shares of Series B and Series C preferred stock, respectively, were converted for 2,480,476 shares and 2,243,861 shares of our common stock, which included 882,396 shares and 715,662 shares of our common stock, respectively,
on account of accrued dividends.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Termination of Shareholders Agreement</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Pursuant to the terms of the Third Amended and Restated Shareholders Agreement dated January&nbsp;11, 2002 among us and the shareholders party thereto, all of the rights of the shareholders under the agreement will be terminated upon the consummation of this offering,
which is considered a qualified initial pubic offering. For purposes of the agreement, a qualified initial public offering is a first public offering of our common stock in which the net proceeds to us are at least $30&nbsp;million and immediately after which our outstanding capital
stock will have an aggregate public market value of not less than $150&nbsp;million.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Conversion of Options Issued Pursuant to the Series C Stock Equity Incentive Plan</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Upon the consummation of this offering, we will substitute shares of common stock for shares of Series C preferred stock subject to previously granted options on a one-for-one basis. No options will be available for grant pursuant to the Series C Stock Equity Incentive
Plan thereafter.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Warrants</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">On August&nbsp;1, 2006, we amended the outstanding warrants to purchase 344,606 shares of our common stock that we had previously issued to Commerce Bank to provide for the right to exercise such warrant on a &#147;cashless&#148; basis. In connection with such amendment,
Commerce Bank agreed to terminate its rights to register the shares of common stock issued upon the exercise of such warrants.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Outstanding warrants to purchase an aggregate of 435,000 shares of our common stock will terminate upon the consummation of this offering. Shares of common stock that may be purchased upon exercise of these warrants are included in the presentation of outstanding
shares of common stock in this prospectus. In addition, we have assumed the exercise of these warrants for the purpose of presenting our pro forma and our pro forma as adjusted balance sheet in the &#147;Summary Consolidated Financial Information&#148; and &#147;Capitalization&#148;
sections of this prospectus.</font></p>
</div>
<p align="center"><font face="serif" size="2">28</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="p29"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font face="serif" size="2"><b>CAPITALIZATION</b></font></p>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The following table describes our capitalization as of March&nbsp;31, 2006. Our capitalization is presented:</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">On an actual basis;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">On a pro forma basis to give effect to:</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="6%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the restoration of our Treasury shares to our authorized but unissued common stock; and</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="6%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the issuance of 2,480,476 shares and 2,243,861 shares of our common stock upon the conversion of 1,266,991 shares and 1,528,199 shares of our Series B and Series C preferred stock (including the accrued and unpaid dividends thereon) pursuant to conversion
agreements with the holders of such shares and the issuance of shares of common stock on account of accrued dividends on such shares, respectively;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="6%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the issuance of 435,000 shares of our common stock at a weighted average exercise price of $1.31 per share upon the exercise of outstanding warrants that would otherwise terminate upon the consummation of this offering;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="6%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the conversion of all outstanding shares of our Series&nbsp;A preferred stock, including the accrued and unpaid dividends thereon, into 4,686,247 shares of our common stock, which will automatically occur immediately prior to the consummation of this offering;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="6%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the conversion of all of the then outstanding shares of our Series B preferred stock and Series C preferred stock into 6,798,640 shares of our common stock, which will automatically occur immediately prior to the consummation of this offering;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="6%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the incurrence of an approximately $1.5&nbsp;million charge due to the accretion on the Series A preferred stock, Series B preferred stock and Series C preferred stock after March 31, 2006; and</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="6%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the use of approximately $9.3&nbsp;million of the net proceeds of this offering to pay the accrued and unpaid dividends to the former holders of our Series B and Series C preferred stock upon the automatic conversion of such shares to common stock upon the consummation of
this offering.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">On a pro forma as adjusted basis to give effect to the sale by us of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; shares of our common stock in this offering at an assumed initial public offering price of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; per share, the midpoint of the range set forth on the cover page of this prospectus, after deducting the
estimated underwriting discounts and commissions and our estimated offering expenses.</font></div></td>
  </tr>
</table>
<p align="center"><font face="serif" size="2">29</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="p30"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The pro forma and pro forma as adjusted information below is illustrative only and our capitalization table following the completion of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing.
You should read this table together with the sections of this prospectus entitled &#147;Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations&#148; and our financial statements and the related notes included elsewhere in this prospectus.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="8" align="center" valign="bottom"><font face="serif" size="1"><b>March</b>&nbsp;<b>31, 2006</b><br>
<hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Actual</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Pro Forma</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Pro Forma</b><br>
<b>As Adjusted</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="8" align="center" valign="bottom"><font face="serif" size="1"><b>(unaudited)</b><br>
<b>(in thousands, except for share data)</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2"><b>Consolidated Balance Sheet Data:</b></font></div></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Cash and cash equivalents<sup>(1)</sup></font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">4,612</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(4,687</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Long-term debt, net of current portion</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2,479</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2,479</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Series
          B convertible preferred stock, no par value; 7,500,000 shares authorized,
          4,022,252 shares issued and outstanding, actual; 7,500,000 shares authorized,
          no shares issued and outstanding, pro forma; 7,500,000 shares authorized,
          no shares issued and outstanding, pro forma as adjusted</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">28,973</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Series
          C convertible preferred stock, no par value; 7,500,000 shares authorized,
          4,851,549 shares issued and outstanding, actual; 7,500,000 shares authorized,
          no shares issued and outstanding, pro forma; 7,500,000 shares authorized,
          no shares issued and outstanding, pro forma as adjusted</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">7,692</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Stockholders&#146; equity (deficiency):</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Series
          A convertible preferred stock, no par value; 2,333,333 shares authorized,
          2,333,333 shares issued and outstanding, actual; 2,333,333 shares authorized,
          no shares issued and outstanding, pro forma; 2,333,333 shares authorized,
          no shares issued and outstanding, pro forma as adjusted</font></div>
    </td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">6,377</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Common
          stock &#150; no
          par value, 50,000,000 shares authorized - 6,552,774 shares issued and
          outstanding, actual; $0.01 par value, 100,000,000 shares authorized,
          25,498,286
          shares issued and outstanding, pro forma _____ shares authorized, _____
          shares issued and outstanding, pro forma as adjusted</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">13,739</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">53,321</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Additional
          paid in capital<br>
          Beneficial conversion feature</font></div></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td align="right" valign="bottom"><font size="2">3,827</font></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Accumulated deficit</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(57,183</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(52,370</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Total stockholders&#146; (deficiency) equity<sup>(1)</sup></font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(33,240</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">951</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Total capitalization</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">5,904</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">3,430</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
 <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="100"><hr noshade size="1" align="left" width="100%"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="1">(1)</font></td>
    <td><div align="left"><font face="serif" size="1">A $1.00 increase (decrease) in the assumed initial public offering price of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; per share would increase (decrease) each of cash and cash equivalents, total stockholders&#146; (deficiency) equity and total capitalization by $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million assuming the number of shares offered by us,
as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.</font></div></td>
  </tr>
</table>
<p align="center"><font face="serif" size="2">30</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="p31"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font face="serif" size="2"></font><font face="serif" size="2"><b>DILUTION</b></font></p>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">If you invest in our common stock, your interest will be diluted to the extent of the difference between the public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock after this offering.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our pro forma net tangible book value as of March&nbsp;31, 2006 was approximately $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million, or approximately $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; per share. Pro forma net tangible book value per share is determined by dividing the amount of our tangible net worth, or total tangible assets less
total liabilities, by the pro forma number of shares of our common stock outstanding after giving effect to the transactions described in &#147;Conversion and Exercise Transactions&#148; in this prospectus. Dilution to new investors represents the difference between the amount per share
paid by investors in this offering and the pro forma net tangible book value per share of our common stock immediately after the completion of this offering. After giving effect to our sale of the shares offered hereby at an assumed initial public offering price of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; per
share and after deducting estimated underwriting discounts and commissions and estimated offering expenses and the application of the estimated net proceeds therefrom, our pro forma net tangible book value as of March&nbsp;31, 2006 would have been $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million, or $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
per share. This represents an immediate increase in pro forma net tangible book value of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; per share to existing shareholders and an immediate dilution in pro forma net tangible book value of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; per share to new investors. The following table illustrates this per share
dilution:</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Assumed initial public offering price per share</font></div></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom" width="1%"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%"><font face="serif" size="2">Pro forma net tangible book value per share as of March&nbsp;31, 2006</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%"><font face="serif" size="2">Increase per share attributable to new investors</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Pro forma net tangible book value per share after this offering</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Dilution per share to new investors</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The following table sets forth, on a pro forma basis as of March&nbsp;31, 2006, after giving effect to the transactions described in &#147;Conversion and Exercise Transactions&#148; elsewhere in this prospectus, the total number of shares of common stock purchased from us, the total
consideration paid to us and the average price per share paid to us by existing shareholders and by new investors who purchase shares of common stock in this offering, before deducting the estimated underwriting discounts and commissions and estimated offering expenses,
assuming an initial public offering price of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; per share:</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="5" align="center" valign="bottom"><font face="serif" size="1"><b>Shares Purchased</b><br>
<hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="5" align="center" valign="bottom"><font face="serif" size="1"><b>Total Consideration</b><br>
<hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Average Price</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Number</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Percent</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Amount</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Percent</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Per Share</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Existing shareholders</font></div></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></td>
    <td valign="bottom" width="2%"><font face="serif" size="2">%</font></td>
    <td valign="bottom" width="1%"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></td>
    <td valign="bottom" width="2%"><font face="serif" size="2">%</font></td>
    <td valign="bottom" width="1%"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">New investors</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Total</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">100.0</font></td>
    <td valign="bottom"><font face="serif" size="2">%</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">100.0</font></td>
    <td valign="bottom"><font face="serif" size="2">%</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The foregoing tables and calculations assume no exercise of any options or warrants outstanding as of March&nbsp;31, 2006. Specifically, these tables and calculations exclude:</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">5,900,163 shares of our common stock issuable upon exercise of outstanding options to purchase shares of our common stock subject to the terms of our Amended and Restated Stock Option Plan as of August&nbsp;10, 2006 at a weighted average exercise price of $2.14 per
share;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">110,000 shares of our common stock issuable upon exercise of outstanding options to purchase shares of our common stock subject to the terms of our Series C Stock Equity Incentive Plan as of August&nbsp;10, 2006 at a weighted average exercise price of $1.13 per share
(such awards were originally exercisable for Series C preferred stock but will be replaced by options to purchase common stock options on a one-for-one basis upon the consummation of this offering);</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; shares of our common stock reserved for future grants under our 2006 Equity Incentive Plan, which will become effective immediately prior to when we become subject to the reporting requirements of the Securities Exchange Act of 1934; and</font></div></td>
  </tr>
</table>
<p>&nbsp;</p>
<p align="center"><font face="serif" size="2">31</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="p32"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">863,720 shares of our common stock issuable upon exercise of warrants to purchase shares of our common stock outstanding as of August&nbsp;10, 2006 at a weighted average exercise price of $1.41 per share.</font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Because the exercise price of the outstanding options and some of the warrants is significantly below the assumed offering price, investors purchasing common stock in this offering will suffer additional dilution when and if these options or warrants are exercised. See
&#147;Management&#151;Employee Benefit Plans&#148; for further information regarding our equity incentive and stock option plans and &#147;Description of Capital Stock&#151;Warrants to Purchase Common Stock&#148; for further information on warrants.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">A $1.00 increase (decrease) in the assumed initial public offering prices of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; per share would increase (decrease) our pro forma as adjusted net tangible book value by $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million and the pro forma as adjusted net tangible book value per share after completion
of this offering by $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.</font></p>
</div>
<p align="center"><font face="serif" size="2">32</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="p33"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font face="serif" size="2"></font><font face="serif" size="2"><b>SELECTED CONSOLIDATED FINANCIAL DATA</b></font></p>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The selected consolidated financial data set forth below are derived from our consolidated financial statements and should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this prospectus and the &#147;Management&#146;s
Discussion and Analysis of Financial Condition and Results of Operations&#148; section of this prospectus. The consolidated statement of operations data for each of the years ended December&nbsp;31, 2005, 2004 and 2003 and the consolidated balance sheet data as of December&nbsp;31,
2005, 2004 and 2003 are derived from, and qualified by reference to, our audited consolidated financial statements and related notes appearing elsewhere in this prospectus. The consolidated statement of operations data for each of the years ended December&nbsp;31, 2002 and 2001
and the consolidated balance sheet data as of December&nbsp;31, 2002 and 2001 are derived from our audited consolidated financial statements not included in this prospectus. Our historical results are not necessarily indicative of results for any future period.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="5" align="center" valign="bottom"><font face="serif" size="1"><b>Three Months Ended</b><br>
<b>March</b>&nbsp;<b>31,</b><br>
<hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="14" align="center" valign="bottom"><font face="serif" size="1"><b>Year Ended December</b>&nbsp;<b>31,</b><br>
<hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2006</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2005</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2005</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2004</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2003</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2002</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2001</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="5" align="center" valign="bottom"><font face="serif" size="1"><b>(unaudited)</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="20" align="center" valign="bottom"><font face="serif" size="1"><b>(in thousands, except share and per share data)</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1"><b>Consolidated Statement of Operations Data:</b></font></div></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1"><i>Revenue</i></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%"><font face="serif" size="1">Term license revenue</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">415</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">652</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">9,729</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">6,260</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">2,439</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">2,119</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">1,655</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="1">Subscription, maintenance and transaction fees</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">5,308</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">3,542</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">17,187</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">14,666</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">12,600</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">9,456</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">6,776</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%"><font face="serif" size="1">Professional services</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">3,103</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">1,786</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">11,680</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">7,102</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">5,488</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">4,844</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">3,973</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:6%"><font face="serif" size="1">Total revenue</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">8,826</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">5,980</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">38,596</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">28,028</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">20,527</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">16,419</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">12,404</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Cost of revenue</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">3,555</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">3,268</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">15,315</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">13,072</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">9,331</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">8,159</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">9,155</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Gross margin</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">5,271</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">2,712</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">23,281</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">14,956</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">11,196</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">8,260</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">3,249</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1"><i>Operating expenses</i></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%"><font face="serif" size="1">Sales and marketing</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">2,205</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">1,250</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">7,778</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">4,668</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">3,211</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">2,159</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">2,216</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%"><font face="serif" size="1">Research and development</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">1,561</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">600</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">2,627</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">3,243</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">3,903</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">4,787</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">7,911</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%"><font face="serif" size="1">General and administrative</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">2,475</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">1,831</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">9,707</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">6,320</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">4,343</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">4,626</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">5,088</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:6%"><font face="serif" size="1">Total operating expenses</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">6,241</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">3,681</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">20,112</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">14,231</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">11,457</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">11,572</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">15,215</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">(Loss) income from operations</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(970</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(969</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">3,169</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">725</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(261</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(3,312</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(11,966</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">(Gain)
          loss on change in fair value of redeemable convertible preferred stock
          conversion options</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(158</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(118</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="1" face="serif">4,334</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">1,850</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(42</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(147</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(50</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Interest expense (income)</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">60</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">41</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">274</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">175</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">249</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">209</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(60</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Loss before benefit for income taxes</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(872</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(892</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(1,439</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(1,300</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(468</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(3,374</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(11,856</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Benefit for income taxes</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">416</font></td>
    <td valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">386</font></td>
    <td valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">6,491</font></td>
    <td valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Net
    (loss) income</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="left"><font face="serif" size="1">&nbsp;$</font></td>
    <td align="right"><font face="serif" size="1">(456</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td align="left"><font face="serif" size="1">&nbsp;$</font></td>
    <td align="right"><font face="serif" size="1">(506</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td align="left"><font face="serif" size="1">&nbsp;$</font></td>
    <td align="right"><font size="1" face="serif">5,052</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="left"><font face="serif" size="1">$&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(1,300</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td align="left"><font face="serif" size="1">&nbsp;$</font></td>
    <td align="right"><font face="serif" size="1">(468</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td align="left"><font face="serif" size="1">&nbsp;$</font></td>
    <td align="right"><font face="serif" size="1">(3,374</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td align="left"><font face="serif" size="1">&nbsp;$</font></td>
    <td align="right"><font face="serif" size="1">(11,856</font></td>
    <td><font face="serif" size="1">)</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Accretion of convertible preferred shares and redeemable convertible preferred shares</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(821</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(644</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(6,226</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(2,983</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(3,275</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(3,098</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(3,343</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Loss available to common shareholders</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(1,277</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(1,150</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(1,174</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(4,283</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(3,743</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(6,472</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(15,199</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Net loss per share available to common shareholders, basic and diluted</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(0.19</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(0.18</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(0.18</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(0.67</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(0.60</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(1.05</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(3.55</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Weighted average shares used to compute loss available to common shareholders per common share, basic and diluted</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">6,549,699</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">6,441,869</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">6,458,129</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">6,378,732</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">6,215,840</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">6,180,387</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">4,275,635</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font><font face="serif" size="2">
      <hr noshade size="1">
    </font></td>
    <td colspan="4" align="center" valign="bottom"><font face="serif" size="1"><b>March</b>&nbsp;<b>31,</b><br>
</font><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td align="center" valign="bottom">&nbsp;</td>
    <td colspan="14" align="center"><font face="serif" size="1">&nbsp;</font><font face="serif" size="1">&nbsp;</font><font face="serif" size="1"><b>December</b>&nbsp;<b>31,</b><br>
    </font><font face="serif" size="2"><hr noshade size="1">
    </font></td>
    <td align="center" valign="bottom">&nbsp;</td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><font size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="center" valign="bottom"><font face="serif" size="1"><b>2006</b></font></td>
    <td align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td align="center" valign="bottom"><font face="serif" size="1"><b>2005</b></font></td>
    <td align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td align="center" valign="bottom"><font face="serif" size="1"><b>2005</b></font></td>
    <td align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td align="center" valign="bottom"><font face="serif" size="1"><b>2004</b></font></td>
    <td align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td align="center" valign="bottom"><font face="serif" size="1"><b>2003</b></font></td>
    <td align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td align="center" valign="bottom"><font face="serif" size="1"><b>2002</b></font></td>
    <td align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td align="center" valign="bottom"><font face="serif" size="1"><b>2001</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td>&nbsp;</td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="5" align="center" valign="bottom"><font face="serif" size="1"><b>(unaudited)</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="20" align="center" valign="bottom"><font face="serif" size="1"><b>(in thousands, except share and per share data)</b></font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1"><b>Consolidated Balance Sheet Data:</b></font></div></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Cash and cash equivalents</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">$&nbsp;&nbsp;&nbsp;&nbsp;4,612</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">$&nbsp;&nbsp;&nbsp;&nbsp;2,253</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">$&nbsp;&nbsp;&nbsp;&nbsp;2,447</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;431</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;764</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">186</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Total
          current assets</font></div>
    </td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">16,701</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">7,119</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">16,366</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">5,836</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="1" face="serif">4,028</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">3,147</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">2,430</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Total assets</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">33,025</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">13,484</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">32,283</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">12,219</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="1" face="serif">7,150</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">7,402</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">7,080</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Short-term
          debt</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">1,437</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">661</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">1,262</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">552</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">699</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">2,143</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">2,006</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Deferred revenue</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">11,227</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">8,231</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">9,617</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">5,885</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="1" face="serif">3,861</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">1,823</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">271</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Total current liabilities</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">23,897</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">13,167</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">22,743</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">11,562</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="1" face="serif">7,104</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">7,008</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">4,156</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Long-term
    debt</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">2,479</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">1,296</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">2,515</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">1,180</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">174</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">309</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">466</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Preferred stock</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="1" face="serif">36,665</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">40,467</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">36,100</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">39,822</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">36,838</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">33,212</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">29,059</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Total
    stockholders&#146; deficiency</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(33,240</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(42,463</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(32,327</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(41,367</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(37,121</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(33,389</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(26,922</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
  </tr>
</table>
<p align="center"><font face="serif" size="2">33</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="p34"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font face="serif" size="2"></font><font face="serif" size="2"><b>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL</b><br>
<b>CONDITION AND RESULTS OF OPERATIONS</b></font></p>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2"><i>You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the &#147;Selected Consolidated Financial Information&#148; and our consolidated financial statements and the related notes included elsewhere in this
prospectus. In addition to historical information, the following discussion and analysis includes forward-looking information that involve risks, uncertainties and assumptions, Our actual results and the timing of events could differ materially from those anticipated by these
forward-looking statements as a result of many factors, including those discussed under &#147;Risk Factors&#148; and elsewhere in this prospectus. See &#147;Cautionary Note</i>&nbsp;<i>Regarding Forward-Looking Statements&#148; included elsewhere in this prospectus.</i></font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Overview</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We are a leading provider of software, services and clinical content to healthcare payers that allow them to improve the quality and affordability of healthcare provided to their members and increase their administrative efficiency. Our Collaborative Care Management
solution analyzes data, automates payer workflow processes and electronically connects payers, healthcare providers and patients, providing them with a common view of the patient&#146;s health that helps to foster better clinical decision making. Our solution is built around a suite
of modular and easily configurable software applications and utilizes the Internet to link our payer customers to their members and their members&#146; chosen healthcare providers.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our Collaborative Care Management solution is comprised of two related suites of products &#150; Integrated Medical Management and Collaborative Data Exchange. Our Integrated Medical Management suite allows our healthcare payer customers to identify active care
management opportunities among their members and automate an intervention process based on clinical best practices. Our Integrated Medical Management suite also helps our customers reduce internal administrative costs by automating traditionally manual processes. Our
Collaborative Data Exchange suite allows our customers to securely transmit health records containing critical patient information in an easily understood format to patients and providers at the time they are making treatment decisions. We refer to these health records as
Patient Clinical Summaries and believe that they are a critical first step to developing electronic health records. In the future, we expect our Patient Clinical Summaries to integrate additional information provided by patients and a broad range of providers, thereby increasing
their value to all constituents.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Since 1999, we have focused on broadening our solution portfolio in order to respond to the evolving needs of our customers. In 1999, we began offering our Analytics and Disease Management module; in 2001, we began offering our Transactions and Information
Exchange module; in 2003, we began offering OptiCareCert; in 2004, we began offering OptiCarePath; and, in 2005, we began offering our customers the ability to electronically transmit Patient Clinical Summaries via our Transactions and Information Exchange infrastructure.
For these solutions, our customers either purchase annual subscription licenses or pay a transaction fee each time they utilize the solutions. As a result, annual subscription licenses and transaction fees have represented an increasing proportion of our revenue. We expect this
trend to continue as an increasing proportion of our customers begin to use or increase their use of these solutions and as an increasing number of providers use our recently released Patient Clinical Summaries.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We license our solutions primarily to large regional healthcare insurance companies. As of March&nbsp;31, 2006, our customers included approximately 56 regional and national managed care organizations, including the largest organizations in more than 27 regional
markets. Our revenue has increased at a compound annual growth rate of 32.8% since 2001, to $38.6&nbsp;million for the year ended December&nbsp;31, 2005. Our overall increase in revenue is attributable to increased emphasis by our customers on active management of their total
insured population and the expansion of our solutions to meet their evolving needs.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Background</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We began operations in 1988 by licensing an automated medical management solution to large regional healthcare insurance companies. This solution was the predecessor to our current Advanced Medical</font></p>
</div>
<p align="center"><font face="serif" size="2">34</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="p35"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="left"><font face="serif" size="2">Management module. In 1999, we acquired the assets of an analytical software company that became the basis of our current Analytics and Disease Management module. In 2000, we expended
a significant amount of capital to begin the development of our Transactions and Information Exchange module, completing the initial development of the module in the third quarter of 2001. In
December 2002, we acquired assets that were the foundation for clinical decision support content, which enabled us to create our Clinical Rules and Processes module. In 2005, we began to
offer our customers the ability to electronically transmit Patient Clinical Summaries to providers at the point of care.</font></p>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">From inception until 1997, our operations were funded primarily through internally generated cash flows and bank borrowings. In 1997, we issued approximately $3.5&nbsp;million of Series A convertible preferred stock in order to raise capital for marketing our products. In
1999, we made a strategic decision to develop new products. To fund this initiative, in the fourth quarter of 1999 and in the first half of 2000, certain existing investors, including our Chief Executive Officer and Liberty Ventures I, L.P., which is an affiliate of ours as a result
of their ownership of our outstanding capital stock, provided bridge financing until the closing of our Series B convertible preferred financing. To those investors who participated in the bridge financing, we issued seven-year warrants to purchase an aggregate of 435,000 shares
of common stock, 375,000 of which had an exercise price of $2.00 per share and 60,000 of which had an exercise price of $5.00 per share. In June 2000, we issued approximately $30.0&nbsp;million of Series B convertible preferred stock, primarily to fund the research and
development of new products. In September 2001, we issued approximately $4.0&nbsp;million of Series C convertible preferred stock in order to fund our working capital requirements.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">In 1997, we entered into a borrowing arrangement with a third-party lender pursuant to which we issued warrants to purchase 200,000 shares of common stock at an exercise price of $2.00 per share. In 1999, we issued additional warrants to purchase 100,000 shares of
common stock at an exercise price of $2.00 per share to the same lender. We entered into an arrangement with a different lender in 2001 pursuant to which we issued warrants to purchase 283,185 shares of common stock at an exercise price of $1.13 per share. In 2002, we
entered into a borrowing arrangement with our current lender to provide working capital financing up to $4.0&nbsp;million based upon eligible receivables. In connection with that arrangement, we issued warrants to purchase an aggregate 235,929 shares of common stock at an
exercise price of $0.90 per share.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Sources of Revenue</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We derive revenue from (i) term license fees for our solutions; (ii) subscription, maintenance and transaction fees; and (iii) fees for discrete professional services.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Term License Revenue</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our customers pay a term license fee to utilize our Advanced Medical Management and Clinical Rules and Processes modules for five years. We recognize revenue for term license fees upon delivery of the software.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Subscription, Maintenance and Transaction Fees</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our customers pay an annual subscription license fee to utilize our Analytics and Disease Management and Information Exchange modules. We recognize subscription license fees ratably over the term of the subscription agreement. We also offer our customers a hosted
solution and receive monthly fees for those services. We recognize hosting revenue ratably over the term of the related agreement, which is typically five years in duration.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our customers pay an annual maintenance and support fee equal to approximately 22% of the annualized Advanced Medical Management license fee, which entitles our customers to unspecified software updates and upgrades and basic product support. For clinical
content, our customers pay an additional 13% of the annualized license fee for maintenance and support. We recognize maintenance and support fees ratably over the term of the maintenance and support agreement.</font></p>
</div>
<p>&nbsp;</p>
<p align="center"><font face="serif" size="2">35</font></p>
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<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our customers pay transaction fees each time they use our modules associated with member eligibility verification, clinical adjudication of treatment requests and access to on-demand member health information, including Patient Clinical Summaries. We recognize
transaction fees at the time of the transaction.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Professional Services</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">In conjunction with our solutions, we provide services to assist our customers in the installation and implementation of the software and the integration of our solutions with other systems within the healthcare insurance company. We sell these services on either a fixed
price or a time-and-materials basis and recognize revenue when the services are performed. Services revenue also includes reimbursable billable travel, lodging and other out-of-pocket expenses incurred as part of delivering services to our customers.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Each of our license models provides us with a recurring revenue stream. Historically, a substantial portion of our clients have renewed their licenses each year. During the year ended December&nbsp;31, 2005, our clients renewed approximately 100% of the aggregate
contract value that were up for renewal during that period. The combination of recurring revenue and high renewal rates provide us with substantial annual revenue visibility. Although in general our revenue is consistent throughout the year, sales of certain modules that have
an initial term license can cause revenue volatility from quarter to quarter. The sales cycle for our Advanced Medical Management module is typically eight months or longer. As a result, it is difficult for us to predict the quarter in which a particular sale may occur. In
addition, in a small portion of our sales, the license fee is material relative to our total revenue during the quarter. Accordingly, our revenue may vary significantly from quarter to quarter depending on the quarter during which a large sale occurs.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Cost of Revenue</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our cost of revenue primarily consists of:</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">compensation and related employee benefits for our professional services, product support and product hosting staff;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">amortization of internally developed and purchased capitalized software;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">third-party license and maintenance fees primarily for third-party software incorporated in our Advanced Medical Management module;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">solution hosting costs associated with a third-party secured facility;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">costs of independent contractors that provide consulting and professional services to our customers; and</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">travel, lodging and other out-of-pocket expenses for our staff and independent consultants to perform work at a customer&#146;s site for which we receive reimbursement.</font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The costs associated with each of our modules, as a percentage of revenue, is different. Therefore, changes in the mix of modules and services will result in fluctuations in gross margin. We expect the percentage of our revenue derived from our Analytics and Disease
Management module, Clinical Rules and Processes module, Transaction and Information Exchange module and Collaborative Care Management solutions to increase in the future. As a result, we expect our gross margins to increase in the future.</font></p>
</div>
<p align="center"><font face="serif" size="2">36</font></p>
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<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Operating Expenses</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We classify our operating expenses as follows:</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Sales and Marketing</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Sales and marketing expenses primarily consist of:</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">personnel and related costs for employees engaged in sales, corporate marketing, product marketing and product management, including salaries, commissions, other incentive compensation and related employee benefit costs;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">travel related expenses to meet with existing and potential customers, and for other sales and marketing related purposes;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">costs associated with trade shows and industry conventions;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">fees and other expenses related to public relations consultants; and</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">costs associated with our annual user conference and other marketing related activities.</font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We expense our sales commissions at the time the related revenue is recognized. We expect our sales and marketing expense to increase in the future as we increase the number of direct sales professionals and invest in marketing programs to encourage provider
adoption of Collaborative Care Management solutions. However, we expect sales and marketing expense to remain relatively constant as a percentage of revenue for the foreseeable future.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Research and Development</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Research and development expenses consist primarily of:</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">personnel and related costs, including salaries and employee benefits for software engineers, software quality assurance engineers and clinical systems engineers;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">consulting fees paid to independent consultants who provide software or quality engineering services to us; and</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">costs of medical panels and research for annual clinical updates to our solutions.</font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">To date, our research and development efforts have been devoted to new product offerings and increases in features and functionality of our existing suites. We expect research and development expenses to increase in the future as we continue to develop innovative new
solutions for our customers. However, we expect research and development expenses to remain consistent as a percentage of revenue, fluctuating slightly depending on our product development initiatives.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Historically, we have capitalized
    a portion of our research and development expenses related to purchased and
    internally developed software. Capitalized research and development expenses
    totaled $2.0&nbsp;million
    and $0.9&nbsp;million for the years ended December&nbsp;31, 2005
and 2004, respectively. No research and development expenses were capitalized
    in 2003. Otherwise, we expense research and development as those costs are
    incurred.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>General and Administrative</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">General and administrative expenses represent the complete, unallocated costs and expenses of managing and supporting our entire operations. General and administrative expenses consist primarily of:</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">personnel and related costs for our executives, finance, human resources, corporate information technology systems, strategic business, corporate quality, corporate training and administrative personnel;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">legal and accounting professional fees;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">facilities and related costs;</font></div></td>
  </tr>
</table>
<p>&nbsp;</p>
<p align="center"><font face="serif" size="2">37</font></p>
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<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">recruiting and training costs;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">depreciation;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">travel related expenses for executives and other administrative personnel; and</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">computer maintenance and support for our internal information technology system.</font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We expect general and administrative expenses to increase in the future as we absorb expenses related to being a publicly traded company and invest in an infrastructure to support our continued growth. However, we expect general and administrative expenses to
decrease as a percentage of revenue for the foreseeable future.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Critical Accounting Policies and Estimates</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our discussion and analysis of our financial condition and consolidated results of operations are based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation
of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure of contingent assets and liabilities. On an on-going basis we evaluate our estimates based
upon historical experience and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our
actual results may differ from these estimates.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We believe that the following critical accounting policies affect our more significant estimates and judgments used in the preparation of our consolidated financial statements:</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Revenue Recognition</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We derive revenue primarily from three sources: (i) initial term and renewal license fees for our Advanced Medical Management and Clinical Rules and Processes modules; (ii) recurring revenue consisting of annual recurring fees for our Analytics and Disease
Management and Transactions and Information Exchange modules; transaction revenue associated with member eligibility verification, clinical adjudication of treatment requests and access of on-demand member health information; and technical and clinical maintenance and
support fees; and (iii) fees for discrete professional services. Our standard license agreement typically provides a time-based license, which is typically five years in duration, to use our solutions. We may license our software in multiple element arrangements if the customer
purchases any combination of maintenance, consulting, training or hosting services in conjunction with the software product license.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We recognize revenue pursuant to the requirements of AICPA Statement of Position, or SOP, 97-2, <i>Software Revenue Recognition</i>; as amended by SOP 98-9, <i>Software Revenue Recognition, With Respect to Certain Transactions</i>; SOP 81-1, <i>Accounting for Performance
of Construction-type and Certain Production-type Contracts</i>; the Securities and Exchange Commission&#146;s Staff Accounting Bulletin, or SAB, No.&nbsp;104, <i>Revenue Recognition</i>; Emerging Issues Task Force, or EITF, Issue No.&nbsp;00-21, <i>Revenue Arrangements With Multiple
Deliverables</i>; EITF Issue No.&nbsp;00-03, <i>Application of AICPA Statement of Position </i>97-2 <i>to Arrangements That Include the Right to Use Software Stored on Another Entity&#146;s Hardware</i>; EITF Issue No.&nbsp;03-05, <i>Applicability of AICPA Statements of Position </i>97-2, <i>Software Revenue
Recognition, to Non-Software Deliverables in an Arrangement Containing More-Than-Incidental Software</i>; and other authoritative accounting guidance.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We recognize revenue using the residual method when vendor-specific objective evidence, or VSOE, of fair value exists for all of the undelivered elements in the arrangement, but does not exist for one or more delivered elements, and all revenue recognition criteria in
SOP 97-2, other than the requirement for VSOE of fair value of each delivered element of the arrangement, are satisfied. We allocate revenue to each undelivered element based upon its respective fair value determined by the price charged when that element is sold separately
or, for elements not yet sold separately, the price is established by management if it is probable that the price will not change before the element is sold separately. We defer revenue for all</font></p>
</div>
<p align="center"><font face="serif" size="2">38</font></p>
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<p align="left"><font face="serif" size="2">undelivered elements and recognize the residual amount of the arrangement fee, if any, when the basic criteria in SOP 97-2 have been met.</font></p>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Under SOP 97-2, provided that the customer&#146;s contract does not require significant production, modification or customization of our basic software code, we recognize revenue when the following four criteria have been met:</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">persuasive evidence of an arrangement exists;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">delivery of our basic software code has occurred;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the license fee is fixed or determinable; and</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">collection of the license fee is probable.</font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">For arrangements where we provide software hosting services, when all other revenue recognition criteria have been met, we recognize and include in subscription, maintenance and transaction fee revenue license fees upon delivery of the software and hosting revenue
over the hosting period unless:</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the customer cannot take possession of the software at any time during the hosting period without significant penalty;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the customer cannot contract with another hosting provider without significant effort or expenditure; or</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the software&#146;s functionality is compromised by the termination of our hosting services.</font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Under these circumstances we recognize all revenue under the contract ratably over the longer of the hosting period or the maintenance period.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">If at the outset of an arrangement we determine that the arrangement fee is not fixed or determinable, then revenue is deferred until the arrangement fee becomes due and payable by the customer, assuming all other revenue recognition criteria have been met. If at the
outset of an arrangement we determine that collectibility is not probable, then revenue is deferred until payment is received. Our license agreements typically do not provide for a right of return other than during the standard 90-day warranty period. Historically, we have not
incurred warranty expense or experienced returns of its products. If an arrangement allows for customer acceptance of the software or services, then we defer revenue recognition until the earlier of customer acceptance or when the acceptance rights lapse.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We also license software under short-term time-based licenses, which generally include maintenance during the license period. License and maintenance revenue related to these arrangements is recognized ratably over the license term. Revenue for multiyear time-based
licenses that include maintenance, whether separately priced or not, is recognized ratably over the license term unless a substantive maintenance renewal rate exists, in which case the residual amount is recognized as software revenue when the basic criteria in SOP 97-2 have
been met.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our initial maintenance term is generally in the range of one to five years, renewable by the customer on an annual basis thereafter. Our customers typically prepay maintenance for periods of one to 12&nbsp;months. Maintenance revenue is deferred and recognized ratably
over the term of the maintenance contract. Should a customer on maintenance be specifically identified as a bad debtor, then we would cease recognizing maintenance revenue except to the extent that maintenance fees have already been collected.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">While the statements of work with our customers may specify multiple elements, we believe that the service elements included in our contractual arrangements with customers are not essential to the functionality of our software, which can operate in a standalone
fashion upon installation. These service elements do not include significant modification or customization of our software, but may include configuring, designing and implementing simple interfaces with other customer software, installation and configuration of third-party
software, and training in the use of both our software and third-party software. The timing of payments for software is independent of the payment terms for the service elements in our contractual arrangements with customers. In multi-element arrangements involving software
and consulting, training or other services that are not essential to the functionality of the software, the services revenue is accounted for separately from the software revenue. VSOE for services did not exist during 2004 and prior. As a result, revenue attributable to</font></p>
</div>
<p align="center"><font face="serif" size="2">39</font></p>
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<p align="left"><font face="serif" size="2">all elements in a multi-element arrangement, including software and services, in 2004 and 2003 were deferred until the related services were completed and only then recognized as revenue,
assuming VSOE exists for all other undelivered elements. In situations when revenue is deferred as a result of ongoing services, the costs associated with all delivered elements are also deferred
and recognized as expense when the services are completed. As of March&nbsp;31, 2006, December&nbsp;31, 2005 and 2004, $0, $0 and $0.5&nbsp;million, respectively, of deferred costs were included within
prepaid expenses and other current assets for such periods. In late 2004, we introduced package pricing for the various service elements of our contractual arrangements with customers, and now
recognize VSOE for service elements based on that pricing.</font></p>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Consulting, training and other services are typically sold under fixed-price arrangements and are recognized using the percentage-of-completion method based on direct labor hours incurred to date as a percentage of total estimated project costs required to complete the
project. Consulting services primarily comprise implementation support related to the installation and configuration of our products and do not typically require significant production, modification or customization of the software. In arrangements that require significant
production, modification or customization of the software and where services are not available from third-party suppliers, the consulting and license fees are recognized concurrently. When total cost estimates exceed revenue in a fixed-price arrangement, the estimated losses are
recognized immediately in cost of revenue.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The assumptions, risks and uncertainties inherent with the application of the percentage-of completion method affect the timing and amounts of revenue and expenses reported. Numerous internal and external factors can affect estimates, including direct labor rates,
utilization and efficiency variances.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Where contractual arrangements with customers include the sale of third-party software, revenue is recognized for the sale of the third-party software and the related expense is included in cost of revenue.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">In accordance with EITF Issue No.&nbsp;01-14, <i>Income Statement Characterization of Reimbursements Received for Out-of-Pocket Expenses Incurred</i>, we account for out-of-pocket expenses rebilled to customers as maintenance, consulting and training revenue with related
costs included in cost of revenue. For the three months ended March&nbsp;31, 2006 and 2005, and for the years ended December&nbsp;31, 2005, 2004 and 2003, reimbursement expenses totaled $0.1&nbsp;million, $0.1&nbsp;million, $0.4&nbsp;million, $0.4&nbsp;million and $0.3&nbsp;million, respectively.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We also generate revenue from transactions that are processed through our web portal. Fees from these transactions are billed to customers in arrears on a monthly basis and are recognized in the period in which the transactions occur.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We believe that our accounting estimates used in applying our revenue recognition are critical because:</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the determination that it is probable that the customer will pay for the products and services purchased is inherently judgmental;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the allocation of proceeds to certain elements in multiple-element arrangements is complex;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the determination of whether a service is essential to the functionality of the software is complex;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">establishing company-specific fair values of elements in multiple-element arrangements requires adjustments from time-to-time to reflect recent prices charged when each element is sold separately; and</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the determination of the stage of completion for certain consulting arrangements is complex.</font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Changes in the aforementioned items could have a material effect on the type and timing of revenue recognized.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Accounts Receivable and Allowance for Doubtful Accounts</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The majority of our accounts receivable are due from trade customers. Credit is extended based on evaluation of each customer&#146;s financial condition. Collateral is not required. Accounts receivable payment terms are typically 30 days and are stated in the financial
statements at amounts due from customers net of an</font></p>
</div>
<p align="center"><font face="serif" size="2">40</font></p>
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<p align="left"><font face="serif" size="2">allowance for doubtful accounts. Accounts outstanding longer than the payment terms are considered past due. We determine our allowance by considering a number of factors including the
length of time trade accounts receivable are past due, our previous loss history, customers&#146; current ability to pay their obligations to us and the condition of the general economy and the industry
as a whole. We write off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts.</font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Capitalized Software Research and Development Costs</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We record capitalized software costs on the balance sheet at the lower of unamortized capitalized costs or net realizable value. We capitalize purchased and internally developed software in accordance with Statement of Financial Accounting Standards, or SFAS,
No.&nbsp;86, <i>Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed.</i> We identify projects that typically represent significant improvements in features and functionality. The costs incurred in the preliminary stages of development are expensed as
research and development costs as they are incurred. Once a solution has reached the development stage where technological feasibility has been established, internal and external costs will be capitalized based upon the development hours charged against the project.
Amortization begins and capitalization ends when the product is available for general release to our customers. Annual amortization of capitalized software costs is the greater of the amount computed using (i) the ratio that the current gross revenue for a product bears to the
total of current and anticipated future gross revenue for that product or (ii) on a straight-line basis over the estimated economic life of the product, which ranges from three to five years. We evaluate the useful lives of these assets quarterly and test for impairments whenever
events or changes in circumstances occur that could impact the recoverability of these assets.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Stock-Based Compensation</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Prior to January&nbsp;1, 2006, stock-based
    compensation was measured in accordance with the provisions of SFAS No. 123, <i>Accounting
    for Stock-Based Compensation</i>, which permitted companies to continue to
    apply the provisions of Accounting Principles Board Opinion,
or APB, No.&nbsp;25, <i>Accounting for Stock Issued to Employees,</i> and related
interpretations including Financial Accounting Standards Board, or FASB, Interpretation
No.&nbsp;44, <i> Accounting for Certain Transactions Involving Stock Compensation,
an Interpretation of APB Opinion
No.</i>&nbsp;<i>25, </i>using the intrinsic value method. Under this method,
compensation expense is measured as the excess, if any, of the fair market value
of our common stock at the date of the grant over the exercise price of the option.
In accordance with the provisions of SFAS No.
123 and SFAS No. 148, <i>Accounting for Stock-Based Compensation &#150; Transition
and Disclosure</i>, we disclosed pro forma results of operations as if the minimum
value-based method had been applied in measuring compensation expense for stock-based
incentive awards. Although  our board of directors used their best estimate of
the fair value of our stock price, and made grants of stock options
in 2003, 2004, and 2005 with exercise prices equal to those estimates of fair
value, a subsequent independent appraisal of our common stock&#146;s
value on the grant dates resulted in recognizing stock-based compensation expense
in our Consolidated Statement of Operations for the years ended December 31,
2005, 2004, and 2003 in the amounts of $0.3 million, $21,000 and $0, respectively
for the difference between the fair market value of the underlying common stock
on
the
date of grant and the option exercise price for options granted under our Amended
and Restated Stock
Option Plan.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">As required by FASB under SFAS No.&nbsp;123R, <i>Share-Based
      Payment</i>, effective January&nbsp;1, 2006, we adopted the fair value
      recognition provisions of SFAS 123R which requires us to apply the provisions
      of SFAS 123R to new awards granted, and to awards modified,  repurchased,
      or cancelled after the effective date. We will recognize stock-based compensation
      expense under a fair value computation effective January&nbsp;1, 2006.
      The fair value of stock options will be recognized as expense in our financial
      statements over the remaining  vesting period of the stock options. The
      adoption of SFAS No.&nbsp;123R resulted in $0.1&nbsp;million of expense
      in the first quarter of 2006, based upon options outstanding as of December&nbsp;31,
      2005 and the options granted in the first quarter of 2006. In addition,
      the adoption of this  standard will result in difficulties comparing our
      operating results for future periods to those of our prior periods, since
      prior periods through 2005 will not reflect stock-based compensation expense
      under SFAS No.&nbsp;123R.</font></p>
</div>
<p>&nbsp;</p>
<p align="center"><font face="serif" size="2">41</font></p>
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<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Accounting for Preferred Shares and Derivative Shares</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We account for our preferred stock and related instruments in accordance with EITF Issue No.&nbsp;00-19, <i>Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company&#146;s Own Stock</i>; EITF Issue No.&nbsp;98-5, <i>Accounting for Convertible
Securities with Beneficial Conversion Features or Contingent Adjustable Conversion Ratios</i>; EITF Issue No.&nbsp;00-27, <i>Application of Issue No.</i>&nbsp;<i>98-5 to Certain Convertible Instruments</i>; SFAS No. 133, <i>Accounting for Derivative Instruments and Hedging Activities</i>; and other
applicable professional standards. Preferred stock issued at a discount from the common fair value at the commitment date, i.e., the difference between the fair value of the common stock and the conversion price multiplied by the number of shares issuable upon conversion, is
recognized as a beneficial conversion option in accordance with EITF Issue No.&nbsp;00-27. The beneficial conversion feature is recorded as a deemed dividend and will be amortized over the period from the issue date to the conversion date. The conversion option embedded in the
preferred stock is accounted in accordance with EITF Issue No.&nbsp;00-19 and recorded as liabilities and marked-to-market at each reporting period.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Accounting for Income Taxes</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We account for income taxes in accordance with SFAS No.&nbsp;109, <i>Accounting for Income Taxes,</i> under the asset-and-liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Any change in the enacted tax rate and its effect on deferred assets and liabilities is recognized in the period that includes the enactment date. A valuation allowance is recorded against deferred tax assets if it is more likely
than not that such assets will not be realized.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The realization of deferred tax assets is evaluated quarterly by assessing the valuation allowance and by adjusting the amount of the allowance, if necessary. The factors used to assess the likelihood of realization are the forecast of future taxable income, the remaining
time period to utilize any tax operating losses and tax credits, and available tax planning strategies that could be implemented to realize deferred tax assets.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We operate within multiple state taxing jurisdictions and are subject to audit in each jurisdiction. No audits have been made to date, and, any audit may require an extended period of time to resolve. In our opinion, adequate provisions for income taxes have been made
for all periods.</font></p>
</div>
<p align="center"><font face="serif" size="2">42</font></p>
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<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Consolidated Results of Operations</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The following table sets forth key components of our results of operations for the periods indicated as a percentage of total revenue:</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="5" align="center" valign="bottom"><font face="serif" size="1"><b>Three Months Ended March</b>&nbsp;<b>31,</b><br>
<hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="8" align="center" valign="bottom"><font face="serif" size="1"><b>Year Ended December</b>&nbsp;<b>31,</b><br>
<hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2006</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2005</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2005</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2004</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2003</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="5" align="center" valign="bottom"><font face="serif" size="1"><b>(unaudited)</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2"><i>Revenue</i></font></div></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%"><font face="serif" size="2">Term license revenue</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">5</font></td>
    <td valign="bottom"><font face="serif" size="2">%</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">11</font></td>
    <td valign="bottom"><font face="serif" size="2">%</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">25</font></td>
    <td valign="bottom"><font face="serif" size="2">%</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">22</font></td>
    <td valign="bottom"><font face="serif" size="2">%</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">12</font></td>
    <td valign="bottom"><font face="serif" size="2">%</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Subscription, maintenance and<br>
transaction fees</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">60</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">59</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">45</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">53</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">61</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%"><font face="serif" size="2">Professional services</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">35</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">30</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">30</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">25</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">27</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:9%; text-indent:-3%"><font face="serif" size="2">Total revenue</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">100</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">100</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">100</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">100</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">100</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Cost of revenue</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">40</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">55</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">40</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">47</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">45</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Gross margin</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">60</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">45</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">60</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">53</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">55</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2"><i>Operating expenses</i></font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%"><font face="serif" size="2">Sales and marketing</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">25</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">21</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">20</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">17</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">16</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%"><font face="serif" size="2">Research and development</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">18</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">10</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">7</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">12</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">19</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%"><font face="serif" size="2">General and administrative</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">28</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">30</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">25</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">22</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">21</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:9%; text-indent:-3%"><font face="serif" size="2">Total operating expenses</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">71</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">61</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">52</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">51</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">56</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">(Loss) income from operations</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(11</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(16</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">8</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(1</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">(Gain)
          loss on change
          in fair value of redeemable convertible preferred stock conversion
          options</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(2</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(2</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="serif">11</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">6</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Interest
          expense, net</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Loss before benefit for income taxes</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(10</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(15</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(4</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(5</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(2</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Benefit for income taxes</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">5</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">7</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">17</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Net
          (loss) income</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(5</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(8</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="serif">13</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(5</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(2</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Accretion of convertible preferred shares and redeemable convertible preferred shares</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(9</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(11</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(16</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(10</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(16</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="2">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="2">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="2">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="2">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="2">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Loss available to common shareholders</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(14</font></td>
    <td valign="bottom"><font face="serif" size="2">)%</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(19</font></td>
    <td valign="bottom"><font face="serif" size="2">)%</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(3</font></td>
    <td valign="bottom"><font face="serif" size="2">)%</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(15</font></td>
    <td valign="bottom"><font face="serif" size="2">)%</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(18</font></td>
    <td valign="bottom"><font face="serif" size="2">)%</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><div align="left"><font face="serif" size="2"><b>Comparison of Three Months Ended March</b>&nbsp;<b>31, 2006 and 2005</b></font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Revenue</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Consolidated revenue increased 47% to $8.8&nbsp;million for the three months ended March&nbsp;31, 2006 from $6.0&nbsp;million for the three months ended March&nbsp;31, 2005. The $2.8&nbsp;million increase is due to an increase in subscription fees for our Analytics and Disease
Management module and our Clinical Rules and Processes module, an increase in transaction fees for authorizations and referrals transmitted over Transactions and Information Exchange module and an increase in the volume of professional services fees for work during the
three months ended March&nbsp;31, 2006 over the three months ended March&nbsp;31, 2005.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Cost of Revenue</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Cost of revenue increased 9% to $3.6&nbsp;million for the three months ended March&nbsp;31, 2006 from $3.3&nbsp;million for the three months ended March&nbsp;31, 2005. This increase is due primarily to increased personnel and related costs in our professional services operations to
support the increased volume of services work and an increase in personnel and related costs in our client support operations due to an increased customer base.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Gross Margin</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Gross margin increased 96% to $5.3&nbsp;million for the three months ended March&nbsp;31, 2006 from $2.7&nbsp;million for the three months ended March&nbsp;31, 2005. As a percentage of revenue, gross margin increased to 60% for the three months ended March&nbsp;31, 2006 from 45%
for the three months ended March&nbsp;31, 2005. This increase is due primarily to increased operational efficiency in our professional services operation as</font></p>
</div>
<p align="center"><font face="serif" size="2">43</font></p>
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<page>
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<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="left"><font face="serif" size="2">well as a higher proportion of revenue derived from solution licenses and transaction fees, which have a higher gross margins than revenue from professional services.</font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Sales and Marketing</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Sales and marketing expenses increased 69% to $2.2&nbsp;million for the three months ended March&nbsp;31, 2006 from $1.3&nbsp;million for the three months ended March&nbsp;31, 2005. The $0.9&nbsp;million increase is primarily attributable to increased personnel and personnel-related
costs in the sales and product marketing operations and increased travel and travel related expenses.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Research and Development</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Research and development expenses
    increased 167% to $1.6&nbsp;million for the three months ended March&nbsp;31,
    2006 from $0.6&nbsp;million for the three months ended March&nbsp;31, 2005.
    This $1.0&nbsp;million increase primarily reflects increased personnel and
    personnel-related  costs and increased independent contractor costs. For
    the three months ended March&nbsp;31, 2006, we capitalized $0.3&nbsp;million
    of software development costs related to specific projects which will add
    new product features and functionality, a decrease of 25% from $0.4&nbsp;million

capitalized for the three months ended March&nbsp;31, 2005. Total research and
development expenditures increased 90% to $1.9&nbsp;million (including capitalized
software development costs of $0.3 million) for
the
three
months
ended March&nbsp;31, 2006 from $1.0&nbsp;million (including capitalized
software development costs of $0.4 million) for the three months ended March&nbsp;31,
2005.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>General and Administrative</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">General and administrative expenses increased 39% to $2.5&nbsp;million for the three months ended March&nbsp;31, 2006 from $1.8&nbsp;million for the three months ended March&nbsp;31, 2005. This $0.7&nbsp;million increase is due primarily to increased personnel and personnel-related
costs, legal and travel related costs associated with development of Collaborative Data Exchange strategic relationships, increased depreciation expense and increased personnel and personnel-related costs within corporate data and communications support. In addition,
approximately $0.1&nbsp;million is included in general and administrative expenses in the first quarter of 2006 related to stock compensation expense and the adoption of SFAS No.&nbsp;123R, <i>Share Based Payment</i>, as of January&nbsp;1, 2006.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>(Gain) Loss on Change
              in Fair Value of Redeemable Convertible Preferred Stock Conversion Options</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The fair value of conversion options
    changed by $40,000 to $158,000 for the three months ended March 31, 2006
    from a $118,000 decrease for the three months ended March 31, 2005. The change
  resulted from the increase in the fair value of the conversion options calculated
    using the Black-Scholes model.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Interest
              Expense, net</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Interest expense, net increased 46%
    to $60,000 for the three months ended March&nbsp;31, 2006 from $41,000 for
    the three months ended March&nbsp;31, 2005. This $19,000 increase is attributable
    to higher overall average borrowings outstanding as well as higher average
    costs of
borrowing for the three months ended March&nbsp;31, 2006 compared to the three
months ended March&nbsp;31, 2005.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Provision for Income Taxes</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We project our taxable income for the year ending December&nbsp;31, 2006 by calculating our effective tax rate for the period. For interim period reporting purposes, we calculate an income tax provision (benefit) using the effective tax rate for the full-year.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Comparison of Years Ended December</b>&nbsp;<b>31, 2005 and 2004</b></font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Revenue</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Consolidated revenue increased 38% to $38.6&nbsp;million for the year ended December&nbsp;31, 2005 from $28.0&nbsp;million for the year ended December&nbsp;31, 2004. The $10.6&nbsp;million increase in consolidated revenue was</font></p>
</div>
<p align="center"><font face="serif" size="2">44</font></p>
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<page>
<a name="p45"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="left"><font face="serif" size="2">primarily attributable to an increase
    in the number and average size of sales of our Integrated Medical Management
    suite closed during 2005 compared to 2004, an increase in professional  services
    fees attributable to increased volume of services work for existing customers
    and an increase in transaction fees and hosting revenue. Term license revenue
    increased 55% for the year
ended December&nbsp;31, 2005 over the year ended December&nbsp;31, 2004 primarily
resulting from the sale of our complete Integrated Medical Management suite to
a large healthcare insurance  company. Revenue derived from transaction fees
and hosting fees increased 76% for the year ended December&nbsp;31, 2005 over
the year ended December&nbsp;31, 2004 due to the sale of our solutions
to several customers on a hosted basis and an increase in the volume of authorizations
and referrals transmitted over the Transactions and Information Exchange module.</font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Cost of Revenue</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Cost of revenue increased 17% to $15.3&nbsp;million for the year ended December 31, 2005 from $13.1&nbsp;million for the year ended December&nbsp;31, 2004. The $2.2&nbsp;million increase is primarily attributable to increases in personnel and personnel-related costs and costs of
independent contractors in the professional services operation and increased amortization of capitalized software costs. The increase in personnel was required to support the increase in professional services business.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Gross Margin</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Gross margin increased 55% to $23.3&nbsp;million
    for the year ended December&nbsp;31, 2005 from $15.0&nbsp;million for the
    year ended December&nbsp;31, 2004. As a percentage of revenue, gross margin
    increased to 60% for the year ended December&nbsp;31, 2005 from 53% for the
    year
ended December&nbsp;31, 2004. The increase is attributable to a higher proportion
of revenue derived from solution licenses and transaction fees, which have a
higher gross margin than revenue for professional services. In addition, gross
margins on professional services improved  over 2004 reflecting improved operational
efficiency.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Sales and Marketing</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Sales and marketing expenses increased 66% to $7.8&nbsp;million for the year ended December&nbsp;31, 2005 from $4.7&nbsp;million for the year ended December&nbsp;31, 2004. The $3.1&nbsp;million increase is attributable primarily to increased commission expense due to the increase in
consolidated revenue in 2005 over 2004, increased sales personnel and personnel-related costs resulting from the reorganization of our sales organization and creation of a sales team focused on cross-selling, increased travel-related expenditures and increased trade show
expenses and other marketing-related costs.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Research and Development</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Research and development expenses
    decreased 19% to $2.6&nbsp;million for the year ended December&nbsp;31, 2005
    from $3.2&nbsp;million for the year ended December&nbsp;31, 2004. The net
    decrease of $0.6&nbsp;million reflects an increase in capitalization of software
    development  partially offset by increased development efforts adding new
    product features and functionality prior to establishing technological feasibility,
    which required increased personnel and personnel related costs as well as
    increased use of independent contractors. For the year ended
December&nbsp;31, 2005, we capitalized $2.0&nbsp;million of software development
costs, an increase of $1.1&nbsp;million over the $0.9&nbsp;million of software
development costs capitalized for the year ended December&nbsp;31, 2004. Total
research and development expenditures for the year
ended December&nbsp;31, 2005 were $4.6&nbsp;million (including capitalized software
development costs of $2.0 million) in
aggregate,
a
12%,
or
$0.5&nbsp;million increase over total research and development expenditures of
$4.1&nbsp;million (including capitalized software development costs of $0.9 million)
for
the
year
ended
December&nbsp;31,
2004.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>General and Administrative</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">General and administrative expenses
    increased 54% to $9.7&nbsp;million for the year ended December&nbsp;31, 2005
    from $6.3&nbsp;million for the year ended December&nbsp;31, 2004. The $3.4&nbsp;million
    increase is primarily attributable to the accrual of a special incentive
    pool of
$1.1&nbsp;million based upon our results of operations for the year ended December&nbsp;31,
2005, the creation of a strategic business development operation focused on developing
Collaborative Care Management opportunities, increased travel-related expenses
(primarily</font></p>
</div>
<p align="center"><font face="serif" size="2">45</font></p>
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<p align="left"><font face="serif" size="2">attributable to the strategic business development operation), increased facilities and facilities-related expenses, increased depreciation related to increased capital expenditures, increased
recruiting and retention costs and increased corporate data and communication costs.</font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>(Gain)
              Loss on Change in Fair Value of Redeemable Convertible Preferred
              Stock Conversion Options</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The fair value of conversion options
    changed by $2.4 million to $4.3 million for the year ended December 31,
    2005 from $1.9 million for the year ended December 31, 2004. The change
    resulted from the change in the fair value of the conversion options calculated
    using the Black-Scholes model.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Interest
              Expense, net</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Interest expense, net increased 57%
    to $274,000 for the year ended December&nbsp;31, 2005 from $175,000 for the
    year ended December&nbsp;31, 2004. The $99,000 increase is attributable to
    increased average borrowings for capital expenditures, primarily through
    capital leases,  offset by lower average borrowings for working capital and
    secondarily to increased average interest rates on borrowings in 2005 compared
    to 2004.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Provision for Income Taxes</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We realized an income tax benefit
    of $6.5 million for the year ended December 31, 2005 as compared to no provision
    or benefit for the year ended December 31, 2004. The $6.5 million increase
    was primarily attributable to the utilization of our net operating loss carryforward
    and the reduction in our tax valuation allowance of approximately $7.5 million
    with a consequent increase in our net deferred tax asset of $6.5 million.
    These changes resulted from management&#146;s evaluation of our positive
    and negative evidence bearing upon  the ability to realize our deferred tax
    assets and we believe that it is more likely than not that we will realize
    a portion of the benefits of federal and state tax assets.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Comparison of Years Ended December</b>&nbsp;<b>31, 2004 and 2003</b></font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Revenue</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Consolidated revenue increased 37% to $28.0&nbsp;million for the year ended December&nbsp;31, 2004 from $20.5&nbsp;million for the year ended December&nbsp;31, 2003. The $7.5&nbsp;million increase is attributable to an increase in the number and average size of sales of our Integrated
Medical Management suite closed during 2004 compared to 2003, the recognition of fees from term licenses entered into during 2003 but only recognized in 2004 when all services work was completed, an increase in the volume of authorizations and referrals transmitted over
the Transactions and Information Exchange module resulting from new contracts closed in 2003 and an increase in volume of professional services work in 2004.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Cost of Revenue</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Cost of revenue increased 41% to
    $13.1&nbsp;million for the year ended December&nbsp;31, 2004 from $9.3&nbsp;million
    for the year ended December&nbsp;31, 2003. The $3.8&nbsp;million increase
    is due to increased personnel and personnel-related costs and increased independent
    contractor  costs in the professional services operation, increased costs
    of third-party software fees required for new sales of our Advanced Medical
    Management module closed in 2004 and increased personnel and personnel-related
    costs in product support operations.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Gross Margin</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Gross margin increased 34% to $15.0&nbsp;million
    for the year ended December&nbsp;31, 2004 from $11.2&nbsp;million for the
    year ended December&nbsp;31, 2003. As a percentage of revenue, gross margin
    decreased to 53% for the year ended December&nbsp;31, 2004 from 55% for the

year ended December&nbsp;31, 2003. The decrease in gross margin as a percentage
of revenue reflects reduced productivity within the professional services operations,
partially offset by a higher proportion of revenue derived from solution licenses
and transaction fees which have a  higher gross margin than revenue for professional
services.</font></p>
</div>
<p>&nbsp;</p>
<p align="center"><font face="serif" size="2">46</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
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<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Sales and Marketing</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Sales and marketing expenses increased 47% to $4.7&nbsp;million for the year ended December&nbsp;31, 2004 from $3.2&nbsp;million for the year ended December&nbsp;31, 2003. The $1.5&nbsp;million increase is attributable to increased sales commissions associated with the increased
revenue, additional sales personnel and personnel-related costs, increased travel-related costs for the sales group and increased trade show and other marketing costs.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Research and Development</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Research and development expenses
    decreased 18% to $3.2&nbsp;million for the year ended December&nbsp;31, 2004
    from $3.9&nbsp;million for the year ended December&nbsp;31, 2003. The net
    decrease of $0.7&nbsp;million reflects increased development efforts adding
    new product features  and functionality prior to establishing technological
    feasibility, which required increased personnel and personnel related costs
    as well as increased use of independent contractors, both offset by increased
    capitalized software development. For the year ended December&nbsp;31,
2004, we capitalized $0.9&nbsp;million of software development costs. For the
year ended December&nbsp;31, 2003, we did not capitalize any software development
costs. We began offering our Integrated Medical Management suite in early 2003
and our research and development  operation was focused primarily on maintenance
of the new product offering. Total research and development expenditures for
the year ended December&nbsp;31, 2004 aggregated $4.1&nbsp;million (including
capitalized software development costs of $0.9 million),
a
5%,
or
$0.2&nbsp;million increase over total research and development expenditures of

$3.9&nbsp;million for the year ended December&nbsp;31, 2003.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>General and Administrative</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">General and administrative expenses increased 47% to $6.3&nbsp;million for the year ended December&nbsp;31, 2004 from $4.3&nbsp;million for the year ended December&nbsp;31, 2003. The $2.0&nbsp;million increase was due to the addition of a Chief Medical Officer to our executive team,
increased recruiting costs, increased depreciation expense associated with capital purchases, a general increase in corporate, finance, human resource and administrative personnel and personnel related costs.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>(Gain)
              Loss on Change in Fair Value of Redeemable Convertible Preferred
              Stock Conversion Options</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The fair value of conversion options
    was $1.9 million for the year ended December 31, 2004
    compared to a $42,000 gain for the year ended December 31, 2003. The
    increase resulted
    from the increase in the fair value of the
  conversion option calculated using the Black-Scholes model.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Interest
              Expense, net</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Interest expense, net decreased 30%
    to $175,000 for the year ended December&nbsp;31, 2004 from $249,000 for the
    year ended December&nbsp;31, 2003. The $74,000 net decrease reflects lower
    average borrowings under our working capital facility partially offset by
    higher average
borrowings for capital expenditures.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Provision for Income Taxes</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We made no provision for income taxes in 2003 or 2004.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Unaudited Quarterly Statements of Operations</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The following tables present our unaudited quarterly results of operations for each of the nine quarters beginning March&nbsp;31, 2004 and ending March&nbsp;31, 2006. You should read the following table in conjunction with our audited consolidated financial statements and
related notes appearing at the end of this prospectus. We have prepared the unaudited information on a basis consistent with our audited consolidated financial statements and have included all adjustments, which, in the opinion of management, are necessary to fairly present
our operating results for the quarters presented. Our historical unaudited quarterly results of operations are not necessarily indicative of results for any future quarter or for a full year.</font></p>
</div>
<p align="center"><font face="serif" size="2">47</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
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<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="27" align="center" valign="bottom"><font face="serif" size="1"><b>Three Months Ended</b><br>
<hr noshade size="1"></font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Mar. 31,</b><br>
<b>2006</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Dec. 31,</b><br>
<b>2005</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Sept. 30,</b><br>
<b>2005</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>June</b>&nbsp;<b>30,</b><br>
<b>2005</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Mar. 31,</b><br>
<b>2005</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Dec. 31,</b><br>
<b>2004</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Sept. 30,</b><br>
<b>2004</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>June</b>&nbsp;<b>30,</b><br>
<b>2004</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Mar. 31,</b><br>
<b>2004</b></font></td>
    <td align="left" valign="bottom">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="27" align="center" valign="bottom"><font face="serif" size="1"><b>(unaudited)</b><br>
<b>(in thousands)</b></font></td>
  </tr>
  <tr valign="bottom" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1"><b>Consolidated Statement of Operations Data:</b></font></div></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="6%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="6%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="6%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="6%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="6%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="6%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="6%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="6%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="6%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%" align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1"><i>Revenue</i></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td><div style="margin-left:3%"><font face="serif" size="1">Term license revenue</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">415</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">2,862</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">5,032</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">1,183</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">652</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">797</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">2,279</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">2,263</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">921</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#ffffff">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="1">Subscription, maintenance and transaction fees</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">5,308</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">6,226</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">3,926</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">3,493</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">3,542</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">3,623</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">3,695</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">3,390</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">3,958</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td><div style="margin-left:3%"><font face="serif" size="1">Professional services</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">3,103</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">5,076</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">2,805</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">2,013</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">1,786</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">1,867</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">2,568</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">1,434</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">1,233</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#ffffff">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td><div style="margin-left:6%"><font face="serif" size="1">Total revenue</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">8,826</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">14,164</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">11,763</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">6,689</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">5,980</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">6,287</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">8,542</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">7,087</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">6,112</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Cost of revenue</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">3,555</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">4,583</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">4,076</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">3,388</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">3,268</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">3,341</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">3,536</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">3,065</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">3,130</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#ffffff">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Gross margin</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">5,271</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">9,581</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">7,687</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">3,301</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">2,712</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">2,946</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">5,006</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">4,022</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">2,982</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#ffffff">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1"><i>Operating expenses</i></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td><div style="margin-left:3%"><font face="serif" size="1">Sales and marketing</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">2,205</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">2,444</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">2,238</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">1,846</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">1,250</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">1,081</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">1,179</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">1,455</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">953</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#ffffff">
    <td><div style="margin-left:3%"><font face="serif" size="1">Research and development</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">1,561</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">676</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">580</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">771</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">600</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">946</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">738</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">711</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">848</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td><div style="margin-left:3%"><font face="serif" size="1">General and administrative</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">2,475</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">3,980</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">2,005</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">1,918</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">1,804</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">1,705</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">1,658</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">1,557</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">1,400</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#ffffff">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td><div style="margin-left:6%"><font face="serif" size="1">Total operating expenses</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">6,241</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">7,100</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">4,823</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">4,535</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">3,654</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">3,732</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">3,575</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">3,723</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">3,201</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#ffffff">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">(Loss) income from operations</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(970</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">2,481</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">2,864</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(1,234</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(942</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(786</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">1,431</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">299</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(219</font></td>
    <td align="left"><font face="serif" size="1">)</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">(Gain) loss on change in fair value of redeemable convertible preferred stock conversion options</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(158</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(183</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">4,788</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(153</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(118</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(123</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">1,987</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(6</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(8</font></td>
    <td align="left"><font face="serif" size="1">)</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Interest
    expense, net</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">60</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">100</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">78</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">55</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">41</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">56</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">51</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">39</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">29</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#ffffff">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">(Loss)
    income before benefit for income taxes</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(872</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">2,564</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(2,002</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(1,136</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(865</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(719</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(607</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">266</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(240</font></td>
    <td align="left"><font face="serif" size="1">)</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Benefit for income taxes</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">416</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">4,503</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">1,095</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">507</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">386</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#ffffff">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Net (loss) income</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">(456</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">7,067</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">(907</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">(629</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">(479</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">(719</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">(607</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">266</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">(240</font></td>
    <td align="left"><font face="serif" size="1">)</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#ffffff">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Accretion of convertible preferred shares and redeemable convertible preferred shares</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(821</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(821</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(4,117</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(644</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(644</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(644</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(644</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td>&nbsp;</td>
    <td align="right"><font face="serif" size="1">(852</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(843</font></td>
    <td align="left"><font face="serif" size="1">)</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#ffffff">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">(Loss) income available to common shareholders</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">(1,277</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">6,246</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">(5,024</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">(1,273</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">(1,123</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">(1,363</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">(1,251</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">(586</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">(1,083</font></td>
    <td align="left"><font face="serif" size="1">)</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#ffffff">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">(Loss)
    income per share available to common shareholders, basic</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">(0.19</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">0.96</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">(0.78</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">(0.19</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">(0.17</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">(0.21</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">(0.20</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">(0.09</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">(0.17</font></td>
    <td align="left"><font face="serif" size="1">)</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#ffffff">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Income (loss)
          per share available to common shareholders, diluted</font></div>
    </td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td>&nbsp;</td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">0.22</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td>&nbsp;</td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td>&nbsp;</td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td>&nbsp;</td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td>&nbsp;</td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td>&nbsp;</td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td>&nbsp;</td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#ffffff">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Weighted
          average shares used to compute (loss) income available to common shareholders
          per common shareholder, basic and diluted</font></div>
    </td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">6,549,699</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">6,498,829</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">6,445,686</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">6,445,643</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">6,441,869</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">6,435,536</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">6,427,538</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">6.358,508</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">6,222,090</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#ffffff">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td><div style="margin-left: 3%; text-indent: -3%"><font face="serif" size="1">Weighted
          average shares used to compute (loss) income available to common shareholders-diluted</font></div>
    </td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td align="right"><font face="serif" size="1">6,549,699</font></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td align="right"><font face="serif" size="1">28,684,063</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td>&nbsp;</td>
    <td align="right"><font face="serif" size="1">6,445,686</font></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td align="right"><font face="serif" size="1">6,445,643</font></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td align="right"><font face="serif" size="1">6,441,869</font></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td align="right"><font face="serif" size="1">6,435,536</font></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td align="right"><font face="serif" size="1">6,427,538</font></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td align="right"><font face="serif" size="1">6,358,508</font></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td align="right"><font face="serif" size="1">6,222,090</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#ffffff">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="2">
    </font></td>
    <td align="left">&nbsp;</td>
  </tr>
</table>
<p align="left"><font face="serif" size="2">&nbsp;</font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Comparison of Unaudited Quarterly Results</b></font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Revenue</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our total consolidated revenue has increased over the periods presented based on new sales of our Integrated Medical Management suite and increased utilization of the solutions from which we derive transaction fees. Our total consolidated revenue has varied from
quarter to quarter based on new sales and renewals of term licenses for our Advanced Medical Management module and the volume of services work contracted from both existing and new customers.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Cost of Revenue</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our cost of revenue has varied on a quarterly basis reflecting third-party software fee costs associated with new sales of our Advanced Medical Management module, amortization of capitalized software as projects are completed and software is deployed for general use
and the addition of personnel and/or independent contractors to support the contracted services revenue.</font></p>
</div>
<p>&nbsp;</p>
<p align="center"><font face="serif" size="2">48</font></p>
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<div style="page-break-before:always"></div>
<page>
<a name="p49"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Gross Margin</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our gross margins have varied on a quarterly basis primarily due to the mix of revenue and the proportion of license revenue and transaction fees to the total revenue for the quarter and the impact of training and other non-billable time of resources added to the
professional services operations.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Sales and Marketing</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Sales and marketing expenses have generally increased over the periods presented due to the addition of sales and product marketing personnel. Quarterly fluctuations are the result of the timing of marketing expenditures and sales commission expense associated with
license revenue recognized during the quarter.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Research and Development</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Research and development expenses have generally increased over the periods presented due to the increased focus on new product features and functionality and the associated addition of personnel and independent consultants.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>General and Administrative</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">General and administrative expenses have generally increased over the periods presented reflecting expansion of executive management, addition of strategic business development operations, increased costs of recruiting staff for the entire organization, increased
facilities cost and increased depreciation expense. In the three months ended December&nbsp;31, 2005, we recorded an accrual of $1.1&nbsp;million for a special incentive, based upon our results of operations for the year ended December&nbsp;31, 2005.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Liquidity and Capital Resources</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Since our inception, we financed
    our operations primarily through internally generated cash flows, borrowings
    from banks and the issuance of preferred stock. As of December&nbsp;31, 2005,
    we had cash of $2.4&nbsp;million and receivables of $10.4&nbsp;million. As
    of
December&nbsp;31, 2005, we had no borrowings under our bank working capital line
and had $3.8&nbsp;million in total capital equipment financing, primarily capital
leases, outstanding. As of December&nbsp;31, 2005, we had accumulated dividends
on our preferred stock of $14.5&nbsp;million.
In connection with this offering, all of our outstanding preferred stock will
be converted to common stock under the terms of each class&nbsp;of preferred
stock, the Series A accrued dividend as of the date of this offering will be
converted to common stock pursuant to an election  of each holder as provided
under the rights, preferences and designations of the Series A preferred stock
and the Series B and Series C accrued dividends as of the date of this offering
will be paid in cash from the proceeds of this offering.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We currently are negotiating an extension
    of our working capital line with Silicon Valley Bank that is collateralized
    by all our assets. Our borrowings under this facility will be no more than
    the lesser of $8 million or 80% of eligible receivables, as such term is
    defined  in the bank agreement, minus the total amounts then undrawn on all
    outstanding letters of credit, foreign exchange contracts, or any other accommodations
    issued or incurred by Silicon Valley Bank for our benefit. As of March&nbsp;31,
    2006, we had no borrowings outstanding  under the existing facility and our
    maximum borrowing availability was $3.0&nbsp;million. We will also have a
    $1.0&nbsp;million equipment line of credit with Silicon Valley Bank that
    is collateralized by our assets. Borrowings under this line are for capital
    equipment and advances are  made during a calendar quarter. At the end of
    each calendar quarter, all advances are converted to a thirty-month amortizing
    term loan. As of March&nbsp;31, 2006, we had $0.2&nbsp;million in capital
    equipment financing under the existing facility. Although our credit agreement
    with
Silicon Valley Bank expired on June&nbsp;30, 2006, we currently are negotiating
an extension of this facility and expect to execute a final agreement based on
an executed term sheet in the near future.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Operating Activities</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Net cash provided by operating activities was $2.9&nbsp;million and $2.2&nbsp;million for the three months ended March&nbsp;31, 2006 and 2005, respectively. Net cash provided from operating activities for the three months</font></p>
</div>
<p align="center"><font face="serif" size="2">49</font></p>
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<p align="left"><font face="serif" size="2">ended March&nbsp;31, 2006 consisted
    of a net loss of $0.5&nbsp;million, offset by non-cash depreciation and amortization
    of $0.5&nbsp;million, an increase of $1.6&nbsp;million in deferred revenue
    and by changes in working capital. Net cash provided by operating activities
    for the three months ended March&nbsp;31, 2005 consisted of a net loss of
    $0.5&nbsp;million, offset by non-cash depreciation and amortization
of $0.5&nbsp;million, an increase in deferred revenue of $2.4&nbsp;million and
by changes in working capital.</font></p>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Net cash provided by operating activities
    was $5.7&nbsp;million and $2.5&nbsp;million for the years ended December&nbsp;31,
    2005 and 2004, respectively. Net cash provided from operating activities
    for the year ended December&nbsp;31, 2005 primarily resulted from net income
    of
$5.1&nbsp;million, plus non-cash depreciation and amortization of $2.1&nbsp;million,
and an increase in deferred revenue of $3.7&nbsp;million, partially was offset
by changes in working capital of $5.2&nbsp;million. Net cash provided from operations
for the year ended December&nbsp;31, 2004
consisted of a net loss of $1.3&nbsp;million, offset by non-cash depreciation
and amortization of $1.9&nbsp;million and an increase in deferred revenue of
$2.0&nbsp;million,
partially offset by changes in working capital of $0.1&nbsp;million.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Investing Activities</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Net cash used in investing activities
    was $0.5&nbsp;million and $0.5&nbsp;million for the three months ended
    March&nbsp;31,
    2006 and 2005, respectively. Net cash used in investing activities for the
    three months ended March&nbsp;31, 2006 related to development activities
    to enhance our  product offering and the capitalization of the cost associated
    with those projects of $0.4&nbsp;million and the purchase of office equipment
    and computer equipment of $0.1&nbsp;million. Net cash used in investing activities
    for the three months ended March&nbsp;31, 2005, related to
development activities to enhance our product offering and the capitalization
    of the cost associated with those projects of $0.4&nbsp;million and the purchase
    of office equipment and computer equipment of $0.1&nbsp;million.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Net cash used in investing activities
    was $3.2&nbsp;million and $2.0&nbsp;million for the years ended December&nbsp;31,
    2005 and 2004, respectively. Net cash used in investing activities for the
    year ended December&nbsp;31, 2005 related to development activities to enhance
    our  product offering and the capitalization of the cost associated with
    those projects of $2.0&nbsp;million, the capitalization of contingent payments
    of $0.1&nbsp;million related to the acquisition of clinical decision support
    software at the end of 2002, the capitalization of software developed  by
    an independent firm of $0.8&nbsp;million and the purchase of office equipment
    and computer equipment of $0.8&nbsp;million. Net cash used in investing activities
    for the year ended December&nbsp;31,
2004 related to development activities to enhance our product offering and the
capitalization of the cost associated with those projects of $0.9&nbsp;million,
the capitalization of contingent payments related to the acquisition of clinical
decision support software at the end of 2002 of $0.3&nbsp;million and the purchase
of office equipment and computer equipment of
$0.9&nbsp;million.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Financing Activities</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Net cash used in financing activities
    was $0.3&nbsp;million for the three months ended March&nbsp;31, 2006 compared
    to net cash provided by financing activities of $0.1&nbsp;million for the
    three months ended March 31, 2005. Net cash used in financing activities
    for the three  months ended March 31, 2006 consisted of repayments against
    our capital leases outstanding and our equipment line of credit. Net cash
    provided by financing activities for the three months ended March 31, 2005
    consisted of borrowings against our equipment line of credit of
$0.2&nbsp;million partially offset by repayments against our capital leases outstanding.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Net cash used in financing activities was $0.5&nbsp;million and $0.8&nbsp;million for the years ended December&nbsp;31, 2005 and 2004, respectively. Net cash used in financing activities for the year ended December&nbsp;31, 2005 consisted of borrowings against our equipment line of
credit of $0.2&nbsp;million and repayments against our capital leases outstanding. Net cash used in financing activities for the year ended December&nbsp;31, 2004 consisted of repayments on our capital leases outstanding and repayment of borrowings on our working capital line.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We believe that our cash balances, cash flows from operations and available borrowings under our working capital line of credit, equipment line of credit and capital leases will be sufficient to satisfy our working capital and capital expenditure requirements for at least
the next 12 months. We will use</font></p>
</div>
<p align="center"><font face="serif" size="2">50</font></p>
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<page>
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<p align="left"><font face="serif" size="2">approximately $9.3 million of the estimated net proceeds of this offering to pay the accrued and unpaid dividends to the former holders of our Series B and Series C preferred stock upon the
automatic conversion of such shares to common stock upon the consummation of this offering. We intend to use the balance of the net proceeds of this offering for general corporate purposes,
including working capital needs. We believe opportunities may exist to expand our current business through strategic acquisitions and investments in technology, and we may use a portion of the
proceeds for these purposes. Changes in our operating plans, lower than anticipated revenue, increased expenses or other events, including those described in &#147;Risk Factors&#148; may cause us to
seek additional debt or equity financing on an accelerated basis. Financing may not be available on acceptable terms, or at all, and our failure to raise capital when needed could negatively
impact our growth plans, our financial condition and results of operations. Additional equity financing would be dilutive to the holders of common stock, and debt financing, if available, may
involve significant cash payment obligations and covenants or financial ratio requirements that restrict our ability to operate our business. We do not, however, have any current plans to issue
additional equity, including preferred stock, in the near future. After this offering, we expect to have cash and cash equivalents in excess of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million.</font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><div align="left"><font face="serif" size="2"><b>Contractual Obligations and Commitments</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The following table summarizes our contractual arrangements at December&nbsp;31, 2005, after giving effect to the completion of this offering, and our application of the net proceeds and the timing and effect that such commitments are expected to have on our liquidity and
cash flows in future periods:</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="17" align="center" valign="bottom"><font face="serif" size="1"><b>Payments Due by Period</b><br>
<hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2006</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2007</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2008</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2009</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2010</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Thereafter,</b><br>
<b>through 2016</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="17" align="center" valign="bottom"><font face="serif" size="1"><b>(in thousands)</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Contractual Obligations:</font></div></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%"><font face="serif" size="2">Capital leases</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,428</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,343</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">988</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font size="2" face="serif">299</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">79</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%"><font face="serif" size="2">Operating leases</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,136</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,130</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,009</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,038</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,076</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">6,874</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Note payable</font><sup><font face="serif" size="1">(1)</font></sup></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">100</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">75</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Other long term liabilities</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">22</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Third-party software agreements</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">588</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">150</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">200</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Total</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">3,247</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2,720</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2,197</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,337</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,155</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">6,874</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="100"><hr noshade size="1" align="left" width="100%"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td width="3%"><font face="serif" size="1">(1)</font></td>
    <td><div align="left"><font face="serif" size="1">Excludes interest which
          is calculated at prime (7.25% at December 31, 2005) plus 1.75%.</font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The amounts listed above for capital leases represent payments that we are required to make for equipment. If we fail to remain current with our obligations for any of these capital leases, we would be in default, and our continued failure to cure such default would
cause our remaining obligations under the defaulted capital lease to become immediately due.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The amounts listed above for operating leases represent base monthly rent on leases for office space and copier and fax equipment, and do not include required variable facility operating expense reimbursements to the landlord. If we fail to make payments on our office
space, we will be required to pay all remaining lease payments immediately.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">In May 2006, the Company entered
    into an operating lease for additional premises. The amounts listed above
    do not include base monthly rent amounts due under this lease.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We are party to a Loan and Security Agreement with Silicon Valley Bank dated July&nbsp;2, 2002 pursuant to which Silicon Valley Bank provides senior debt financing to us. Our obligations under the Loan and Security Agreement are secured by a lien on all of our assets.
In the event that we make a misrepresentation, breach a warranty or fail to perform a covenant set forth in the Loan and Security Agreement (each of which is defined in the agreement as a default), Silicon Valley Bank may, among other things, cease making loans to us,
accelerate the date for payment of all of our outstanding obligations to the bank and/or take possession of and sell all of our assets. Additionally, from and after the occurrence and during the continuance of a default, the then current interest rate on the outstanding loans under
the Loan and Security Agreement will increase by 4%. Although our credit agreement with Silicon Valley Bank expired on June&nbsp;30, 2006, we currently are</font></p>
</div>
<p align="center"><font face="serif" size="2">51</font></p>
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<p align="left"><font face="serif" size="2">negotiating an extension of this
    facility and expect to execute a final agreement based on an executed term
    sheet in
    the near future.</font></p>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The Company is party to a contract
    to purchase third-party licenses from a software vendor. The agreement expired
    on December 31, 2005; however, the agreement automatically renews on
    an annual basis, unless terminated by either party. $451 and $451 of expense
    was incurred under this agreement in 2005 and 2004 and is included in cost
    of revenue in the accompanying financial statements. Scheduled future minimum
    payments as of December 31, 2005 under this contract are $493 in 2006.</font></p>

<p align="left"><font face="serif" size="2">	The Company is party to a contract
    whereby they are obligated to make minimum royalty payments on an annual
    basis. Total minimum royalty payments under this agreement aggregate $500
    and are recorded ratably over the four year term of the agreement. The Company
    recorded $125 and $63 of expense under this agreement for the years ended
    December 31, 2005 and 2004, respectively. Scheduled future minimum payments
    under this contract are $445 as of December 31, 2005.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td><div align="left"><font face="serif" size="2"><b>Quantitative and Qualitative Disclosures About Market Risk</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in interest rates. We do not hold or issue financial instruments for
trading purposes.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Interest Rate Risk</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing risk. Some of the securities in which we may invest may be subject to market risk. This means that a change in prevailing interest rates
may cause the principal amount of the investment to fluctuate. To minimize this risk in the future, we intend to maintain our portfolio of cash equivalents and short-term investments in a variety of securities, including commercial paper, money market funds, government and
non-government debt securities, certificates of deposit and money market funds. Money market funds are not subject to market risk because the interest paid on these funds fluctuates with the prevailing interest rate. However, a decline in interest rates would result in reduced
future investment income.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our interest expense, generally, is not sensitive to changes in prevailing interest rates since the majority of our borrowings outstanding, capital leases, are at a fixed rate. Borrowings under our working capital and equipment lines of credit are subject to adjustments in
prevailing interest rates. Future increases in prevailing rates will increase future interest expense. However, we do not believe a 10% increase in prevailing interest rates will have a material effect on our interest expense.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Recent Accounting Pronouncements</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">In December 2004 the FASB issued SFAS No.&nbsp;123R, <i>Share-Based Payment</i>, which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus on transactions in which an entity obtains
employee services in share-based payment transactions. SFAS 123R is a revision to SFAS No.&nbsp;123 and supersedes APB Opinion No.&nbsp;25, <i>Accounting for Stock Issued to Employees</i>, and its related implementation guidance. SFAS No.&nbsp;123R requires companies to recognize the
fair value of stock options and other stock-based compensation to employees, including grants of employee stock options, effective January&nbsp;1, 2006. SFAS No.&nbsp;123R requires us to measure the cost of employee services received in exchange for stock compensation based upon
the grant-date fair value of the employee stock options. Incremental compensation costs arising from subsequent modifications of awards after the grant date must also be recognized as compensation expense.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Prior to January&nbsp;1, 2006, we measured stock-based compensation in accordance with APB No.&nbsp;25. Beginning January&nbsp;1, 2006, we adopted the fair value recognition provisions of SFAS No.&nbsp;123R and have reflected share-based compensation of $0.1&nbsp;million in the
results of operations for the three months ended March&nbsp;31, 2006. Based upon the stock options outstanding at December&nbsp;31, 2005 and options granted in January 2006, we will recognize compensation expense in future consolidated statements of income of approximately
$0.4&nbsp;million in each of the years ended December&nbsp;31, 2007 and 2006, respectively, based upon the option vesting schedule. Under the modified-prospective-transition method of SFAS No. 123R, results for prior periods have not been restated. The impact on our financial
condition or results of operations will depend on the number and terms of share-based payments granted in the future.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">In May 2005, the FASB issued SFAS No.&nbsp;154, <i>Accounting Changes and Error Corrections &#150; a replacement of APB Opinion No.</i>&nbsp;<i>20 and FASB Statement No.</i>&nbsp;<i>3.</i> Among other changes, SFAS No.&nbsp;154 requires that a voluntary change in accounting principle be applied
retrospectively with all prior period financial statements presented on the new accounting principle, unless it is impracticable to do so. SFAS No.&nbsp;154 also provides that (i) a change in method of depreciating or amortizing a long-lived nonfinancial asset be accounted for as a
change in estimate (prospectively) that was effected by a change in accounting principle and (ii) a correction of errors in previously issued financial statements should be termed a &#147;restatement.&#148; The new standard is effective for accounting changes and correction of errors
made in fiscal</font></p>
</div>
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<p align="left"><font face="serif" size="2">years beginning after December&nbsp;15, 2005. We do not expect adoption of SFAS No.&nbsp;154 to have a material effect on our results of operations or financial condition.</font></p>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">In June 2005, the EITF reached a
    consensus on EITF Issue No. 04-10, <i>Determining Whether to Aggregate Operating
    Segments That Do Not Meet the Quantitative Thresholds</i>. This guidance
    requires that individual operating segments that do not meet the quantitative

thresholds set forth in SFAS No.&nbsp;131, <i>Disclosure about Segments of an
Enterprise and Related Information</i>, for separate reporting may be aggregated
only if the segments meet certain requirements. These requirements are applicable
for fiscal years ending after October&nbsp;13,
2004. The adoption of EITF Issue No. 04-10 does not affect us because we currently
operate in only one segment.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">In September 2005, the EITF reached consensus on EITF Issue No. 05-02, <i>The Meaning of &#147;Conventional Convertible Debt Instrument&#148; in EITF Issue No.</i>&nbsp;<i>00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company&#146;s Own
Stock. </i>EITF Issue No. 05-02 is effective for new instruments entered into and instruments modified in reporting periods beginning after June&nbsp;29, 2005. The adoption of EITF Issue No. 05-02 is expected to have no impact on our financial statements.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">At the June 15-16, 2005 EITF meeting
    the EITF discussed EITF Issue No. 05-04, <i>The Effect of a Liquidated Damages
    Clause on a Freestanding Financial Instrument Subject to EITF Issue No.</i>&nbsp;<i>00-19,
    Accounting for Derivative Financial Instruments Indexed to, and  Potentially
    Settled in, a Company&#146;s Own Stock</i>. EITF Issue No. 05-04 addresses
    how a liquidated damages clause payable in cash affects the accounting for
    a freestanding financial instrument subject to the provisions of EITF Issue
    No. 00-19. The guidance discussed
(i)&nbsp;whether a registration rights penalty meets the definition of a derivative
and (ii)&nbsp;whether the registration rights agreement and the financial instrument
to which it pertains should be considered as a combined instrument or as separate
freestanding instruments. At the
September&nbsp;15, 2005 EITF meeting, the EITF postponed further deliberations
on EITF Issue No. 05-04, and the FASB staff requested that the FASB consider
a separate Derivatives Issue Guide, or DIG, issue that addresses whether a registration
rights agreement is a derivative
in accordance with SFAS No.&nbsp;133, <i>Accounting for Derivative Instruments
and Hedging.</i> Following the resolution of that DIG issue, the FASB staff will
request that the EITF reconvene deliberations on EITF Issue No. 05-04. While
EITF Issue No. 05-04 remains unresolved,  we have determined that the liquidated
damage clauses contained in our convertible note agreements have been properly
considered and accounted for in accordance with the prevailing guidance.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">In June 2006, FASB issued FASB Interpretation No.&nbsp;48, <i>Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No.</i>&nbsp;<i>109</i>, or FIN&nbsp;48, which clarifies the accounting for uncertainty in tax positions. This interpretation requires the financial
statement recognition of a tax position taken or expected to be taken in a tax return if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The provisions of FIN&nbsp;48 are effective for fiscal years beginning after
December&nbsp;15, 2006. The Company is currently evaluating the impact that the adoption of FIN&nbsp;48 will have on its financial condition and results of operations.</font></p>
</div>
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    <td><div align="left"><font face="serif" size="2"><b>Controls and Procedures and Changes in Accountants</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">On March&nbsp;14, 2006, upon the
    authorization of our board of directors acting on the recommendation of the
    audit committee of the board of directors, we selected Grant Thornton LLP
    as our independent registered public accounting firm. We did not consult
    with
    Grant  Thornton on any financial or accounting reporting matters before its
    appointment. All of the audited financial statements included in this prospectus
    have been audited by Grant Thornton.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">In connection with the audits of our financial statements for the years ended December&nbsp;31, 2005, 2004 and 2003, Grant Thornton identified and informed us that we had a material weakness (as defined under the standards established by the Public Company Accounting
Oversight Board &#150; U.S.) with respect to our accounting and reporting of certain complex transactions. As a result of this material weakness, we restated our financial statements as of and for the years ended December&nbsp;31, 2004 and 2003. Our selected financial data as of and
for the years ended December&nbsp;31, 2002 and 2001 were derived from financial statements, which we restated as a result of this material weakness and which were audited by Grant Thornton.</font></p>
</div>
<p>&nbsp;</p>
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<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">To address this material weakness and those weaknesses identified by our former independent registered public accounting firm discussed below, we have expanded our accounting staff with additional skills and experience and have begun to engage outside professionals
to provide support and guidance in areas where we cannot economically maintain the required skills and experience internally. We intend to continue the expansion of our accounting staff and engagements of outside professionals if and as we believe necessary.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">KPMG LLP (KPMG) was previously the principal accountants for the Company. On March&nbsp;14, 2006, upon the authorization of our board of directors acting on the recommendation of our audit committee, we dismissed KPMG as our independent registered public
accounting firm. The audit report of KPMG on our consolidated financial statements as of and for the year ended December&nbsp;31, 2004 did not contain any adverse opinion or disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope, or accounting
principles, except that such report contained a separate paragraph stated as follows: &#147;We also audited the adjustments described in Note&nbsp;3 to the accompanying consolidated financial statements that were applied to restate the 2003 financial statements. The consolidated
financial statements of the Company as of December&nbsp;31, 2003 were audited by other auditors whose report thereon dated February&nbsp;25, 2004, expressed an unqualified opinion on those statements, before the restatement described in Note&nbsp;3 to the consolidated financial
statements.&#148;</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">In connection with the audit of the year ended December&nbsp;31, 2004, and the subsequent interim period through March&nbsp;14, 2006, there were (i) no disagreements with KPMG on any matter of accounting principles or practices, financial statement disclosure, or auditing
scope or procedures, which disagreements, if not resolved to the satisfaction of KPMG, would have caused KPMG to make reference in connection with its report to the subject matter of the disagreements, and (ii) no reportable events of the type listed in paragraphs (A)
through (D) of Item 304(a)(1)(v) of Regulation S-K, except that KPMG reported orally to and discussed with our audit committee on December&nbsp;16, 2005 that during its audit of the consolidated financial statements as of and for the year ended December&nbsp;31, 2004, it noted
material weaknesses in internal controls related to accounting for revenue recognition, accounting for the accretion of costs and dividends related to preferred stock and accounting for income taxes. We have authorized KPMG to respond fully to any inquiries by our successor
independent registered accounting firm, Grant Thornton, regarding these material weaknesses.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">On May&nbsp;27, 2005, upon the authorization of our board of directors, acting on the recommendation of our audit committee, we dismissed Goldenberg Rosenthal, LLP and engaged KPMG as our independent registered public accounting firm. We did not consult with
KPMG on any financial or accounting reporting matters before its appointment.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">In  connection with the audit of the year ended December&nbsp;31, 2003 and the subsequent interim period through through May&nbsp;27, 2005, there were no disagreements with Goldenberg Rosenthal on any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Goldenberg Rosenthal, would have caused them to make reference thereto in their report on our financial statements for such years. The audit report of Goldenberg Rosenthal
on our consolidated financial statements as of and for the year ended December&nbsp;31, 2003 did not contain an adverse opinion or disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principle.</font></p>
</div>
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<p align="center"><font face="serif" size="2"></font><font face="serif" size="2"><b>BUSINESS</b></font></p>
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    <td><div align="left"><font face="serif" size="2"><b>Company Overview</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We are a leading provider of software, services and clinical content to healthcare payers that allow them to improve the quality and affordability of healthcare provided to their members and increase their administrative efficiency. Our Collaborative Care Management
solution analyzes data, automates payer workflow processes and electronically connects payers, providers and patients, providing them with a common view of the patient&#146;s health that helps to foster better clinical decision making. Our solution is built around a suite of modular
and easily configurable software applications and utilizes the Internet to link our payer customers to their members and their members&#146; chosen healthcare providers.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our Collaborative Care Management solution is comprised of two related suites of products &#150; Integrated Medical Management and Collaborative Data Exchange. Our Integrated Medical Management suite allows our healthcare payer customers to identify active care
management opportunities among their members and automate an intervention process based on clinical best practices. Our Integrated Medical Management suite also helps our customers reduce internal administrative costs by automating traditionally manual processes. Our
Collaborative Data Exchange suite allows our customers to securely transmit health records containing critical patient information in an easily understood format to patients and providers at the time they are making treatment decisions. We refer to these health records as
Patient Clinical Summaries, and believe that they are a critical first step to developing Electronic Health Records. In the future, we expect our Patient Clinical Summaries to integrate additional information provided by patients and a broad range of providers, thereby increasing
their value to all constituents.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">As of March&nbsp;31, 2006, our customers included approximately 56 regional and national managed care organizations, including the largest organizations in more than 27 regional markets. In the aggregate, our customers insure or manage care for approximately one out of
every six insured persons in the United States. Depending on the application, we provide our solutions on an annual subscription basis, under limited term licenses or on a per-transaction basis, both of which provide us with recurring revenue. We primarily license our solutions
through direct sales to customers in the United States. Our revenue has increased at a compound annual growth rate of 32.8% since 2001, to $38.6&nbsp;million for the year ended December&nbsp;31, 2005, from $12.4&nbsp;million for the year ended December&nbsp;31, 2001.</font></p>
</div>
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    <td><div align="left"><font face="serif" size="2"><b>Industry Overview</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The Centers for Medicare &amp; Medicaid Services, or CMS, projected that more than $2.0&nbsp;trillion was spent on healthcare in 2005, representing 16% of the U.S. Gross Domestic Product, or GDP. CMS estimates that spending will grow to $4.0 trillion by 2015, or 20% of
the GDP, representing 7.2% annual growth since 2004. Healthcare costs are increasing in part due to improvements in medical technology and medical treatments, but also because of increases in general utilization of healthcare products and services. Rising healthcare costs
negatively impact a wide array of constituencies, including federal and state governments, employers, consumers and healthcare providers. However, we believe that the broad array of healthcare payers is the most directly impacted. Payers include federal and state government
programs like Medicare, Medicaid and public employee health benefit plans, large commercial insurers and numerous other national, regional and local health plans and administrators and self-insured corporations. Rising healthcare costs consistently threaten to negatively
impact these payers.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We believe that payers have two options if they are to maintain their viability. First, payers can proactively manage the delivery of healthcare services and products to their members to improve the quality and cost of care. Second, they can offset rising healthcare costs
by reducing their internal administrative costs through efficiency gains. To the extent they are not successful at proactively managing care more effectively and reducing their internal administrative costs, payers must pass the rising cost of healthcare on to their customers and
their members. Passing on these costs ultimately threatens the payers&#146; relationships with their customers and/or members as enterprises and consumers also seek to lower their healthcare-related expenditures. Accordingly, payers are consistently seeking new strategies to more
effectively manage the care delivery process for their members and reduce their internal operating costs. According to a Gartner survey</font></p>
</div>
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<p align="left"><font face="serif" size="2">entitled &#147;Healthcare Payers&#146; IT Budgets Continue to Climb,&#148; published on April 17, 2006, health plans&#146; information technology budgets increased by over 25% on a per member basis from
2002 to 2004. We believe, based on our research, that the market for care management solutions is currently in excess of $1&nbsp;billion per year and is growing at a compound annual growth rate in
excess of 15.8%.</font></p>
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    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Overuse, underuse and misuse of medical services and treatments is widespread.</i></b></font></div></td>
  </tr>
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<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We believe that one of the material contributors to rising healthcare costs is overuse, underuse and misuse of medical services and treatments caused by providers lacking timely access to necessary patient information and providers consistently failing to apply clinical
best practices, which we refer to as poor-quality care. We believe that this combination has led to avoidable medical errors, injuries and fatalities. For example, The Institute of Medicine reported in 1999 that as many as 98,000 people die in hospitals each year as a result of
preventable medical errors. Additionally, the Institute for Healthcare Improvement found that poor communication is responsible for as many as 50% of all medication errors and up to 20% of adverse drug events in hospitals.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2"><i>Providers Generally Lack Necessary Patient Information.</i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that a primary contributor to medical errors is generally the lack of information exchange among different providers treating the same patients. Generally, providers have access to only the patient
information contained in their own files and systems. For providers seeing a patient for the first time, the information is often limited to information provided by the patient, which is generally rudimentary, incomplete or inaccurate. We believe that this issue is particularly acute
in emergency room situations where physicians need to make quick decisions about how to treat a patient, and generally lack the critical information that they need to provide the patient with optimal care. We believe that this absence of complete patient information has a
negative impact on the quality and cost of care by causing providers to misdiagnose medical conditions, prescribe medications that negatively interact with each other, and order duplicative or medically unnecessary tests and procedures.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">In an effort to address this critical roadblock to improving quality of care, in 2004, President Bush appointed a National Coordinator for Health Information Technology to develop a strategy for a national health information infrastructure. Largely as a consequence, we
believe that electronic health information networks are gaining popularity as a potential means to foster the exchange of healthcare data by linking payers, providers and patients to the same network. Both the Nationwide Health Information Network and its regional
counterparts, the Regional Health Information Organizations, depend on the existence of Electronic Health Records, or EHRs, for their success. EHRs are intended to provide a comprehensive view of a patient&#146;s health status and care history compiled from an individual
patient&#146;s information across the healthcare system. We believe that EHRs will eventually consolidate information supplied by payers (Payer Based Health Records), information supplied by providers (Electronic Medical Records, or EMRs) and information supplied by patients
(Personal Health Records, or PHRs).</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">However, an impediment to creating EHRs in the near term is the relative scarcity of detailed electronic patient data. According to a U.S. Department of Health and Human Services study, published by the Centers for Disease Control in March 2005, only 17% of
physicians were utilizing EMR systems in their practices in 2003, and under a third of hospitals were utilizing EMRs in 2002. In terms of patient-supplied data, we believe that PHRs are in their infancy. Based on our analysis of industry reports and our customers&#146; experience
with Internet applications they provide to their members, we believe that fewer than 1% of the population of the United States has created and maintains an electronic PHR for themselves and/or their families. As a result, we believe that today&#146;s only reliable source of
comprehensive patient data comes from payers, which have vast amounts of member data contained in their legacy claims processing and care management systems.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2"><i>Clinical Best Practices Are Not Universally Applied by Providers.</i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Even when physicians have a reasonably complete picture of a patient&#146;s status, physicians often do not have all of the medical information that would help them treat the patient, thereby putting the
patient&#146;s health at unnecessary risk. A wide array of medical organizations, such as the American Medical Association, American Diabetes Association and American Heart Association, consistently update clinical best practices for treatment of medical conditions and chronic
diseases. Although providers have access to this information, based on a RAND study published</font></p>
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<p align="left"><font face="serif" size="2">in the New England Journal of Medicine in June 2003, we believe that clinical best practices are not employed approximately 45% of the time. Failure to apply clinical best practices can raise
healthcare costs by decreasing the quality and cost effectiveness of the treatment. We believe that these failures occur for a variety of reasons, including provider inability to keep up with
clinical best practices due to the volume of medical conditions and diseases and the frequency that clinical best practices change.</font></p>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Given the magnitude of the challenges facing the healthcare system, the need for payers to respond to rapid increases in medical costs, and the capital requirements for information systems to address the challenges, we believe that the payers are the logical drivers of
change. Payers, however, face their own challenges.</font></p>
</div>
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    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Payers generally lack systems to effectively and efficiently address poor-quality care.</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Due to their role in the healthcare system, payers are uniquely positioned to identify poor-quality care and have an interest in improving outcomes for their members to reduce the cost of care. As the financial intermediary between the provider and patient, payers have
the opportunity to monitor the care provided to their members through active care management programs. Payers have a large volume of patient information in electronic format contained in their legacy claims processing and care management systems. However, we believe
that payers generally lack the information technology systems to play these roles effectively and efficiently. Based on our experience, we believe that payers generally rely on a combination of manual processes, third-party point solutions and proprietary systems for many
components of the care management process. As a result, we believe that these processes generally suffer from the following critical weaknesses:</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2"><i>Payers Cannot Effectively and Efficiently Identify High-Risk Patients.</i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In order for payers to identify poor-quality care, they must monitor the care provided to their members. Payers widely rely on manual processes, third-party providers or their own proprietary systems
with limited functionality and scalability to identify high-risk members. The administrative cost of using clinical staff to closely monitor every member is prohibitively expensive and materially outweighs the financial benefits. For payers to have a positive influence on quality
and cost of care at an acceptable administrative cost, we believe that they must have the technology to identify members with a high risk of substantial healthcare costs, including members with chronic diseases such as diabetes, or severe medical conditions such as breast
cancer. While identifying patients whose historical costs have been high is relatively easy, the challenge is to identify those patients who will incur high costs in the next 12 to 18 months. We believe that less than 20% of payers&#146; most seriously ill members are responsible for
a majority of the payers&#146; healthcare costs.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2"><i>Payers Lack Information Systems to Optimally Manage Member Care.</i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Payers employ teams of doctors and nurses, who are in short supply and highly compensated, to monitor the care provided to high-risk members and often intervene where necessary. These
professionals review each patient&#146;s treatment plan against clinical best practices and intervene with the treating provider and patient to the extent poor-quality care exists. This process is referred to as care management. In our experience, these care management professionals
lack comprehensive information technology systems to support their workflow processes. Furthermore, they often rely on manual, ad-hoc processes to interject clinical best practices into their workflow. As a result, we believe that the traditional care management process suffers
from the following weaknesses:</font></p>
</div>
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    <td><div align="left"><font face="serif" size="2">care managers fail to consistently identify poor-quality care;</font></div></td>
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    <td><font face="serif" size="2">&nbsp;</font></td>
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    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">care managers&#146; intervention processes have a high risk of manual error;</font></div></td>
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    <td><font face="serif" size="2">&nbsp;</font></td>
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    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">care managers cannot consistently apply the most recent clinical best practices;</font></div></td>
  </tr>
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    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">payers fail to capture and analyze valuable historical data; and</font></div></td>
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    <td><font face="serif" size="2">&nbsp;</font></td>
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    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">payers can only apply care management to the most obvious, highest cost members.</font></div></td>
  </tr>
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<div style="text-indent:3%">
<p align="left"><font face="serif" size="2"><i>Payers Lack Systems Necessary to Share Critical Patient Information Internally and With Providers.</i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that payers have the most comprehensive base of patient information in electronic format. Their legacy claims and care management systems contain basic
member identification information as well as raw data on the member&#146;s historical medical conditions, inpatient facility admissions, emergency</font></p>
</div>
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<p align="left"><font face="serif" size="2">room visits, tests and procedures, medications and providers. This information, once processed and validated, can be utilized throughout a payer&#146;s organization to help to improve the quality of
care. However, this generally does not occur, because many payers&#146; legacy systems are not integrated with other systems. Therefore, data housed in one system cannot be leveraged by other
functional departments without direct access to that system. The information contained in payers&#146; legacy systems can be even more valuable at the point of care. For example, we believe that
this basic information would increase an emergency room doctor&#146;s ability to provide high quality care when presented with an unconscious patient. However, in order for this information to
positively influence care decisions, providers must have on-demand access to this information in an easily understood format. To date, payers have lacked the systems necessary to automatically
assemble the data, review the data for inconsistencies, analyze and summarize the data, and disseminate the data internally and to providers in real time.</font></p>
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    <td><div align="left"><font face="serif" size="2"><b>Benefits of Our Solutions</b></font></div></td>
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<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our Collaborative Care Management solution is comprised of two related suites of products &#150; Integrated Medical Management and Collaborative Data Exchange. Our Integrated Medical Management suite is a seamless payer-based care management system that analyzes,
applies, administers and automates healthcare programs based on actionable intelligence. It assembles current and historical data and transforms it into an easily understood format. Our Integrated Medical Management suite also provides comprehensive, automated tools to
ensure the most efficient handling of the information and consistent application of rules throughout the collaborative care management decision making process. Our Collaborative Data Exchange suite enables providers to obtain a Patient Clinical Summary, which includes the
patient&#146;s demographic information, medical conditions, medications, providers and treatment opportunities in an on-demand, easy to use format. As a result, the Patient Clinical Summary allows patients and providers to leverage the same actionable intelligence at the point of
care as the care manager. We believe that these solutions promote collaborative health care management where all healthcare stakeholders &#150; the payer, the provider and the patient &#150; participate in helping to obtain the best outcome at the best cost.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We believe our solutions allow our payer customers to improve the quality of care and reduce costs by enabling payers to:</font></p>
</div>
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    <td><div align="left"><font face="serif" size="2"><b>Identify high-risk members.</b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our solutions automatically organize the data contained in our customers&#146; legacy claims processing and care management systems and apply proprietary algorithms to that data to classify their members based on their risk of incurring
material medical costs. We believe that these solutions increase the effectiveness of our customers&#146; care management programs by more accurately and efficiently identifying members that would benefit from active disease or case management, thereby helping to improve
the quality and to reduce the cost of care.</font></div></td>
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    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2"><b>Promote consistency and reduce manual errors and administrative costs through automation.</b> Our solutions automate the workflow process for utilization management, case management and disease management. With respect to utilization management, our solutions automate workflow processes to enable our customers to adjudicate approximately 85% of
healthcare authorization requests from providers without manual intervention and guides utilization management specialists through the workflow process for the remaining, more complex cases. By doing so, these solutions allow our customers&#146; specialists to handle more
cases and to focus on more complex value-added tasks, thereby reducing administrative costs. With respect to case management and disease management, our solutions guide care management specialists through a systematic intervention process specifically tailored to
the member&#146;s medical condition or disease based on clinical best practices and our customers&#146; internal rules and guidelines. By doing so, we believe our solutions promote consistent utilization and care management processes that are less prone to manual error, thereby
helping to improve the quality and to reduce the cost of care.</font></div></td>
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    <td>&nbsp;</td>
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    <td>&nbsp;</td>
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    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2"><b>Promote the consistent application of clinical best practices.</b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our solutions enable care management professionals to apply clinical best practices and best processes when adjudicating the medical appropriateness of requested services, evaluating treatment plans and
creating intervention plans. Accordingly, adjudications are more accurate and care management intervention plans are more </font></div></td>
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    <td><div align="left"><font face="serif" size="2">consistently based on clinical best practices helping to improve the quality and to reduce the cost of care.</font></div></td>
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    <td><div align="left"><font face="serif" size="2"><b>Utilize analytics to improve processes.</b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The reporting tools contained in our solutions allow our customers to analyze historical results to determine which care management interventions were generally the most effective in improving the quality of care and cost
efficiency. These tools allow our customers to continually refine and improve their internal care management rules and guidelines.</font></div></td>
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    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2"><b>Enable enhanced information
            access.</b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our solutions establish
            a single source of clinical information that supports integration
            with our customers&#146; other operational systems to ensure that
            care managers have access to the most current information. By providing
            access  to all relevant data, we allow more effective care management
            programs. Our solutions also allow patients and providers to obtain
            a Patient Clinical Summary, which includes patient demographic information,
            medical conditions, providers and treatment opportunities in
an on-demand, easy to use format. By providing this critical patient information
            to patients and providers in an easily understood format in real
            time, we believe that we improve the quality and reduce the cost
            of care. For example, in a recently completed study that we commissioned
            conducted on our behalf by HealthCore, Inc., a data analysis company
            owned
            by
            Wellpoint, the sharing of Patient Clinical Summaries by BlueCross
            BlueShield of Delaware with the staff at the emergency department
            for Christiana Care Health System greatly reduced the cost of
care for patients seen in the emergency room. The study compared the costs of
            services delivered in the emergency department and, for those patients
            admitted to the hospital, during their first day of hospitalization.
            HealthCore included data on 918 emergency room visits  where Patient
            Clinical Summaries were retrieved and 3,590 matched &#147;control&#148; visits
            where no Patient Clinical Summaries were used. The conclusion was
            that overall costs paid by the health plan and the patient dropped
            by an average of approximately $545 per  emergency department visit,
            or 19.7% of the average cost of the control visits that did not utilize
            this information.</font></div></td>
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    <td><div align="left"><font face="serif" size="2"><b>Our Strategy</b></font></div></td>
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<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our goal is to be the leading provider of care management solutions and to encourage market-wide adoption of our Patient Clinical Summaries. Key elements of our strategy include:</font></p>
</div>
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    <td><div align="left"><font face="serif" size="2"><b>Continue to expand our relationships with customers.</b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have developed strong customer relationships, which we believe provide us with both recurring revenue streams from those customers and cross-selling opportunities. During 2005, we renewed approximately
100% of our customer contracts which were subject to renewal. Historically, our revenue per customer has increased as we have expanded our penetration within those customers by including more members and increasing the number of solutions purchased by those
customers. We will further strengthen relationships with our existing customers to ensure a consistent renewal rate in the future. We also intend to develop innovative cross-selling programs to continue to increase our revenue per customer.</font></div></td>
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    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2"><b>Innovate new solutions and lead the next generation of Collaborative Care Management.</b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Over the past seven years, we have introduced several new solutions and expanded our clinical content in response to the unique needs of our customers. We have
accomplished this expansion through internal development, as well as acquisitions. We intend to further develop innovative solutions, both internally and through acquisitions, to improve the quality and cost of care and increase administrative efficiency. In particular, we
intend to lead the market in the development of the next generation of Collaborative Care Management solutions. To that end, we are currently developing two new software modules, called MEDeWeaver and MEDePathway, which we expect will allow providers and
patients to populate Patient Clinical Summaries with additional information. We expect these expanded solutions to serve as the foundation for electronic health records by aggregating payer, provider and patient-contributed information.</font></div></td>
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    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2"><b>Apply resources to ensure provider adoption of Patient Clinical Summaries.</b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We released our Collaborative Data Exchange suite in 2005 and currently are deploying it for eight managed care organizations. We generate a transaction fee for each Patient Clinical
Summary delivered to a provider. Therefore, the growth in revenue for our Collaborative Data Exchange suite is contingent </font></div></td>
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    <td><div align="left"><font face="serif" size="2">upon adoption of Patient Clinical Summaries by providers. In order to cultivate provider adoption, we created a specialized marketing and training team and worked with our customers&#146;
provider relations departments to strengthen our ability to increase usage of our Patient Clinical Summaries. We intend to continue to creatively apply resources in order to encourage
provider adoption of Patient Clinical Summaries.</font></div></td>
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    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2"><b>Expand our customer base.</b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have grown our annual revenue to $38.6&nbsp;million in 2005 by licensing our solutions to approximately 56 customers. We estimate that there are at least 300 additional managed care organizations in the United States that could benefit
from our solutions. Because they share the same challenges as our existing customers, we believe that self-insured companies and Medicare and Medicaid organizations are also attractive target customers. Our strategy also includes committing resources to license our
solutions into smaller payers in markets where our larger customers have rolled out our principal connectivity module, Transactions and Information Exchange. We believe these smaller payers can achieve high productivity gains from the already established provider
adoption of our self-service tools. Furthermore, we expect that the emerging Regional Health Information Organizations will provide us with a new market opportunity. We intend to continue to invest in sales and marketing to increase awareness of our solutions within
the payer market and obtain additional payer customers.</font></div></td>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2"><b>Continue to build recurring and predictable revenue streams.</b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Historically, we derived most of our revenue from our Advanced Medical Management module, for which our customers purchase five-year term licenses. Although this module provides us with a
recurring revenue stream, the size of the license fee and the fact that we recognize the license fee at the time we enter into the contract has caused this revenue stream to fluctuate, sometimes significantly, from quarter to quarter. In 1999, we began offering our customers
additional solutions and clinical content for which they pay annual subscription licenses or transaction fees. These revenue streams provide us with greater quarterly revenue visibility as we recognize the revenue from annual subscription licenses ratably over the term of
the license and from transactions as they occur. We intend to continue to develop new solutions for which our customers will pay annual subscription licenses or transaction fees.</font></div></td>
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    <td><font face="serif" size="2">&nbsp;</font></td>
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    <td><div align="left"><font face="serif" size="2"><b>Our Collaborative Care Management Solution</b></font></div></td>
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    <td><font face="serif" size="2">&nbsp;</font></td>
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    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Our Integrated Medical Management Suite</i></b></font></div></td>
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<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our Integrated Medical Management suite consists of four major modules: Analytics and Disease Management, Advanced Medical Management, Clinical Rules and Processes and Transactions and Information Exchange.</font></p>
</div>
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<div style="text-indent:3%">
<p align="left"><font face="serif" size="2"><i>Analytics and Disease Management</i>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Analytics and Disease Management module is a decision support module which provides our customers with the patient identification, clinical analysis and risk stratification tools necessary to identify diseases and conditions that
materially affect cost and clinical utilization.</font></p>
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    <td><div align="left"><font face="serif" size="2"><b>Payer Based Health Record.</b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Analytics and Disease Management module automates the creation of an electronic Payer Based Health Record for each of a payer&#146;s members. It does so by aggregating the data contained in the payer&#146;s legacy claims processing
systems, capturing all of the raw data related to a specific member and combining that information with the care management data that exists in the Advanced Medical Management module. After gathering the data, our module applies proprietary algorithms and
embedded clinical content to analyze the data for inconsistencies. For example, the existence of one test for diabetes without corresponding evidence of treatment for diabetes does not result in the listing of diabetes on the member&#146;s list of medical conditions. Once the
Payer Based Health Record has been created, it is available for use in all of our other solutions, as well as for reporting and further analysis.</font></div></td>
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    <td><div align="left"><font face="serif" size="2"><b>Risk stratification.</b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Leveraging the same data utilized to create the Payer Based Health Record, our Analytics and Disease Management module automatically identifies members who could immediately benefit from active disease or case management to help to
improve clinical or cost outcomes. After patients have been identified and their clinical information analyzed, proprietary algorithms and, in some cases third-party applications, contained in our module classify members, enabling our customers to match the intensity of
the case or disease management resources with the patient&#146;s need. In conjunction with the stratification methodology, our Analytics and Disease Management module establishes a set of triggers for specific events that indicate whether a member is likely to become a cost
or utilization outlier. These triggers can be customized to match the specific clinical criteria used by our customers, or provided as part of the Clinical Rules and Processes module.</font></div></td>
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    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2"><b>Integration with Advanced Medical Management and reporting.</b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;When integrated with our Advanced Medical Management module, the data derived by our Analytics and Disease Management module is then electronically integrated with our customers&#146; care
management workflow system. After a care management program has been established, the reporting tools provided in our Analytics and Disease Management module allow our customers to determine which interventions were the most efficient in meeting the plan&#146;s
goals, which were the most cost effective and which led to the best health outcomes for their members. This information allows the payers&#146; medical directors to begin to develop best practice models, monitor their effectiveness and then modify the best practice models as
necessary.</font></div></td>
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<div style="text-indent:3%">
<p align="left"><font face="serif" size="2"><i>Advanced Medical Management.</i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Advanced Medical Management module serves as the core of the Integrated Medical Management suite, enabling our customers to manage all aspects of their care management programs, providing centralized reporting and
establishing a single source of clinical information leveraged by each component of the integrated suite. The module supports integration with our customers&#146; other operational systems, such as claims and eligibility systems, to ensure that payers&#146; care managers have access to
the most current data and that those operational systems have access to the most current care management data. It also assists our customers with meeting regulatory and accreditation requirements for consistent care management processes.</font></p>
</div>
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    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2"><b>Workflow automation. </b>Leveraging this comprehensive data repository, our Advanced Medical Management module automates workflow across the continuum of the care management process including:</font></div></td>
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    <td>&nbsp;</td>
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    <td width="6%">&nbsp;</td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><font face="serif" size="2"><i>Utilization management.</i> This quality
        assurance process allows payers to confirm the medical necessity of healthcare
        services and products. Utilization management generally includes the
        clinical review of hospital admissions, organ transplants, elective surgeries,
        high-tech diagnostic tests and expensive medications, often before the
    service or product is delivered to the patient.</font></td>
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<p>&nbsp;</p>
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    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><font face="serif" size="2"><i>Case management.</i> This care and financial
        benefits coordination process supports patients with multiple conditions
        and/or traumatic injuries by ensuring that the patient receives the appropriate
        care from different members of the patient&#146;s care team at the appropriate
        time and in the appropriate setting, even when the patient&#146;s health
        benefit plan might require modification to provide coverage for such
    treatment.</font></td>
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    <td>&nbsp;</td>
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    <td><font face="serif" size="2">&nbsp;&#149;</font></td>
    <td><font face="serif" size="2"><i>Disease management.</i> These coaching
        and care coordination processes support patients with chronic conditions
        by helping to ensure that the patient understands the nature of the condition
        and the best ways to minimize the impact of the condition, and that the
        patient complies with the established treatment regimen. The disease
        manager also helps coordinate the patient&#146;s interaction with the
        healthcare system to ensure that the patient receives the appropriate
        care from different members of the patient&#146;s care team at the most
    appropriate time and in the most appropriate setting.</font></td>
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    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2"><b>Interoperability with Analytics and Disease Management.</b> When payers utilize our Advanced Medical Management module in combination with our Analytics and Disease Management module, workflows are automatically populated with care management data
generated by the Analytics and Disease Management module. Additionally, since the same data also is used to create the Patient Clinical Summary for the provider, everyone on the care management team is working with consistent data.</font></div></td>
  </tr>
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    <td><font face="serif" size="2">&nbsp;</font></td>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2"><b>Interoperability with Transactions and Information Exchange.</b> When payers utilize our Advanced Medical Management module with our Transaction and Information Exchange module, most authorizations and referrals that traditionally would be handled by a payer
care manager for approval over the telephone are automatically, clinically adjudicated with the same rules that the payer care manager would have used. Only the referrals and authorizations that are considered too complicated or questionable are presented to a payer care
manager, having automatically populated their work queue, when the exception occurs. The case is then presented with all of the pertinent history and relevant clinical guidelines to help the payer care manager adjudicate the request manually.</font></div></td>
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<div style="text-indent:3%">
<p align="left"><font face="serif" size="2"><i>Clinical Rules and Processes.</i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Clinical Rules and Processes module is a content solution consisting of clinical best practices, which have been validated by evidence-based medicine, and care management best processes, which we have defined based on our
customers&#146; shared experience. When deployed as part of our Integrated Medical Management suite, our Clinical Rules and Processes module supplements a payer&#146;s existing rules and guidelines by populating the system with reliable, evidence-based clinical rules. This
supplements our customers&#146; ability to automate processes and promotes the clinical consistency required to provide the best diagnostics and treatment recommendations. We continually update our Clinical Rules and Processes module based on evolving clinical best practices
and best processes and distribute the updated content to our customers annually for lower priority changes and more frequently for higher priority changes.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our Clinical Rules and Processes module consists of two primary categories of content:</font></p>
</div>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
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    <td><div align="left"><font face="serif" size="2"><b>Medical Appropriateness Criteria.</b> This category consists of clinical content for utilization management regarding the medical appropriateness of a proposed healthcare service or treatment. These rules are used to manually or automatically adjudicate requests for
authorizations and referrals.</font></div></td>
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    <td><font face="serif" size="2">&nbsp;</font></td>
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    <td><font face="serif" size="2">&nbsp;</font></td>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2"><b>Clinical Care Pathways.</b> This category consists of content for case and disease management that automatically populates questionnaires, goal templates, and other correspondence to patients and providers. This information is integrated with the Advanced Medical
Management module and is exposed to the payer care manager when they bring up a case in their workflow. We support clinical care pathways for 28 medical conditions, which we believe address the majority of healthcare spending.</font></div></td>
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<div style="text-indent:3%">
<p align="left"><font face="serif" size="2"><i>Transactions and Information Exchange.</i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Transactions and Information Exchange module creates a necessary bridge electronically linking physicians, hospitals and other providers to payers. Using this module, providers can electronically submit referrals,
authorizations and extensions requests through multiple communication sources including the Internet, interactive voice response and electronic data interchange. As a result, payers can reach all of their provider community regardless of the technology infrastructure on the
</font></p>
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<p align="left"><font face="serif" size="2">provider&#146;s side. When combined with our Clinical Rules and Processes module, the module provides payers with the ability to automatically process requests from physicians and hospitals. The
automatic approval of routine requests significantly reduces a payer&#146;s administrative costs because requests are initiated, processed and completed without human intervention on behalf of the
payer. Payers using the Internet and interactive voice response paths have been able to automate and approve up to 85% of their referral requests. Requests that require human intervention are
flagged for further review and immediately routed to a care manager at the payer for resolution.</font></p>
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    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Our Collaborative Data Exchange Suite</i></b></font></div></td>
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<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our Collaborative Data Exchange suite leverages the connectivity of our Transactions and Information Exchange module to deliver Patient Clinical Summaries electronically and on-demand to providers at the point of care.</font></p>
</div>
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  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<i>Patient Clinical Summaries</i></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our Patient Clinical Summary is an Electronic Health Record that is currently built from the data contained in the Payer Based Heath Record. The Patient Clinical Summaries present in an easily digested format:</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">patient demographic information, including name, date of birth, contact information and the name of the patient&#146;s primary care physician;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">a summary of the patient&#146;s medical conditions categorized by severity;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">a complete log of the patient&#146;s facility admissions and emergency room visits;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">a summary of historical tests and healthcare services provided to the patient;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">a summary of medications taken by the patient;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">a list of the patient&#146;s historical providers, their specialty and contact information;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">a schedule of early detection flags and potential treatment opportunities; and</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">an evaluation of the patients&#146; risk of needing treatment for a serious medical condition in the next 12 months.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<i>Future Solutions</i></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We are currently developing two additional components that we believe will increase materially the value of our Collaborative Data Exchange suite.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2"><b>MEDeWeaver.</b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that our MEDeWeaver module will enable the next generation of the Electronic Health Record by weaving together all available sources of patient information, including the Payer Based Health Record, the Electronic Medical Record and
the Personal Health Record. MEDeWeaver is a module that gathers patient data stored in several different databases, analyzes the data for inconsistencies, and combines the data into one report. This product is currently in development and we expect it to be available for
testing by the fourth quarter of 2006.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2"><b>MEDePathway.</b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that our MEDePathway module will allow our payer customers to leverage the data contained in the Patient Clinical Summary for other uses. For example, if a payer has a member portal through which they allow their members to access
information, MEDePathway would allow the payer to expose the data contained in the Patient Clinical Summary to the patient through the portal. The data is provided as a standardized transmission allowing the payer to decide how to present the data within the portal. In
effect, MEDePathway will manage incoming requests for information and outgoing responses. It will validate the requestor, manages the communications and security for accepting the request from outside sources, and then delivers the data to the recipient. The data sent is
based on the needs of the receiver and complies with the relevant state and federal data privacy requirements. This product is currently in development.</font></p>
</div>
<p>&nbsp;</p>
<p align="center"><font face="serif" size="2">63</font></p>
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<div style="page-break-before:always"></div>
<page>
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<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Professional Services</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our professional services personnel have extensive domain expertise and use our proprietary technology and content to provide implementation and consulting services, and training. Many of our professional service personnel have held positions at healthcare
organizations or senior level consulting positions at major consulting firms and other enterprise software companies.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Implementation and Consulting Services</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our implementation services begin with an evaluation of a customer&#146;s current information technology infrastructure, which includes process engineering to optimize the configuration of our solutions and integration with existing applications to fit each organization&#146;s
dynamic business requirements. We support a consulting certification program and have a project management office that equips our consultants with a library of toolkits, forms, training documentation and workshop templates. We also oversee the management of customer
deployments to help enable smooth, systematic and on-time implementations and maximize success and financial returns for our customers. After the initial deployment of our solutions, we provide ongoing strategic consulting services to help our customers achieve desired
results in quality improvement, increased productivity, cost savings and operational effectiveness. We collaborate with customer project leaders to establish an ongoing process for continual evolution and solution optimization so that our customers can promote best practice
usage and end user adoption long after we deploy our solutions.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Training</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We offer a full range of educational services including pre-deployment classroom training, train-the-trainer programs, system administrator training, post-deployment specialty training, upgrade training and eLearning/web-based training. We also offer a variety of training
tools to drive user adoption, including solution user manuals, process user guides, feature training exercises, a self-service website for training scheduling and registration, post-training assessments and synchronous, web-based training tools for remote users.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Technology, Development and Operations</b></font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Technology</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our Integrated Medical Management suite and Collaborative Data Exchange suite are built on a multi-tier, independent Java 2 Platform, Enterprise Edition, or J2EE, architecture using a standards-based Struts (Model-View-Controller) Framework that consists of open
source components, commercially available products and our own proprietary tools. This framework incorporates a fully defined services-orientated architecture that allows for the continued extension and adaptability of our Integrated Medical Management suite through an
underlying collection of highly cohesive, loosely coupled components. We use this programming model to abstract interfaces, standardize messaging and increase the versatility and the value of our solutions. This approach allows for platform independence coupled with high
scalability and availability.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We have implemented the following guiding principles into our development methodology:</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">flexible architecture to accommodate customer change requests built upon solid business domain models and solution architecture;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">modular solution architecture to facilitate reuse and enhance marketability;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">database independence achieved through integration and resource tiers with no dependency on encapsulated and loosely coupled business logic;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">leverage open community standards; and</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">incremental migration from legacy to new architecture to preserve the customer experience.</font></div></td>
  </tr>
</table>
<p>&nbsp;</p>
<p align="center"><font face="serif" size="2">64</font></p>
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<page>
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<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Development</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We believe that three primary factors drive our innovation: our clients, our domain experts and our research and development employees. We use the feedback gained through our customer interactions and from all of our employees to add value added enhancements to
the model products. We also leverage the experience of our domain experts, who produce white papers, case studies and thought pieces which form the foundation for our innovation. Our research and development team maintains a repository of ideas, and selected ideas are
presented to the market validation team. Market validated ideas progress to the prototype stage. The executive team reviews prototypes and selects those with the highest potential, which then enter the product development phase.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Operations</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our primary service delivery datacenter is managed by MEDecision within a SunGard hardened datacenter facility in Philadelphia, Pennsylvania. This datacenter serves as the primary facility for our transaction based solutions and also for delivery of Patient Clinical
Summaries to payers, providers and patients. A physically separate segment of this facility is used to deliver our hosted solutions for customers who subscribe to this service offering. We also have a secondary datacenter in Wayne, Pennsylvania for our Analytics and Disease
Management module service bureau offering and a disaster recovery site located within another SunGard facility in Carlstadt, New Jersey. We adhere to industry standards and best practices in our domestic operations. The transaction environment is shared across clients to
reduce costs for each individual client. Each client&#146;s network connectivity is highly secured. Data backups are completed over the wide area network to our disaster recovery facility in Carlstadt, New Jersey.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our datacenters are continuously monitored by a comprehensive set of tools and personnel, 24 hours a day, seven days a week. Our datacenters have built-in power redundancy, with two uninterrupted power supplies backed up by an industrial strength generator to
provide uninterrupted service to our clients. We have documented our network, server and database management procedures including backup and recovery.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Customer Support</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We believe that superior customer support is critical to our customers. Our customer support group assists our customers by answering questions and troubleshooting our solutions. Customer support is available 24 hours a day, seven days a week by telephone, email and
over the Internet from a member of our customer support team. Each member of our customer support team receives comprehensive training and orientation to ensure that our customers receive high-quality support and service. Each of our customers is assigned a single point
of contact. When an issue is reported to us, our customer support personnel follow a clearly defined escalation process to ensure that mission-critical issues are resolved to the satisfaction of the client. We believe that our customer service model has materially contributed to
our client retention rate. As of March&nbsp;31, 2006, our customer support group consisted of 17 employees located in Wayne, Pennsylvania.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Customers</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">As of March&nbsp;31, 2006, we had contracts with 45 entities that represented approximately 56 regional and national managed care plans. Our customers include the largest managed care organizations in more than 27 regional markets. In the aggregate, our customers cover
approximately one out of every six insured persons in the United States.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">In late 2005, Health Care Service
    Corporation, or HCSC, selected our Collaborative Care Management solution
    for use by its enterprise. As part of that contract, HCSC consolidated three
    separate agreements with us: BlueCross BlueShield of Illinois, Texas, New
    Mexico and Oklahoma. On an aggregated basis, the healthcare plans covered
    by the HCSC
    agreement accounted for 25% of our revenue in 2005, and included a five-year
    term license fee that accounted for 13% of revenue. If the healthcare plans
    currently covered by the HCSC agreement
are aggregated in similar fashion for the purpose of comparison with prior years,
    the plans also accounted for 10% of our revenue in 2004 and 17% of revenue
    in 2003. In 2005, no other customer accounted for greater than 10% of our
    revenue.</font></p>
</div>
<p>&nbsp;</p>
<p align="center"><font face="serif" size="2">65</font></p>
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<page>
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<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Sales and Marketing</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our target customers include the leading regional health insurance companies and national health insurance companies. We license our solutions to new customers primarily through our direct sales force. We manage our relationships with our existing customers,
including cross-selling and up-selling activities, through client relationship managers. Our sales office is located in Wayne, Pennsylvania.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our marketing initiatives are generally targeted toward increasing awareness of our solutions within the healthcare payer market. In order to do so, we participate in conferences, trade shows and healthcare industry events, conduct direct mail and email campaigns,
advertise in industry-specific trade magazines and Internet websites, distribute white papers, case studies and thought pieces, and use our website to provide product and company information.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Intellectual Property</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our intellectual property rights are important to our business. We rely on a combination of copyright, trade secret, trademark and other common laws in the United States and other jurisdictions, as well as confidentiality procedures and contractual provisions to protect
our proprietary technology, processes and other intellectual property. However, we believe that the following factors are more essential to our ability to maintain a competitive advantage:</font></p>
</div>
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  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">our domain expertise;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">frequent enhancements to our solutions;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">continued expansion of our healthcare content; and</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the technological skills of our research and development personnel.</font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Others may develop products that are similar to and that compete with our technology. We generally enter into confidentiality and other written agreements with our employees and third-party partners, whereby we attempt to control access to and distribution of our
software, documentation and other proprietary technology. Despite our efforts to protect our proprietary technology, third-parties may, in an unauthorized manner, attempt to use, copy or otherwise obtain and market or distribute our intellectual property or proprietary
technology or may otherwise develop a product with similar functionality as our solutions and services. Policing unauthorized use of our intellectual property and proprietary technology is difficult, and nearly impossible on a worldwide basis. Therefore, we cannot be certain
that the steps we have taken or will take in the future will prevent misappropriation of our technology or intellectual property.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Litigation regarding intellectual property is prevalent in the software industry. From time to time, in the ordinary course of our business, we may be subject to claims relating to our intellectual property rights or those of others, and we expect that third-parties may
commence legal proceedings or otherwise assert intellectual property claims against us in the future, particularly if we expand the scope of our business, increase the number of products we offer that compete with third-parties in the industry or the functionality of our solutions
or services overlap with those of third-parties. We cannot be certain that a third-party does not have a patent or other intellectual property rights that could result in a future claim against us. These actual and potential claims and any resulting litigation could subject us to
significant liability for damages. In addition, even if we prevail, litigation could be expensive, time consuming and require additional company resources to defend and could affect our business materially and adversely. Any third-party claims or litigation may also limit our
ability to use various business processes, software and hardware, other systems, technologies or intellectual property, unless we are able to enter into a license agreement with such third-party, which may not be available on commercially reasonable terms, if at all.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Competition</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We have experienced, and expect to continue to experience, intense competition from a number of companies. Our Integrated Medical Management suite competes with Landacorp, Inc., McKesson Corporation</font></p>
</div>
<p align="center"><font face="serif" size="2">66</font></p>
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<p align="left"><font face="serif" size="2">and The TriZetto Group, Inc., each of which offer products that compete with one or more modules in our suite of solutions. The principal competitive factors in our industry include:</font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">solution breadth and functionality;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">ease of deployment, integration and configuration;</font></div></td>
  </tr>
</table>
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  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">domain expertise;</font></div></td>
  </tr>
</table>
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  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">depth of clinical content;</font></div></td>
  </tr>
</table>
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  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">service support;</font></div></td>
  </tr>
</table>
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  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">solution price;</font></div></td>
  </tr>
</table>
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  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">breadth of sales infrastructure; and</font></div></td>
  </tr>
</table>
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  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">breadth of customer support.</font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We believe that we generally compete favorably with respect to all of these factors.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We may face future competition from large, established healthcare information technology companies, as well as from emerging companies. Barriers to entry into our industry are relatively low, new software products are frequently introduced and existing products are
continually enhanced. In addition, we expect that there is likely to be consolidation in our industry, which would lead to increased price competition and other forms of competition. Established companies not only may develop their own competitive products, but may also
acquire or establish cooperative relationships with current or future competitors, including cooperative relationships between both larger, established and smaller public and private companies. In addition, our ability to license our solutions will depend, in part, on the
compatibility of our software with software provided by our competitors. Our competitors could alter their products so that they will no longer be compatible with our software or they could deny or delay access by us to advance software releases, which would limit our ability
to adapt our software to these new releases. If our competitors were to bundle their products in this manner or make their products non-compatible with ours, our ability to license our solutions might be harmed and could reduce our gross margins and operating income.</font></p>
</div>
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  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Employees</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">As of March&nbsp;31, 2006, we had 207 employees, consisting of 39 employees in sales and marketing, 84 employees in research and development, 61 employees in delivery and support of our solutions and 23 employees in general and administrative positions. None of our
employees are represented by a union. We consider our relationship with our employees to be good and have not experienced any interruptions of our operations as a result of labor disagreements.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Facilities</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We lease our headquarters in Wayne, Pennsylvania, which consists of approximately 90,000 square feet. The leases for our headquarters expire in August 2016. We believe that our facilities are in good operating condition and will adequately serve our needs for at least
the next 18 months. We also anticipate that, if required, suitable additional or alternative space will be available on commercially reasonable terms, in office buildings we currently occupy or in space nearby, to accommodate expansion of our operations.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Litigation</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">There are no pending legal proceedings to which we are a party or to which any of our property is subject. We may, however, become subject to lawsuits in the ordinary course of our business.</font></p>
</div>
<p align="center"><font face="serif" size="2">67</font></p>
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<p align="center"><font face="serif" size="2"><b>MANAGEMENT</b></font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Executive Officers and Directors</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The following table sets forth information concerning our executive officers and directors as of the date of this prospectus:</font></p>
</div>
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  <tr valign="bottom">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1"><b>Name</b></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td align="center"><font face="serif" size="1"><b>Age</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td align="center" valign="bottom"><font face="serif" size="1"><b>Position</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2"><i>Executive officers and directors</i>:</font></div></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="12%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">David St. Clair</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td align="center"><font face="serif" size="2">53</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">Chairman of the Board and Chief Executive Officer</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">John H. Capobianco</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td align="center"><font face="serif" size="2">54</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">President, Chief Operating Officer and Director</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Ronald D. Nall</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td align="center"><font face="serif" size="2">59</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">Executive Vice President and Chief Information Officer</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Henry A. DePhillips, III, M.D.</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td align="center"><font face="serif" size="2">46</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">Executive Vice President and Chief Medical Officer</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Carl E. Smith</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td align="center"><font face="serif" size="2">58</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">Executive Vice President and Chief Financial Officer</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Danielle Russella Bantivoglio</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td align="center"><font face="serif" size="2">39</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">Executive Vice President,
    Client Solutions</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Kristel L. Schimmoller</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td align="center"><font face="serif" size="2">43</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">Senior Vice President, Product Marketing</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Mary Jo Timlin-Hoag</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td align="center"><font face="serif" size="2">48</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">Senior Vice President, Client Operations</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2"><i>Non-management directors:</i></font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Frank A. Adams<sup>(1)</sup></font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td align="center"><font face="serif" size="2">60</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">Director</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Charles P. Cullen<sup>(1)</sup></font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td align="center"><font face="serif" size="2">42</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">Director</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Thomas R. Morse</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td align="center"><font face="serif" size="2">54</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">Director</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Timothy W. Wallace</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td align="center"><font face="serif" size="2">48</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">Director</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
 <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="100"><hr noshade size="1" align="left" width="100%"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="1">(1)</font></td>
    <td><div align="left"><font face="serif" size="1">This director will resign immediately prior to the consummation of this offering.</font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2"><b><i>David St. Clair</i></b> founded MEDecision in 1988 and has served as the Chairman of our board of directors and Chief Executive Officer since 1988. From 1985 until 1988, Mr.&nbsp;St. Clair served as the Vice President of GMIS, Inc., which was subsequently acquired by
McKesson Corporation. From 1981 until 1985, Mr.&nbsp;St. Clair served as a Principal for Hay Associates in its Strategic Management Group. Mr.&nbsp;St. Clair received a B.A.S. in Mechanical Engineering from the University of Pennsylvania and a M.B.A. from Harvard University.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2"><b><i>John H. Capobianco</i></b> joined us in 2002 as our Executive Vice President, Sales and Marketing. In 2003, Mr.&nbsp;Capobianco was promoted to President and Chief Operating Officer, and he continues to serve in such capacity. Mr.&nbsp;Capobianco has served as a director since
2002. Since September 2001, Mr.&nbsp;Capobianco has served as President and Chief Executive Officer for TekTite Ltd., a consulting practice that he owns. From February 2001 until August 2001, Mr.&nbsp;Capobianco served as a General Manager for Hewlett-Packard Company.
From March 1998 until January 2001, Mr.&nbsp;Capobianco served as Chief Operating Officer and then Executive Vice President, Strategic Planning, for Bluestone Software. From 1997 until 1998, Mr.&nbsp;Capobianco served as Senior Vice President, Marketing, for SAP America.
From 1996 until 1997, Mr.&nbsp;Capobianco served as Senior Vice President, Corporate Marketing, for Sybase, Inc. From 1995 until 1996, Mr.&nbsp;Capobianco served as Vice President, Marketing, for PRIMAVERA Systems, Inc. From 1985 to 1995, Mr.&nbsp;Capobianco served as Vice
President, Marketing, for Computer Associates International, Inc., now known as CA, Inc.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2"><b><i>Ronald D. Nall</i></b> joined us in April 2006 and has served as our Executive Vice President and Chief Information Officer since that time. From 2004 until April 2006, Mr.&nbsp;Nall served as Principal for RN Consulting. From 2000 until 2002, Mr.&nbsp;Nall served as Executive
Vice President, Services and Product Delivery, for SynQuest, Inc. From 1997 until 1999, Mr.&nbsp;Nall served as Senior Vice President, Services and Products for PowerCerv Inc. From 1995 until 1997, Mr.&nbsp;Nall served as Senior Vice President, Product Research, Marketing and
Development, for Datalogix International Inc. From 1988 until 1995, Mr.&nbsp;Nall</font></p>
</div>
<p align="center"><font face="serif" size="2">68</font></p>
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<p align="left"><font face="serif" size="2">Served as Vice President and Product Owner for Computer Associates International. Mr.&nbsp;Nall received a B.S. in Management and a M.B.A. from the University of West Florida.</font></p>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2"><b><i>Henry A. DePhillips, III, M.D.</i></b> joined us in 2004 and has served as our Executive Vice President and Chief Medical Officer since that time. From 2000 until 2004, Dr.&nbsp;DePhillips served as Medical Director and then Senior Medical Director of Independence Blue
Cross. Also from 2000 until 2004, Dr.&nbsp;DePhillips served as the Senior Medical Director of AmeriHealth Administrators. From 1996 until 2000, Dr.&nbsp;DePhillips was Regional Medical Director of AmeriHealth Insurance Company. Prior to that time, Dr.&nbsp;DePhillips was a private
physician practicing in Wilmington, Delaware. Dr.&nbsp;DePhillips received a B.S. in Biochemistry from Trinity College and a M.D. from Hahnemann University.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2"><b><i>Carl E. Smith</i></b> joined
    us in 2001 as our Vice President, Finance and Chief Financial Officer. In
    2002, Mr.&nbsp;Smith became our Secretary, and he continues to serve in such
    capacity. In 2004, Mr.&nbsp;Smith was promoted to Executive Vice President,
    Finance and Chief  Financial Officer, and he continues to serve in such
    capacity. From 1998 until 2001, Mr.&nbsp;Smith served as the Vice President,
    Finance, and then the Chief Financial Officer of Personnel Data Systems,
    Inc. From 1994 until 1998, Mr.&nbsp;Smith served as the Senior Vice President,

Finance and Administration, of ICT Group, Inc. From 1992 until 1994, Mr.&nbsp;Smith
served as the Controller and then the Vice President, Finance for DNA Plant Technology
Corporation. From 1990 until 1992, Mr.&nbsp;Smith served as the Chief Financial
Officer for Envirosafe
Services, Inc. From 1987 until 1989, Mr.&nbsp;Smith served as the Chief Financial
Officer for Environmental Control Group, Inc. From 1974 until 1987, Mr.&nbsp;Smith
served as the Vice President, Controller, and then the Vice President, Finance,
of Advanta Corporation. Mr.&nbsp;Smith
received a B.S. in Business and Accounting from the Pennsylvania State University
and is a Certified Public Accountant.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2"><b><i>Danielle Russella Bantivoglio</i></b> joined us in 2002 as our Senior Vice President, Sales. In March 2006, Ms.&nbsp;Bantivoglio
    was promoted to Executive Vice President, Client Solutions, and she continues
    to serve in such capacity. From January 2001 until December 2001,
Ms.&nbsp;Bantivoglio served as the General Manager, Americas Independent Software Vendor/Original Equipment Manufacturer Sales, and then General Manager, Worldwide Independent Software Vendor/Original Equipment Manufacturer Sales, of Hewlett-Packard Company.
From April 2000 until January 2001, Ms.&nbsp;Bantivoglio served as the Vice President, Worldwide Sales Operations, for Bluestone Software Inc., which was acquired by Hewlett-Packard Company. From September 1991 until April 2000, Ms.&nbsp;Bantivoglio served as the Vice
President, Sales &amp; Marketing, of Momentum Systems. Ms.&nbsp;Bantivoglio received a B.S. in Business Administration with a concentration in Finance from Drexel University.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2"><b><i>Kristel L. Schimmoller </i></b>joined us in 1989, and has held several positions of increasing responsibility, including Director, Product Marketing, from 2001 until 2004, and Vice President, Product Marketing, from 2004 until April 2006. In April, 2006, Ms.&nbsp;Schimmoller was
promoted to Senior Vice President, Product Marketing, and she continues to serve in such capacity. Ms.&nbsp;Schimmoller received a B.S. in Computer Science and Mathematics from Elizabethtown College and a M.B.A. from Villanova University.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2"><b><i>Mary Jo Timlin-Hoag</i></b> joined us in November 2005 as our Vice President, Client Operations. In April 2006, Ms.&nbsp;Timlin-Hoag was promoted to Senior Vice President, Client Operations, and she continues to serve in such capacity. From 2003 until 2005, Ms.&nbsp;Timlin-
Hoag served as Executive Director, Business Development and Business Partners of McKesson Health Solutions. From 2002 until 2003, Ms.&nbsp;Timlin-Hoag served as Project/Operations Manager, Clinical Encounter Solutions for Welch Allyn. From 2000 until 2002, Ms.&nbsp;Timlin-
Hoag served as Senior Director, Strategic Alliances and Business Solutions for G.E. Medical-MedicaLogic. From 1998 until 2000, Ms.&nbsp;Timlin-Hoag served as Director, Medical Call Centers for Patient InfoSystems. From 1994 until 1998, Ms.&nbsp;Timlin-Hoag served as Director,
Patient Management, Mid-Atlantic Region for Aetna US Healthcare. Prior to that time, Ms.&nbsp;Timlin-Hoag was a staff nurse for Frankford Hospital in Philadelphia, Pennsylvania. Ms.&nbsp;Timlin-Hoag received a B.S. in Nursing and a Masters Degree in Public Health from
Pennsylvania State University. Ms.&nbsp;Timlin-Hoag also received certifications in Project Management and Finance and Accounting from Villanova University.</font></p>
</div>
<p>&nbsp;</p>
<p align="center"><font face="serif" size="2">69</font></p>
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<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Non-Management Directors</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2"><b><i>Frank A. Adams</i></b> has served as a member of our board of directors since 2004. Mr.&nbsp;Adams will resign as a director immediately prior to the consummation of this offering. Since 1984, Mr.&nbsp;Adams has served as Managing General Partner for Grotech Capital Group, a
venture capital company. Mr.&nbsp;Adams received a B.S. in Business and a J.D. from the University of Baltimore.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2"><b><i>Charles P. Cullen</i></b> has served as a member of our board of directors since 2001, and is a member of the audit committee and compensation committee. Mr.&nbsp;Cullen will resign as a director immediately prior to the consummation of this offering. Since 2000, Mr.&nbsp;Cullen
has worked for Grotech Management Company. Mr.&nbsp;Cullen received a B.B.A. in Accounting from Loyola College, a J.D. from the University of Notre Dame and a M.M. in Business from Northwestern University.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2"><b><i>Thomas R. Morse</i></b> has served as a member of our board of directors since 1997, and is a member of the audit committee and compensation committee. Since 1998, Mr.&nbsp;Morse has served as President of Liberty Advisors, Inc., a venture capital company. Mr.&nbsp;Morse
currently serves on the board of directors of Othera Pharmaceuticals, GCA Corporation and ANI Pharmaceuticals. Mr.&nbsp;Morse is a Chartered Financial Analyst. Mr.&nbsp;Morse received a B.S. in Mechanical Engineering from the United States Naval Academy and a M.B.A. from
the Wharton School of Business at the University of Pennsylvania.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2"><b><i>Timothy W. Wallace </i></b>has served as a member of our board of directors since March 2002, and is the Chairperson of the audit committee and a member of the compensation committee. Since April 2000, Mr.&nbsp;Wallace has been Chief Executive Officer of FullTilt
Solutions, Inc., an enterprise product information management software company. Mr.&nbsp;Wallace currently serves on the board of directors of Knova Software, for which he also serves as the Chairperson of the audit committee, and Migo Software, for which he also serves as
the Chairperson of the audit committee. Mr.&nbsp;Wallace is a Certified Public Accountant (inactive). Mr.&nbsp;Wallace received a B.S. in Accounting from Indiana University of Pennsylvania and a M.B.A. from Miami University.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Composition of Board of Directors</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our board of directors currently consists of six members &#150; Messrs. St. Clair, Capobianco, Morse, Wallace, Adams and Cullen. Messrs. Adams and Cullen intend to resign from our board of directors effective immediately prior to the consummation of this offering. We
expect to nominate and elect three additional members to our board of directors, effective upon the consummation of this offering. Our directors, other than Mr.&nbsp;St. Clair and Mr.&nbsp;Capobianco, are not, and never have been, our employees or any of our subsidiaries. Each of
Messrs. Morse and Wallace are &#147;independent directors,&#148; as defined by the NASDAQ Global Market&#146;s listing standards.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Effective upon the consummation of this offering, we will divide the terms of office of the directors into three classes:</font></p>
</div>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">Class&nbsp;I, whose terms will expire at the annual meeting of shareholders to be held in 2007;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">Class&nbsp;II, whose terms will expire at the annual meeting of shareholders to be held in 2008; and</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">Class&nbsp;III, whose terms will expire at the annual meeting of shareholders to be held in 2009.</font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">A classified board of directors may have the effect of deterring or delaying any attempt by any person or group to obtain control of us by a proxy contest since such third-party would be required to have its nominees elected at two separate annual meetings of our board
of directors in order to elect a majority of the members of our board of directors. See &#147;Risk Factors&#151;Anti-takeover provisions of Pennsylvania law and our articles of incorporation and bylaws could delay and discourage takeover attempts that shareholders may consider to be
favorable.&#148;</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our board of directors will observe all applicable criteria for independence established by the NASDAQ Global Market and other governing laws and applicable regulations. No director will be deemed to be independent unless our board of directors determines that the
director has no relationship which would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.</font></p>
</div>
<p>&nbsp;</p>
<p align="center"><font face="serif" size="2">70</font></p>
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<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Upon the consummation of this offering, Class&nbsp;I will consist of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, Class&nbsp;II will consist of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; and Class&nbsp;III will consist of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;. At each annual meeting of our shareholders after the initial classification, the successors to directors whose
terms will then expire shall serve from the time of election and qualification until the third annual meeting following election and until their successors are duly elected and qualified. A resolution of our board of directors may change the authorized number of directors. Any
additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class&nbsp;will consist of one third of the directors.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Committees of the Board of Directors</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Upon the consummation of this offering, the standing committees of our board of directors will consist of the audit committee, compensation committee and nominating and corporate governance committee. These committees will have the composition and
responsibilities as described below as of the consummation of this offering. Our board of directors may also establish various other committees to assist the board of directors in its responsibilities from time to time.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Audit Committee</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our audit committee oversees our corporate accounting and financial reporting process. Our audit committee:</font></p>
</div>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">evaluates the qualifications, independence and performance of our independent auditors;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">determines the engagement of our independent auditors;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">approves the retention of our independent auditors to perform any proposed permissible non-audit services;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">ensures the rotation of the partners of our independent auditors on our engagement team as required by law;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">review our financial reports and other financial information that we prepare;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">reviews our systems of internal controls established for finance, accounting, legal compliance and ethics;</font></div></td>
  </tr>
</table>
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  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">reviews our accounting and financial reporting processes;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">provides for effective communication between our board of directors, our senior and financial management and our independent auditors;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">discusses with management and our independent auditors the results of our annual audit and the review of our quarterly financial statements;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">reviews the audits of our financial statements;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">reviews legal matters that may have a material impact on our financial statements; and</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">implements a pre-approval policy for certain audit and non-audit services performed by our independent auditors.</font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Upon the consummation of this offering, the audit committee will be comprised of Messrs. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; and &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (chair). Our board of directors has determined that Mr.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; is an &#147;audit committee financial expert&#148; as currently defined under the Securities and Exchange Commission rules implementing Section&nbsp;407 of the Sarbanes-Oxley Act of 2002. We believe that the
composition and functioning of our audit committee complies with all applicable requirements of the Sarbanes-Oxley Act of 2002, the NASDAQ Global Market and Securities and Exchange Commission rules and regulations, including those regarding the independence of our
audit committee members. We intend to comply with future requirements to the extent that they become applicable to us.</font></p>
</div>
<p align="center"><font face="serif" size="2">71</font></p>
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<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Compensation Committee</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our compensation committee reviews and recommends policy relating to the compensation and benefits of our executive officers. Our compensation committee:</font></p>
</div>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">reviews and approves corporate goals and objectives relevant to the compensation and the benefits of our Chief Executive Officer and our other executive officers;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">evaluates the performance of these officers in light of those goals and objectives; and</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">sets compensation of these officers based on such evaluations.</font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our compensation committee also administers the issuance of stock options and other awards under our 2006 Equity Incentive Plan and our Amended and Restated Stock Option Plan. Upon the consummation of this offering, the compensation committee will be
comprised of Messrs. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; and &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (chair). We believe that the composition and functioning of our compensation committee complies with all applicable requirements of the Sarbanes-Oxley Act of 2002, the NASDAQ Global Market and Securities and Exchange Commission
rules and regulations, including those regarding the independence of our compensation committee members. We intend to comply with future requirements to the extent that they become applicable to us.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Nominating and Corporate Governance Committee</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The nominating and corporate governance committee&#146;s responsibilities include the selection of potential candidates for our board of directors. It also makes recommendations to our board of directors concerning the structure and membership of the other board of
directors committees. The nominating and corporate governance committee is responsible for implementing policies and procedures with regard to consideration of any director candidates recommended by our shareholders. The nominating and corporate governance committee
is comprised of Messrs. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; and &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (chair). We believe that the composition of our nominating and corporate governance committee complies with any applicable requirements of the Sarbanes-Oxley Act of 2002, the NASDAQ Global Market and Securities and Exchange
Commission rules and regulations, including those regarding the independence of our nominating and corporate governance committee members. We intend to comply with future requirements to the extent that they become applicable to us.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Compensation Committee Interlocks and Insider Participation</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Upon the consummation of this offering, the members of our compensation committee will be Messrs. ______, ______ and ______ (chair). None of these individuals was at any time during fiscal year 2005 an officer or employee of ours. In addition, none of our
executive officers serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our board of directors or compensation committee.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Director Compensation</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Following the completion of this offering, we intend to compensate each member of our board of directors, other than those who are our employees or affiliates of our affiliates, with an annual retainer of $15,000 for service on the board of directors. The chair of the
compensation committee will receive an additional annual fee of $4,000 while each other member of the compensation committee will receive an annual fee of $2,000. In addition, the audit committee chair will receive an additional annual fee of $5,000 and each other member
of the audit committee will receive an additional annual fee of $3,000. The chair of the nominating and corporate governance committee will receive an additional $3,000 while each other member of the nominating and corporate governance committee will receive an
additional fee of $1,500. In addition, those members of our board of directors who are not our employees or affiliates of our affiliates will receive an annual grant of 10,000 shares of common stock.</font></p>
</div>
<p>&nbsp;</p>
<p align="center"><font face="serif" size="2">72</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="p73"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Executive Compensation</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The following table sets forth summary information concerning compensation of our Chief Executive Officer and each of the next four most highly compensated current executive officers whose total annual salary and bonus exceeded $100,000 during our fiscal year
ended December&nbsp;31, 2005. We refer to these persons as our named executive officers.</font></p>
</div>
<p align="center"><font face="serif" size="2"><b>SUMMARY COMPENSATION TABLE</b></font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td align="center" valign="bottom">&nbsp;</td>
    <td align="center" valign="bottom">&nbsp;</td>
    <td align="center" valign="bottom">&nbsp;</td>
    <td colspan="8" align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font><font face="serif" size="1">&nbsp;</font><font face="serif" size="1"><b>Annual
          Compensation</b><br>
        <hr noshade size="1">
    </font> <font face="serif" size="1">&nbsp;</font><font face="serif" size="1">&nbsp;</font><font face="serif" size="1">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td align="center" valign="bottom"><font face="serif" size="1">&nbsp;<b>Long-Term</b><br>
        <b>Compensation</b><br>
        <b>Awards</b><br>
        <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td valign="bottom"><div style="margin-left:0%; text-indent:-0%"><font face="serif" size="1"><b>Name and Principal Position</b><hr align="left" width="120" size="1" noshade></font></div></td>
    <td valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Year</b><br>
<hr noshade size="1"></font></td>
    <td valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Salary</b><br>
<hr noshade size="1"></font></td>
    <td valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Bonus<font face="serif" size="2"><sup>(4)</sup></font></b><br>
<hr noshade size="1"></font></td>
    <td valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Other</b><br>
<b>Compensation</b><br>
<hr noshade size="1"></font></td>
    <td valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Shares</b><br>
<b>Underlying</b><br>
<b>Options</b><br>
<hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">David St. Clair</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2005</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">300,000</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">30,280</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">175,000</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%"><font face="serif" size="2"><i>Chairman and Chief</i></font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2004</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">287,500</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">250,000</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%"><font face="serif" size="2"><i>Executive Officer</i></font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2003</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">275,000</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">John H. Capobianco</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2005</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">260,427</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">107,572 </font></td>
    <td valign="bottom"><font face="serif" size="2"><sup>(1)</sup></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">175,000</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%"><font face="serif" size="2"><i>President and Chief</i></font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2004</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">250,000</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">20,000</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">81,202 </font></td>
    <td valign="bottom"><font face="serif" size="2"><sup>(1)</sup></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">260,000</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%"><font face="serif" size="2"><i>Operating Officer</i></font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2003</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">250,000</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">7,000</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Carl E. Smith</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2005</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">208,333</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">160,000</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%"><font face="serif" size="2"><i>Executive Vice President,</i></font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2004</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">191,666</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">60,000</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%"><font face="serif" size="2"><i>Chief Financial Officer and</i></font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2003</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">148,333</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">109,000</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%"><font face="serif" size="2"><i>Secretary</i></font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Henry A. DePhillips, III, M.D.</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2005</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">310,000</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">100,000</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%"><font face="serif" size="2"><i>Executive Vice President and</i></font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2004</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">234,231</font></td>
    <td valign="bottom"><font face="serif" size="2"><sup>(2)</sup></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">150,000</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%"><font face="serif" size="2"><i>Chief Medical Officer</i></font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2003</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Danielle Russella Bantivoglio</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2005</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">185,418</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">391,291</font></td>
    <td valign="bottom"><font face="serif" size="2"><sup>(3)</sup></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%"><font face="serif" size="2"><i>Executive Vice President,</i></font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2004</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">160,338</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">403,856</font></td>
    <td valign="bottom"><font face="serif" size="2"><sup>(3)</sup></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%"><font face="serif" size="2"><i><font face="serif" size="2">Client Solutions</font></i></font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2003</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">151,250</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">90,740</font></td>
    <td valign="bottom"><font face="serif" size="2"><sup>(3)</sup></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="100"><hr noshade size="1" align="left" width="100%"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="1">(1)</font></td>
    <td><div align="left"><font face="serif" size="1">Represents the annual incentive under Mr. Capobianco&#146;s employment agreement based upon the annual net increase in our revenue.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="1">(2)</font></td>
    <td><div align="left"><font face="serif" size="1">Dr.&nbsp;DePhillips&#146; 2004 compensation is based on a partial year of employment, as he joined us in March 2004.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="1">(3)</font></td>
    <td><div align="left"><font face="serif" size="1">Represents commissions earned in each period under the commission plan with Ms. Bantivoglio.</font></div></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="1">(4)</font></td>
    <td><div align="left"><font face="serif" size="1">Does not include amounts
          pursuant to a special incentive bonus pool approved by the compensation
           committee of our board of directors based on our 2005 performance.
          The payments to be made to our executive officers pursuant to this
          special incentive bonus pool have not been allocated. For more information,
          see &#147;Certain Relationships and Related Party Transactions.&#148;</font></div>
    </td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><div align="left"><font face="serif" size="2"><b>Option Grants in Last Fiscal Year</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The following table sets forth information regarding grants of stock options to purchase shares of our common stock to each of the named executive officers during the year ended December&nbsp;31, 2005. All options included on the table have an exercise price equal to no
less than the fair market value of our common stock, as determined by our board of directors, on the date of grant.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Potential realizable value is based upon an assumed initial public offering price of our common stock of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; per share, the midpoint of the range set forth on the cover page of this prospectus. Potential realizable values are net of exercise prices, but before taxes
associated with exercise. Amounts representing hypothetical gains are those that could be achieved if options are exercised at the end of the option term. The assumed 5% and 10% rates of stock price appreciation are provided in accordance with the rules of the Securities and
Exchange Commission based on the assumed initial offering price of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, the midpoint of the range set forth on the cover page of this prospectus, and do not represent our estimate or projection of our future stock price. We cannot assure you that any of the values in the
table will be achieved. Actual gains, if any, on stock option exercises will depend on the future performance of our common stock and overall stock market conditions.</font></p>
</div>
<p>&nbsp;</p>
<p align="center"><font face="serif" size="2">73</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="p74"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The percentage of total options granted
    to our employees in 2005 is based on options to purchase an aggregate of
    1,097,000 shares of common stock granted under our equity incentive plans
  to our employees in 2005.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="14" align="center" valign="bottom"><font face="serif" size="1"><b>Individual Grants</b><br>
<hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="5" align="center" valign="bottom"><font face="serif" size="1"><b>Potential Realizable Value at</b><br>
<b>Assumed Annual Rates of</b><br>
<b>Stock Price Appreciation for</b><br>
<b>Option Term<sup>(1)</sup></b><br>
<hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td valign="bottom"><div style="margin-left:0%; text-indent:-0%"><font face="serif" size="1"><b>Name</b><hr align="left" width="25" size="1" noshade>
    </font></div></td>
    <td valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Number of</b><br>
<b>Securities</b><br>
<b>Underlying</b><br>
<b>Options/</b><br>
<b>SARs</b><br>
<b>Granted (#)</b><br>
<hr noshade size="1"></font></td>
    <td valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Percentage</b><br>
<b>of Total</b><br>
<b>Options/</b><br>
<b>SARs</b><br>
<b>Granted</b><br>
<b>To</b><br>
<b>Employees</b><br>
<b>In Fiscal</b><br>
<b>Year</b><br>
<hr noshade size="1"></font></td>
    <td valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Exercise</b><br>
<b>of Base</b><br>
<b>Price</b><br>
<b>($/Sh)</b><br>
<hr noshade size="1"></font></td>
    <td valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Fair</b><br>
<b>Market</b><br>
<b>Value</b><br>
<b>On Date</b><br>
<b>of Grant</b><br>
<b>($/Sh)<sup>(2)</sup></b><br>
<hr noshade size="1"></font></td>
    <td valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Expiration</b><br>
<b>Date</b><br>
<hr noshade size="1"></font></td>
    <td valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>5%</b><br>
<hr noshade size="1"></font></td>
    <td valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>10%</b><br>
<hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">David St. Clair</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">175,000</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">15.95</font></td>
    <td valign="bottom"><font face="serif" size="1">%</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">0.275</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">1.01</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">5/3/2010</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">John H. Capobianco</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">175,000</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">15.95</font></td>
    <td valign="bottom"><font face="serif" size="1">%</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">0.250</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">1.01</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">5/3/2015</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Carl E. Smith</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">160,000</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">14.59</font></td>
    <td valign="bottom"><font face="serif" size="1">%</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">0.250</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">2.26</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">8/23/2015</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Henry A, DePhillips, III, M.D.</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">100,000</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">9.12</font></td>
    <td valign="bottom"><font face="serif" size="1">%</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">0.250</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">2.26</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">8/23/2015</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Danielle Russella Bantivoglio</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="100"><hr noshade size="1" align="left" width="100%"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="1">(1)</font></td>
    <td><div align="left"><font face="serif" size="1">Potential net realizable values are net of exercise price, but before any applicable taxes associated with the exercise. The assumed rates of stock appreciation are provided in accordance with the Securities and Exchange Commission rules based upon an assumed initial public
offering price of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; per share, the midpoint of the range set forth on the cover page of this prospectus, and do not represent our estimate or projection of future stock price.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="1">(2)</font></td>
    <td><div align="left"><font face="serif" size="1">Represents the fair market
          value, based upon an independent appraisal of the value of our common
          stock.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><div align="left"><font face="serif" size="2"><b>Aggregate Option Exercises in 2005 and Option Values</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The following table sets forth information concerning the number and value of unexercised options held by each of our named executive officers on December&nbsp;31, 2005. The value of &#147;in-the-money&#148; options to purchase our common stock represents the positive spread
between the exercise price of options to purchase our common stock and the assumed initial public offering price of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; per share, the midpoint of the range on the front cover of this prospectus.<br>
</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Number of Securities</b><br>
<b>Underlying Unexercised</b><br>
<b>Options/SARs at</b><br>
<b>December</b>&nbsp;<b>31, 2005<sup>(1)</sup></b><br>
<hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Value of Unexercised In-the-</b><br>
<b>Money Options/SARs at</b><br>
<b>December</b>&nbsp;<b>31, 2005<sup>(2)</sup></b><br>
<hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="bottom">
    <td><div style="margin-left:0%; text-indent:-0%"><font face="serif" size="1"><b>Name</b><hr align="left" width="25" size="1" noshade></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center"><font face="serif" size="1"><b>Shares</b><br>
<b>Acquired on</b><br>
<b>Exercise (#)</b><br>
<hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center"><font face="serif" size="1"><b>Value</b><br>
<b>Realized ($)</b><br>
<hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center"><font face="serif" size="1"><b>Exercisable/</b><br>
<b>Unexercisable</b><br>
<hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center"><font face="serif" size="1"><b>Exercisable/</b><br>
<b>Unexercisable</b><br>
<hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">David St. Clair</font></div></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">&#151;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">&#151;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">207,500/387,500</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom" width="18%"><font face="serif" size="2">$/$</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">John H. Capobianco</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,162,000/480,000</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">$/$</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Carl E. Smith</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">187,750/221,250</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">$/$</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Henry A. DePhillips, III, M.D.</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">37,500/212,500</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">$/$</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Danielle Russella Bantivoglio</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">37,500/12,500</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">$/$</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
 <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="100"><hr noshade size="1" align="left" width="100%"></td>
    <td>&nbsp;</td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="1">(1)</font></td>
    <td><div align="left"><font face="serif" size="1">The number of shares underlying options reflected in the table includes shares of common stock into which the Series C preferred stock underlying the Series C preferred stock options will be converted upon the consummation of this offering. See &#147;Conversion and Exercise
Transactions&#148; elsewhere in this prospectus.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="1">(2)</font></td>
    <td><div align="left"><font face="serif" size="1">There was no public trading market for our common stock on December&nbsp;31, 2005. Accordingly, these values are based upon an estimated initial public offering price of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; per share, the midpoint of the range on the front cover of this prospectus, less the applicable exercise
price.</font></div></td>
  </tr>
</table>
<p>&nbsp;</p>
<p align="center"><font face="serif" size="2">74</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="p75"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="left"><font face="serif" size="2">&nbsp;</font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Employment Agreement with David St. Clair</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We entered into an employment agreement with David St. Clair, our Chairman and Chief Executive Officer, on January&nbsp;1, 2003, which was amended on July 18, 2006. The agreement is for a term of three years and thereafter, the agreement automatically extends for
successive one year periods. Pursuant to the agreement, Mr.&nbsp;St. Clair&#146;s yearly base salary for 2006 is $300,000 and is reviewed at least yearly by the compensation committee of our board of directors and may be increased by the committee from time to time. In addition to
his base salary, Mr.&nbsp;St. Clair is eligible to receive annual bonuses with respect to each fiscal year that ends during his employment with us. The amount of each such bonus, and the criteria for Mr.&nbsp;St. Clair&#146;s eligibility to receive such amount, are to be determined by the
compensation committee. Under the agreement, Mr.&nbsp;St. Clair is also eligible to receive equity incentive awards (for example, a grant of stock options or restricted stock). The type and size of award, the vesting provisions of such award and all other terms and conditions of
such award will be determined by the compensation committee. Mr.&nbsp;St. Clair is eligible to participate in any and all plans providing general benefits to our employees, subject to the provisions, rules and regulations applicable to each such plan.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Pursuant to the agreement, we may terminate Mr.&nbsp;St. Clair with or without &#147;cause&#148; and Mr.&nbsp;St. Clair may resign at any time. If Mr.&nbsp;St. Clair&#146;s employment with us is terminated due to his death or disability, he or his estate will be entitled to receive his base salary
accrued through the date of termination, any annual bonus earned but not yet paid with respect to a calendar year ending prior to the date of the termination and any life or disability benefits payable under our employee benefit plans.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">If we terminate Mr.&nbsp;St. Clair without &#147;cause,&#148; we will pay Mr.&nbsp;St. Clair his base salary accrued through the date of termination, any annual bonus earned but not yet paid with respect to a calendar year ending prior to the date of the termination and an aggregate
amount equal to his annual base salary at the time of termination paid the following 12 months.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">If Mr.&nbsp;St. Clair&#146;s employment with us terminates within 18 months after a &#147;change in control&#148; as a result of an &#147;involuntary termination&#148; or a termination by us without &#147;cause&#148; we will pay Mr.&nbsp;St. Clair his base salary accrued through the date of termination, any
annual bonus earned but not yet paid with respect to a calendar year ending prior to the date of the termination, waiver of all applicable premiums to be paid for statutory post-employment healthcare insurance for a period of 12 months and a lump sum equal to 1.5 multiplied
by the greater of (i) his base salary at the time of such termination or (ii) his base salary at the time of the &#147;change in control.&#148; In addition, in such case, all of Mr.&nbsp;St. Clair&#146;s stock options will become exercisable and all forfeiture conditions on Mr.&nbsp;St. Clair&#146;s restricted
stock will lapse.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Under the agreement, all payments to Mr.&nbsp;St. Clair are subject to reduction to the extent that the reduction would avoid the imposition of certain &#147;golden parachute&#148; excise taxes and thereby increase his net after-tax proceeds. In addition, to the extent necessary to
comply with Section&nbsp;409A of the Internal Revenue Code, any of the severance payments due under the agreement within the first six months following Mr.&nbsp;St. Clair&#146;s separation from service will be deferred (without interest) and paid to Mr.&nbsp;St. Clair in a lump sum
immediately following that six-month period.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The payment of any severance benefits under the agreement is conditioned upon the execution by Mr.&nbsp;St. Clair of a release. In addition, Mr. St. Clair is subject to confidentiality and proprietary information covenants following termination of employment.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">For purposes of the agreement, &#147;cause&#148; means any of: (i) commission of a felony or an act of fraud, theft, embezzlement or other gross misconduct; (ii) misuse, misappropriation or disclosure of any of our confidential information, directly or indirectly, or use of it in
any way, except as required or permitted in the course of Mr.&nbsp;St. Clair&#146;s employment; (iii) willful or reckless conduct which endangers the safety of other persons or property during the course of his employment or while on premises leased or owned by us; (iv) conviction of
alcohol abuse or the use of illegal drugs; (v) material breach by Mr.&nbsp;St. Clair of the employment agreement or of any duty owed to us or our shareholders, which breach is not cured within ten (10) days following delivery to Mr.&nbsp;St. Clair of written notice identifying the
actions, omissions or occurrences constituting such breach; or (vi) material refusal by Mr.&nbsp;St. Clair to perform his duties under the</font></p>
</div>
<p align="center"><font face="serif" size="2">75</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="p76"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="left"><font face="serif" size="2">agreement, which refusal is not cured within 30 days following delivery to Mr.&nbsp;St. Clair of written notice identifying the actions, omissions or occurrences constituting such failure or refusal.</font></p>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">For purposes of the agreement, &#147;involuntary termination&#148; means any of (i) the assignment to Mr.&nbsp;St. Clair of duties or responsibilities materially inconsistent with his status as our Chief Executive Officer; (ii) a material, adverse change in Mr.&nbsp;St. Clair&#146;s title or
authority; (iii) a material reduction in Mr.&nbsp;St. Clair&#146;s base salary; or (iv) the relocation of Mr.&nbsp;St. Clair to a facility or a location more than 50 miles from Mr.&nbsp;St. Clair&#146;s then present worksite, without Mr.&nbsp;St. Clair&#146;s express written consent.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">In addition, for purposes of this agreement, &#147;change in control&#148; means any of (i) any person (as such term is used in Sections&nbsp;13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, but excluding certain of our shareholders and the affiliates of such
shareholders) becoming the &#147;beneficial owner&#148; (as defined in Rule 13d-3 under said Act), directly or indirectly, of our securities representing fifty percent (50%) or more of the total voting power represented by our then outstanding voting securities; (ii) our consummation of a
merger or consolidation with any other corporation, other than a merger or consolidation which would result in our voting securities outstanding immediately prior to such transaction continuing to represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least fifty percent (50%) of the total voting power represented by our voting securities or such surviving entity outstanding immediately after such transaction; (iii) our liquidation; or (iv) our sale or disposition of all or substantially all of our
assets.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Pursuant to the agreement, Mr.&nbsp;St. Clair must devote his entire working time to our business and affairs. Additionally, during the term of the agreement and for the two year period thereafter, Mr.&nbsp;St. Clair is prohibited from directly or indirectly, engaging or
participating, within the United States, in any business engaging in the provision of integrated medical management services or technology-based clinical decision support or transaction management services to payers or in any other activity in which we engage. Mr.&nbsp;St. Clair
has also agreed, during the term of his employment and for the two year period thereafter, not to, directly or indirectly, (i) solicit, divert or appropriate any of our customers or clients, (ii) influence or attempt to influence any person to terminate or modify any employment,
consulting, agency, distributorship or other arrangement with us, or (iii) without our express written consent, employ or retain any individual who has been employed or engaged by us within the preceding twelve months.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Employment Agreement with John H. Capobianco</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We entered into an employment agreement with John H. Capobianco, our President, Chief Operating Officer and a member of our board of directors on September&nbsp;4, 2002, which was amended on July 18, 2006. The agreement is for a term of two years and thereafter,
the agreement automatically extends for successive one year periods. Pursuant to the agreement, Mr.&nbsp;Capobianco&#146;s yearly base salary for 2006 is $260,427 and is reviewed at least yearly by the compensation committee of our board of directors and may be increased by the
compensation committee from time to time. In addition to his base salary, Mr.&nbsp;Capobianco is eligible to receive annual bonuses with respect to each fiscal year that ends during his employment with us, including a revenue bonus and a management incentive bonus. The
amount of the annual revenue bonus is to be equal to 1% of the net increase in our consolidated revenue for such year. The amount of each management incentive bonus, and the criteria for Mr.&nbsp;Capobianco&#146;s eligibility to receive such amount, are to be determined by the
compensation committee. Under the agreement, Mr.&nbsp;Capobianco is also eligible to receive equity incentive awards (for example, a grant of stock options or restricted stock) with respect to each calendar year ending during the term of the agreement. The type and size of
award, the vesting provisions of such award and all other terms and conditions of such award will be determined by the compensation committee. Mr.&nbsp;Capobianco is eligible to participate in any and all plans providing general benefits to our employees, subject to the
provisions, rules and regulations applicable to each such plan.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Pursuant to the agreement, we may terminate Mr.&nbsp;Capobianco with or without &#147;cause&#148; and Mr.&nbsp;Capobianco may resign at any time. If Mr.&nbsp;Capobianco&#146;s employment with us is terminated due to his death or disability, he or his estate will be entitled to receive his
base salary accrued through the date of termination, any bonuses earned but not yet paid with respect to any period ending prior to the date of the termination and any life or disability benefits payable under our employee benefit plans. In addition, in that</font></p>
</div>
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<p align="left"><font face="serif" size="2">case Mr. Capobianco or his estate may retain any revenue bonus advances previously paid, whether or not earned.</font></p>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">If we terminate Mr.&nbsp;Capobianco without &#147;cause,&#148; we will pay Mr.&nbsp;Capobianco his base salary accrued through the date of termination, any bonuses earned but not yet paid with respect to any period ending prior to the date of the termination and an aggregate amount
equal to one-half his annual base salary at the time of termination paid over the following six months.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">If Mr.&nbsp;Capobianco&#146;s employment with us terminates within 18 months after a &#147;change in control&#148; as a result of an &#147;involuntary termination&#148; or a termination by us without &#147;cause&#148; we will pay Mr.&nbsp;Capobianco his base salary accrued through the date of termination,
any bonuses earned but not yet paid with respect to a calendar year ending prior to the date of the termination, waiver of all applicable premiums to be paid for statutory post-employment healthcare insurance for a period of six months and a lump sum equal to the greater of
(i) his base salary at the time of such termination or (ii) his base salary at the time of the &#147;change in control.&#148; In addition, in such case, all of Mr.&nbsp;Capobianco&#146;s stock options will become exercisable and all forfeiture conditions on Mr.&nbsp;Capobianco&#146;s restricted stock will fully
lapse.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Under the agreement, all payments to Mr.&nbsp;Capobianco are subject to reduction to the extent that the reduction would avoid the imposition of certain &#147;golden parachute&#148; excise taxes and thereby increase his net after-tax proceeds. In addition, to the extent necessary to
comply with Section&nbsp;409A of the Internal Revenue Code, any of the severance payments due under the agreement within the first six months following Mr.&nbsp;Capobianco&#146;s separation from service will be deferred (without interest) and paid to Mr.&nbsp;Capobianco in a lump sum
immediately following that six-month period.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The payment of any severance benefits is conditioned upon the execution by Mr.&nbsp;Capobianco of a release. In addition, Mr.  Capobianco is subject to confidentiality and proprietary information covenants following termination of employment.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">For purposes of the agreement, &#147;involuntary termination&#148; means any of (i) the assignment to Mr.&nbsp;Capobianco of duties or the significant reduction of Mr. Capobianco&#146;s authority that are, in either case, materially inconsistent with his status as our President and Chief
Operating Officer; (ii) the removal of Mr.&nbsp;Capobianco from such position for a reason other than for &#147;cause&#148; or misconduct; (iii) a material reduction in Mr.&nbsp;Capobianco&#146;s base salary or annual bonus opportunities without his express written consent; or (iv) the relocation of
Mr.&nbsp;Capobianco to a facility or a location more than 50 miles from Mr.&nbsp;Capobianco&#146;s then present worksite, without Mr.&nbsp;Capobianco&#146;s express written consent. In addition, for purposes of this agreement, the definitions &#147;change in control&#148; and &#147;cause&#148; are substantially
identical to the definitions of those terms in Mr. St. Clair&#146;s employment agreement, as described above.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Pursuant to the agreement, Mr.&nbsp;Capobianco must devote his entire working time to our business and affairs. Additionally, during the term of the agreement and for the two year period thereafter, Mr.&nbsp;Capobianco is prohibited from directly or indirectly, engaging or
participating, within the United States, in any business engaging in the provision of technology-based clinical decision support or transaction management services to managed care payers. Mr.&nbsp;Capobianco has also agreed, during the term of his employment and for the one
year period thereafter, not to, directly or indirectly, (i) solicit, divert or appropriate any of our customers or clients; (ii) influence or attempt to influence any person to terminate or modify any employment, consulting, agency, distributorship or other arrangement with us; or (iii)
without our express written consent, employ or retain any individual who has been employed or engaged by us within the preceding 12 months.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Employee Benefit Plans</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We believe that our ability to grant equity-based awards is a valuable and necessary compensation tool that aligns the long-term financial interests of our employees and directors with the financial interests of our shareholders. In addition, we believe that our ability to
grant options and other equity-based awards helps us to attract, retain and motivate qualified employees, and encourages them to devote their best efforts to our business and financial success. The material terms of our equity incentive plans are described below.</font></p>
</div>
<p>&nbsp;</p>
<p align="center"><font face="serif" size="2">77</font></p>
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<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b><i>2006 Equity Incentive Plan</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">In &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2006, we adopted (and our shareholders approved) the 2006 Equity Incentive Plan, which will become effective immediately prior to when we become subject to the reporting requirements of the Securities Exchange Act of 1934. We refer to the 2006
Equity Incentive Plan as the 2006 Plan. The 2006 Plan provides for the award of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units performance awards and other stock-based awards.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Employees, directors, consultants and other individuals who provide services to us or our affiliates are eligible to be granted awards under the 2006 Plan; provided however, that only employees are eligible to be granted incentive stock options. The principal features of
the 2006 Plan are summarized below, but the summary is qualified in its entirety by reference to the 2006 Plan, which is filed as an exhibit to the registration statement of which this prospectus is a part.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td><div align="left">
      <div style="margin-left: 3%">
        <p align="left"><font face="serif" size="2"><i>Number of Shares of Our
              Common Stock Available Under the 2006 Plan</i></font></p>
      </div>
    </div>
    </td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We have reserved a total of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; shares of our common stock for issuance pursuant to the 2006 Plan. Shares subject to forfeited, cancelled, or expired awards will become available for grant again under the 2006 Plan. Similarly, shares tendered or withheld in
satisfaction of the exercise price of any option or tax withholding obligation associated with any award will become available for grant under the 2006 Plan. Finally, the shares subject to any award settled in cash will again become available for grant under the 2006 Plan.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left">
      <div style="margin-left: 3%">
        <p align="left"><font face="serif" size="2"><i>Administration of the
              Plan</i></font></p>
      </div>
    </div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our board of directors, or a committee of the board of directors, administers the 2006 Plan and determines which individuals will be granted awards, the type of awards to be granted, the number of shares subject to each award and the other terms and conditions thereof.
To administer the 2006 Plan, a committee of the board of directors must consist of at least two members of our board of directors, each of whom is a &#147;non-employee director&#148; for purposes of Rule 16b-3 under the Securities Exchange Act of 1934, and, with respect to awards
that are intended to constitute performance-based compensation under Section&nbsp;162(m) of the Internal Revenue Code of 1986, an &#147;outside director&#148; for the purposes of Section&nbsp;162(m). Our board of directors may amend or modify the 2006 Plan at any time, provided that to
the extent that any such amendment purports to alter the class&nbsp;of persons eligible to receive incentive stock options or increase the maximum number of shares as to which awards may be granted, such purported amendment must receive the approval of a majority of our
shareholders to be effective.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The 2006 Plan will continue in effect until terminated by us in accordance with its terms, although incentive stock options may not be granted more than 10 years after the adoption of the 2006 Plan.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left">
      <div style="margin-left: 3%">
        <p align="left"><font face="serif" size="2"><i>Stock Options Under the
              Plan</i></font></p>
      </div>
    </div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The 2006 Plan permits the grant of incentive stock options and non-qualified stock options. The exercise price of any option granted under the 2006 Plan may not be less than 100% of the fair market value per share of our common stock on the date of grant. In the case
of any incentive stock option granted to a participant who owns at least 10% of the total combined voting power of all classes of our capital stock, the 2006 Plan provides that the exercise price must be at least 110% of the fair market value of our common stock on the date
of the grant. In addition, the aggregate fair market value of shares of our common stock for which incentive stock options are first exercisable in any calendar year may not exceed $100,000 (determined with reference to the fair market value of those shares on the date of
grant). The exercise price of any option granted under the 2006 Plan may be paid in cash, previously acquired shares or by such other means as the board of directors may accept.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Under the 2006 Plan, each option will vest and be exercisable at such time and to such extent as specified in the pertinent option agreement. However, no incentive stock option award will be exercisable with respect to any shares of our common stock more than 10
years after the date of such award (or five years from the date of grant if the optionee owns at least 10% of the total combined voting power of all</font></p>
</div>
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<p align="left"><font face="serif" size="2">classes of our capital stock). Unless otherwise specified by our board of directors with respect to a particular option, all options are non-transferable except upon death.</font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td><div align="left">
      <div style="margin-left: 3%">
        <p align="left"><font face="serif" size="2"><i>Stock Appreciation Rights</i></font></p>
      </div>
    </div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The 2006 Plan permits the grant of stock appreciation rights, which we refer to as SARs, that give the holder the right to receive the appreciation in value of shares subject to the SAR. Unless otherwise specified in the award agreement, the term of a SAR will be 10
years. SARs vest and become exercisable subject to such terms and conditions as determined by the board of directors at the time of grant. Upon exercise, the holder will be entitled to receive in either cash and/or shares (as determined by the board of directors) an amount
equal to the excess of (i) the fair market value of the shares covered by the SAR on the date of exercise over (ii) the fair market value of the shares covered as of the date the SAR was granted. Unless otherwise specified by our board of directors with respect to a particular
SARs, all SARs are non-transferable except upon death.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left">
      <div style="margin-left: 3%">
        <p align="left"><font face="serif" size="2"><i>Termination of Options
              and SARs</i></font></p>
      </div>
    </div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">If a participant&#146;s service with us terminates due to death or disability, any vested option or SAR held by the participant may be exercised until (i) such time specified by our board of directors; (ii) if not specified by our board of directors, one year from termination of
service; or (iii) if earlier than the foregoing, the expiration of the stated term of the option or SAR. If a participant&#146;s service with us is terminated for cause, any unexercised option or SAR will be automatically forfeited. In addition, if a participant&#146;s service with us is
terminated for any other reason, any vested option or SAR held by the participant may be exercised until (i) such time specified by our board of directors; (ii) if not specified by our board of directors, ninety days from termination of service; or (iii) if earlier than the foregoing,
the expiration of the stated term of the option or SAR.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left">
      <div style="margin-left: 3%">
        <p align="left"><font face="serif" size="2"><i>Restricted Stock</i></font></p>
      </div>
    </div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The 2006 Plan permits the grant of restricted stock. All restricted stock is non-transferable until vested. The board of directors may condition the vesting of restricted stock upon the continued employment of the recipient, the attainment of specified individual or
corporate performance goals or such other factors as the board of directors may determine. Unless otherwise specified by the board of directors, if a participant&#146;s service with us terminates prior to the expiration of the restriction period, all the participant&#146;s restricted stock that
remains subject to forfeiture will be forfeited automatically.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left">
      <div style="margin-left: 3%">
        <p align="left"><font face="serif" size="2"><i>Restricted Stock Units</i></font></p>
      </div>
    </div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The 2006 Plan permits the grant of restricted stock units. Each restricted stock unit will entitle the recipient to a payment from us equal to the fair market value of one share of our common stock at a specified time or upon the occurrence of a specified event. Such
payments may be made in cash, stock or a combination thereof. The terms governing restricted stock units, such as vesting, time and form of payment and termination of units, will be set forth in the applicable award agreement.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left">
      <div style="margin-left: 3%">
        <p align="left"><font face="serif" size="2"><i>Performance Awards</i></font></p>
      </div>
    </div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The 2006 Plan permits performance awards to be granted which become payable on account of the attainment of one or more performance goals established by the board of directors. Performance awards may be paid by the delivery of stock, cash or any combination
thereof.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left">
      <div style="margin-left: 3%">
        <p align="left"><font face="serif" size="2"><i>Other Stock Based Awards</i></font></p>
      </div>
    </div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The board of directors may also from time to time grant other stock-based awards under the 2006 Plan in such amounts and on such terms and conditions as it shall determine.</font></p>
</div>
<p>&nbsp;</p>
<p align="center"><font face="serif" size="2">79</font></p>
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<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left">
      <div style="margin-left: 3%">
        <p align="left"><font face="serif" size="2"><i>Adjustments upon Certain
              Events</i></font></p>
      </div>
    </div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">In the event of any recapitalization, reorganization, merger, consolidation, stock split or combination, stock dividend or other similar event or transaction affecting our shares, equitable substitutions or adjustments will be made by the board of directors, in its discretion,
to: (i) the aggregate number, class&nbsp;and/or issuer of the securities reserved for issuance under the 2006 Plan; (ii) the number, class&nbsp;and/or issuer of shares subject to outstanding awards; and (iii) the exercise price of options and SARs then outstanding under the 2006 Plan.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left">
      <div style="margin-left: 3%">
        <p align="left"><font face="serif" size="2"><i>Effect
              of Change in Control</i></font></p>
      </div>
    </div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Upon or in anticipation of any change in control (as defined in the 2006 Plan), the 2006 Plan provides that the board of directors may, in its discretion and without the need for the consent of any award holder, take one or more of the following actions contingent upon
the occurrence of that change in control: (i) cause any or all outstanding options or SARs to become vested and/or immediately exercisable, in whole or in part; (ii) cause any or all outstanding restricted stock, restricted stock unit or other stock based award to become non-
forfeitable, in whole or in part; (iii) cancel any option, restricted stock, restricted stock unit, SAR or other stock based award in exchange for a similar award in respect of the capital stock of a successor corporation or its parent; (iv) cause any outstanding option or SAR to
become fully vested and exercisable for a reasonable period in advance of the change in control and, to the extent not exercised prior to that change in control, cancel that option or SAR upon closing of the change in control; (v) cancel any option or SAR in exchange for cash
and/or other substitute consideration with a value equal to the number of shares subject to that option or SAR, multiplied by the difference, if any, between the fair market value per share on the date of the change in control and the exercise price of that option or SAR; or (vi)
redeem any share of restricted stock or any restricted stock unit in exchange for cash and/or other substitute consideration with a value equal to the fair market value per share on the date of the change in control. In the discretion of the board of directors, any cash or substitute
consideration payable upon cancellation or redemption of an award may be subjected to vesting terms substantially identical to those that applied to the cancelled or redeemed award prior to the change in control.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Amended and Restated Stock Option Plan</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">In January 1993, we adopted our amended and restated stock option plan that had been approved by our shareholders. The plan has been extended from time to time and provides for the award of incentive stock options and non-qualified stock options. Our board of
directors has resolved to make no further grants of awards pursuant to the Amended and Restated Stock Option Plan after the consummation of this offering.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Grants of non-qualified stock options can be made to our employees, directors, consultants and other individuals who perform services for us. Grants of incentive stock options may only be made to our employees. The principal features of the plan are summarized
below, but the summary is qualified in its entirety by reference to the plan, which is filed as an exhibit to the registration statement of which this prospectus is a part.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left">
      <div style="margin-left: 3%">
        <p align="left"><font face="serif" size="2"><i>Number
              of Shares of Our Common Stock Available Under the Plan</i></font></p>
      </div>
    </div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">As of August 10, 2006, there are
    options outstanding under the plan with respect to 5,900,163 shares of our
    common
    stock. No additional
    grants will be made under the plan after the consummation of this offering.
    In connection with any change affecting our common stock by reason of stock
    split, stock dividend, stock combination or reclassification, recapitalization
    or merger, or similar event, our board of directors may adjust appropriately
    the number of shares subject to outstanding options, the share prices of
    outstanding options, and any other revisions
to outstanding options as our board of directors deems are equitably required.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left">
      <div style="margin-left: 3%">
        <p align="left"><font face="serif" size="2"><i>Administration
              of the Plan</i></font></p>
      </div>
    </div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The compensation committee of the board of directors administers the plan. Our compensation committee, among other things, interprets the plan, selects award recipients, determines the type of awards to be granted to such recipients and determines the number of
shares subject to each award and the terms and conditions thereof. Our compensation committee may amend or modify the plan at any time, provided that to the extent that any such amendment purports to alter the class&nbsp;of persons eligible to receive incentive stock</font></p>
</div>
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<p align="left"><font face="serif" size="2">options, extend the expiration date of the plan, decrease the minimum option price of an incentive stock option under the plan or increase the maximum number of shares as to which stock
options may be granted, such purported amendment must receive the approval of our shareholders to be effective.</font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td><div align="left">
      <div style="margin-left: 3%">
        <p align="left"><font face="serif" size="2"><i>Stock
              Options Under the Plan</i></font></p>
      </div>
    </div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Grants of both incentive stock options and non-qualified stock options have been made under the plan.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Under the plan, each option will vest and be exercisable at such time and to such extent as specified in the pertinent option agreement between us and the option recipient. However, no award will be exercisable with respect to any shares of our common stock more than
10 years after the date of such award. All options are nontransferable except by will or the laws of descent and distribution or, with respect to nonstatutory stock options, pursuant to a qualified domestic relations order. If a participant&#146;s service with us terminates due to death
or disability, any options held by the participant may be exercised until (i) such time specified by our board of directors; (ii) if not specified by our board of directors, one year from termination of service; or (iii) if earlier than the foregoing, the expiration for the stated term of
the option. If a participant&#146;s service with us is terminated for cause or if our board of directors finds that a participant has breached any confidentiality or non-competition agreements with us, any unexercised options will be automatically forfeited. In addition, if a participant&#146;s
service with us is terminated for any other reason, any option held by the participant may be exercised until (i) such time specified by our board of directors; (ii) if not specified by our board of directors, three months from termination of service; or (iii) if earlier than the
foregoing, the expiration of the stated term of the option.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Series C Stock Equity Incentive Plan</i></b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">In December 2001, we adopted our Series C Stock Equity Incentive Plan. Upon consummation of this offering, we will substitute shares of common stock for shares of Series C preferred stock subject to options based on the conversion price at the time of this offering.
Our board of directors has resolved to make no further grants of awards pursuant to the Series C Stock Equity Incentive Plan after the consummation of this offering. The plan provides for the award of stock options or restricted shares, but our board of directors has not
approved the use of this plan for incentive stock options. Consequently, our board of directors has not presented this plan to our shareholders for approval.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Grants of non-qualified stock options can be made to our employees, directors, consultants, and other individuals who perform services for us. The principal applicable features of the plan are summarized below, but the summary is qualified in its entirety by reference to
the plan, which is filed as an exhibit to the registration statement of which this prospectus is a part.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Upon the conversion of the outstanding
    shares of our Series C preferred stock to common stock immediately prior
    to the consummation of this offering, our board of directors intends, and
    has the discretion to do so under the plan, to substitute each currently
    outstanding  option to purchase a share of our Series C preferred stock with
    an option to purchase a share of our common stock on a one-for-one basis.
    All of the information concerning the Series C Stock Equity Incentive Plan
    in
    this
    prospectus
    assumes
    this conversion upon the consummation of this offering.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">In connection with recapitalizations, stock splits, combinations, stock dividends and other events affecting our common stock, our board of directors may make adjustments or equitable substitutions it deems appropriate in its sole discretion to the maximum number, type
and issuer of shares of our common stock subject to outstanding options, to the exercise price of the options and to the number, type and issuer of restricted shares.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left">
      <div style="margin-left: 3%">
        <p align="left"><font face="serif" size="2"><i>Administration
              of the Plan</i></font></p>
      </div>
    </div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The compensation committee administers the plan and, among other things, interprets the plan, selects award recipients, determines the type of awards to be granted to such recipients and determines the number of shares subject to each award and the terms and
conditions thereof. Our compensation committee may amend or modify the plan at any time, provided no amendment can impair the rights of a participant with respect to an existing award without such participant&#146;s consent. In addition, to the extent that any such</font></p>
</div>
<p align="center"><font face="serif" size="2">81</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
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<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="left"><font face="serif" size="2">amendment purports to alter the class&nbsp;of persons eligible to receive awards or increase the maximum number of shares as to which stock options may be granted, such purported amendment
must receive the approval of our shareholders to be effective. In addition, our board of directors is also authorized to adopt, alter and repeal any rules relating to the administration of the plan
and to rescind the authority of the compensation committee and thereafter directly administer the plan.</font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td><div align="left">
      <div style="margin-left: 3%">
        <p align="left"><font face="serif" size="2"><i>Stock
              Options Under the Plan</i></font></p>
      </div>
    </div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The only awards currently outstanding under the plan are non-qualified stock options with respect to 110,000 shares of our Series C preferred stock.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Under the plan, each option will
    vest and be exercisable at such time and to such extent as specified in the
    pertinent option agreement between us and the option recipient. However,
    no award is exercisable with respect to any shares issuable pursuant to the
    Series C Stock Equity Incentive Plan more than five years after the date
    of such award. Unless otherwise specified by our board of directors with
    respect
    to a particular
    option,
    all options
    are non-transferable, except upon death. If a participant&#146;s service
    with us terminates due to death or disability, any options held by the  participant
    may be exercised until (i) such time specified by our board of directors;
    (ii) if not specified by our board of directors, ninety days from termination
    of service; or (iii) if earlier than the foregoing, the expiration for the
    stated term of the option. If a participant&#146;s
service with us is terminated for cause, any unexercised options will be automatically
    forfeited. In addition, if a participant&#146;s service with us is terminated
    for any other reason, any option held by the participant may be exercised
    until (i) such time specified by our board of  directors; (ii) if not specified
    by our board of directors, thirty days from termination of service; or (iii)
    if earlier than the foregoing, the expiration of the stated term of the option.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Upon or in anticipation of our change in control, our board of directors may, in its discretion:</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">cause outstanding options to become immediately and fully vested and exercisable;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">cancel any outstanding option in exchange for an option to purchase common stock of any successor corporation; or</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">cancel outstanding options in exchange for cash and/or other consideration equal to the amount by which the fair market value of the shares of stock subject to the option exceeds the option exercise price.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td><div align="left"><font face="serif" size="2"><b>Indemnification and Limitation of Director and Officer Liability</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our second amended and restated bylaws limit the personal liability of our directors to us or our shareholders for monetary damages for breaches of fiduciary duty as a director to the fullest extent permitted by the Pennsylvania Business Corporation Law of 1988. In
general, the Pennsylvania Business Corporation Law of 1988 provides that our bylaws may not limit or eliminate the liability of our directors for any breach or failure to perform their duties as directors if such breach or failure constitutes self-dealing, willful misconduct or
recklessness.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our second amended and restated bylaws also include provisions for indemnification of our directors and officers to the fullest extent permitted by the Pennsylvania Business Corporation Law of 1988. We maintain directors and officers liability insurance to provide
directors and officers with insurance coverage for losses arising from claims based on breaches of duty, negligence, error and other wrongful acts. Prior to the completion of this offering, we will amend our policy to include coverage against liabilities with respect to the
Securities Act.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">In addition to the indemnification provided for in our second amended and restated bylaws, we also intend to enter into agreements to indemnify our directors and executive officers. We believe that these agreements are necessary to attract and retain qualified directors
and executive officers.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">In so far as indemnification for liability arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that in the opinion of the Securities and Exchange Commission, this
indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.</font></p>
</div>
<p align="left"><font face="serif" size="2">&nbsp;</font></p>
<p align="center"><font face="serif" size="2">82</font></p>
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<p align="center"><font face="serif" size="2"></font><font face="serif" size="2"><b>CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS</b></font></p>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Other than compensation agreements and other arrangements which are described in the &#147;Management&#148; section of this prospectus and the transactions described below, since January&nbsp;1, 2003, there has not been, and there is not currently proposed, any transaction or
series of similar transactions to which we were or will be a party in which the amount involved exceeded or will exceed $60,000 and in which any of our directors, executive officers, holders of more than five percent of any class&nbsp;of our voting securities or any member of the
immediate family of the foregoing persons had or will have a direct or indirect material interest.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We believe that all of the transactions set forth below are on terms no less favorable to us than we could have obtained from unaffiliated third-parties. It is our intention to ensure that all future transactions between us and our directors, officers, principal shareholders and
their affiliates are approved by a majority of our board of directors, including a majority of the independent and disinterested members of our board of directors, and are on terms no less favorable to us than those that we could obtain from unaffiliated third-parties.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Third Amended and Restated Shareholders Agreement</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We are party to a Third Amended and Restated Shareholders Agreement, which we refer to as the Shareholders Agreement dated January&nbsp;11, 2002 among MEDecision, Inc. and the shareholders party thereto. The shareholders include holders of our Series A preferred
stock, holders of our Series B preferred stock, certain holders of our Series C preferred stock and certain holders of our common stock. Under the Shareholders Agreement, the holders of preferred stock who are party thereto have the right to designate an aggregate of five
individuals for nomination and election to the board of directors, two of which may be neither employees or shareholders of MEDecision nor shareholders, limited partners, employees, general partners or managers of any shareholder. David St. Clair, our Chairman of the board
of directors and Chief Executive Officer, may nominate three individuals for nomination and election to the board of directors, one of which may be neither an employee or shareholder of MEDecision nor a shareholder, limited partner, employee, general partner or manager of
any shareholder.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">In addition, the Shareholders Agreement provides rights to certain parties to the Shareholders Agreement with respect to our capital stock, including rights of first refusal, preemptive rights, co-sale rights and participation rights in the sale of shares of our capital stock.
The preemptive rights do not apply to issuances by us in an initial public offering of our common stock, including this offering, in which the aggregate proceeds exceed $30&nbsp;million and immediately after which our outstanding capital stock will have an aggregate public
market value of not less than $150&nbsp;million.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Pursuant to the terms of the Shareholders Agreement, all of the rights of the shareholders under the agreement will terminate upon the consummation of this offering.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Second Amended and Restated Registration Rights Agreement</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Pursuant to the provisions of the Second Amended and Restated Registration Rights Agreement dated as of September&nbsp;25, 2001 by and among MEDecision, Inc. and the holders party thereto, the holders, who will collectively hold &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;% of our common stock
outstanding after the completion of this offering, are entitled to certain registration rights with respect to the registration of those shares under the Securities Act. The holders who are entitled to such rights include Carl E. Smith, our Executive Vice President and Chief
Financial Officer, funds affiliated with Grotech Capital Partners and a fund affiliated with Liberty Venture Partners, each of which is an affiliate of the Company by virtue of beneficial ownership of our common stock or their affiliation with a member of our board of directors.
For more information, see &#147;Description of Capital Stock&#151;Registration Rights&#148; elsewhere in this prospectus.</font></p>
</div>
<p align="center"><font face="serif" size="2">83</font></p>
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<page>
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<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Option Grants Under Amended and Restated Stock Option Plan</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Since January&nbsp;1, 2003, we have issued to Danielle Russella Bantivoglio, options to purchase shares of our common stock pursuant to our Amended and Restated Stock Option Plan, on the dates, in the amounts and at the exercise price per underlying share listed within
the following chart:</font></p>
</div>
<table width="50%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr align="center" valign="top">
    <td width="10%" valign="bottom"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Date</b></font></div></td>
    <td align="left" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="1"><b>Underlying Shares</b></font></td>
    <td align="left" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="1"><b>Exercise Price</b><br>
<b>per Underlying</b><br>
<b>Share</b></font></td>
    <td align="left"><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr align="center" valign="top">
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr align="center" valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">4/26/06</font></div></td>
    <td align="left" width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left" width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">25,000</font></td>
    <td align="left" width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left" valign="bottom" width="1%"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">11.00</font></td>
    <td align="left" width="2%"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Since January&nbsp;1, 2003, we have issued to John H. Capobianco, options to purchase shares of our common stock pursuant to our Amended and Restated Stock Option Plan, on the dates, in the amounts and at the exercise price per underlying share listed within the
following chart:</font></p>
</div>
<table width="50%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr align="center" valign="top">
    <td width="10%" valign="bottom"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Date</b></font></div></td>
    <td align="left" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="1"><b>Underlying Shares</b></font></td>
    <td align="left" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="1"><b>Exercise Price</b><br>
<b>per Underlying</b><br>
<b>Share</b></font></td>
    <td align="left"><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr align="center" valign="top">
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr align="center" valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">4/27/04</font></div></td>
    <td align="left" width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left" width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">260,000</font></td>
    <td align="left" width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left" valign="bottom" width="1%"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">0.25</font></td>
    <td align="left" width="2%"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr align="center" valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">5/3/05</font></div></td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">175,000</font></td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left" valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">0.25</font></td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr align="center" valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">4/26/06</font></div></td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">250,000</font></td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left" valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">11.00</font></td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Since January&nbsp;1, 2003, we have issued to Henry A. DePhillips, III, M.D., options to purchase shares of our common stock pursuant to our Amended and Restated Stock Option Plan, on the dates, in the amounts and at the exercise price per underlying share listed within
the following chart:</font></p>
</div>
<table width="50%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr align="center" valign="top">
    <td width="10%" valign="bottom"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Date</b></font></div></td>
    <td align="left" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="1"><b>Underlying Shares</b></font></td>
    <td align="left" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="1"><b>Exercise Price</b><br>
<b>per Underlying</b><br>
<b>Share</b></font></td>
    <td align="left"><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr align="center" valign="top">
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr align="center" valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">4/27/04</font></div></td>
    <td align="left" width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left" width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">150,000</font></td>
    <td align="left" width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left" valign="bottom" width="1%"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">0.25</font></td>
    <td align="left" width="2%"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr align="center" valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">8/23/05</font></div></td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">100,000</font></td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left" valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">0.25</font></td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Since January&nbsp;1, 2003, we have issued to Ronald D. Nall, options to purchase shares of our common stock pursuant to our Amended and Restated Stock Option Plan, on the dates, in the amounts and at the exercise price per underlying share listed within the following
chart:</font></p>
</div>
<table width="50%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr align="center" valign="top">
    <td width="10%" valign="bottom"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Date</b></font></div></td>
    <td align="left" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="1"><b>Underlying Shares</b></font></td>
    <td align="left" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="1"><b>Exercise Price</b><br>
<b>per Underlying</b><br>
<b>Share</b></font></td>
    <td align="left"><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr align="center" valign="top">
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr align="center" valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">4/26/06</font></div></td>
    <td align="left" width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left" width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">300,000</font></td>
    <td align="left" width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left" valign="bottom" width="1%"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">11.00</font></td>
    <td align="left" width="2%"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Since January&nbsp;1, 2003, we have issued to Kristel L. Schimmoller, options to purchase shares of our common stock pursuant to our Amended and Restated Stock Option Plan, on the dates, in the amounts and at the exercise price per underlying share listed within the
following chart:</font></p>
</div>
<table width="50%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr align="center" valign="top">
    <td width="10%" valign="bottom"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Date</b></font></div></td>
    <td align="left" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="1"><b>Underlying Shares</b></font></td>
    <td align="left" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="1"><b>Exercise Price</b><br>
<b>per Underlying</b><br>
<b>Share</b></font></td>
    <td align="left"><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr align="center" valign="top">
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr align="center" valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">5/3/05</font></div></td>
    <td align="left" width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left" width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">90,000</font></td>
    <td align="left" width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left" valign="bottom" width="1%"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">0.25</font></td>
    <td align="left" width="2%"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Since January&nbsp;1, 2003, we have issued to Carl E. Smith, options to purchase shares of our common stock pursuant to our Amended and Restated Stock Option Plan, on the dates, in the amounts and at the exercise price per underlying share listed within the following
chart:</font></p>
</div>
<table width="50%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr align="center" valign="bottom">
    <td width="10%"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Date</b></font></div></td>
    <td align="left"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2"><font face="serif" size="1"><b>Underlying Shares</b></font></td>
    <td align="left"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2"><font face="serif" size="1"><b>Exercise Price</b><br>
<b>per Underlying</b><br>
<b>Share</b></font></td>
    <td align="left"><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr align="center" valign="bottom">
    <td width="10%"><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">
    <hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr align="center" valign="bottom" bgcolor="#eeeeee">
    <td width="10%"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">4/25/03</font></div></td>
    <td width="2%" align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%" align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" width="10%"><font face="serif" size="2">100,000</font></td>
    <td width="2%" align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left" width="1%"><font face="serif" size="2">$</font></td>
    <td align="right" width="10%"><font face="serif" size="2">0.25</font></td>
    <td width="2%" align="left"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr align="center" valign="bottom" bgcolor="#ffffff">
    <td width="10%"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">8/5/04</font></div></td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right"><font face="serif" size="2">60,000</font></td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left"><font face="serif" size="2">$</font></td>
    <td align="right"><font face="serif" size="2">0.25</font></td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr align="center" valign="bottom" bgcolor="#eeeeee">
    <td width="10%"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">8/23/05</font></div></td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right"><font face="serif" size="2">160,000</font></td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left"><font face="serif" size="2">$</font></td>
    <td align="right"><font face="serif" size="2">0.25</font></td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
</table>
<p>&nbsp;</p>
<p align="center"><font face="serif" size="2">84</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="p85"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Since January&nbsp;1, 2003, we have issued to David St. Clair, options to purchase shares of our common stock pursuant to our Amended and Restated Stock Option Plan, on the dates, in the amounts and at the exercise price per underlying share listed within the following
chart:</font></p>
</div>
<table width="50%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr align="center" valign="top">
    <td width="10%" valign="bottom"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Date</b></font></div></td>
    <td align="left" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="1"><b>Underlying Shares</b></font></td>
    <td align="left" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="1"><b>Exercise Price</b><br>
<b>per Underlying</b><br>
<b>Share</b></font></td>
    <td align="left"><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr align="center" valign="top">
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr align="center" valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">10/26/04</font></div></td>
    <td align="left" width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left" width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">250,000</font></td>
    <td align="left" width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left" valign="bottom" width="1%"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">0.275</font></td>
    <td align="left" width="2%"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr align="center" valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">5/3/05</font></div></td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">175,000</font></td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left" valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">0.275</font></td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr align="center" valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">7/18/06</font></div></td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">250,000</font></td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left" valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">11.00</font></td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Since January&nbsp;1, 2003, we have issued to Mary Jo Timlin-Hoag, options to purchase shares of our common stock pursuant to our Amended and Restated Stock Option Plan, on the dates, in the amounts and at the exercise price per underlying share listed within the
following chart:</font></p>
</div>
<table width="50%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr align="center" valign="top">
    <td width="10%" valign="bottom"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Date</b></font></div></td>
    <td align="left" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="1"><b>Underlying Shares</b></font></td>
    <td align="left" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="1"><b>Exercise Price</b><br>
<b>per Underlying</b><br>
<b>Share</b></font></td>
    <td align="left"><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr align="center" valign="top">
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr align="center" valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">12/17/04</font></div></td>
    <td align="left" width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left" width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">10,000</font></td>
    <td align="left" width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left" valign="bottom" width="1%"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">0.25</font></td>
    <td align="left" width="2%"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr align="center" valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">5/3/05</font></div></td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">15,000</font></td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left" valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">0.25</font></td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><div align="left"><font face="serif" size="2"><b>Series C Stock Grants Under Series C Stock Equity Incentive Plan</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">On April&nbsp;25, 2003, we granted to David St. Clair and Carl E. Smith 73,000 and 18,000 shares, respectively, of Series C preferred stock pursuant to the Series C Stock Equity Incentive Plan. The shares granted pursuant to this Plan relate to each recipient&#146;s respective
performance in 2002 as an employee of the Company.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Series C Option Grants Under Series C Stock Equity Incentive Plan</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Since January&nbsp;1, 2003, we have issued options to purchase shares of our Series C preferred stock pursuant to our Series C Stock Equity Incentive Plan, to the following directors and executive officers, on the dates, in the amounts and at the exercise price per underlying
share listed within the following chart (the amount of shares and the exercise price assumes the conversion of such options to options to purchase common shares at the current Series C preferred stock conversion price):</font></p>
</div>
<table width="70%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr align="center" valign="top">
    <td valign="bottom"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1"><b>Name</b></font></div></td>
    <td align="left" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="1"><b>Date</b></font></td>
    <td align="left" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="1"><b>Underlying Shares</b><br>
<b>(Common Stock)</b></font></td>
    <td align="left" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="1"><b>Exercise Price</b><br>
<b>per Underlying</b><br>
<b>Share</b></font></td>
    <td align="left"><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1"><hr noshade size="1"></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">John H. Capobianco</font></div></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom" width="10%"><font face="serif" size="2">5/2/03</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom" width="10%"><font face="serif" size="2">7,000</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom" width="1%"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" width="10%"><font face="serif" size="2">1.13</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Carl E. Smith</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">5/2/03</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">9,000</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1.13</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><div align="left"><font face="serif" size="2"><b>Conversion Agreements</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We entered into conversion agreements with certain of the holders of our outstanding Series&nbsp;B and Series&nbsp;C preferred stock. Eight of these holders, Britannia Holdings Limited, Carl E. Smith, David St. Clair, Grotech Partners V, L.P. (affiliated with Grotech Capital
Partners), Grotech V Maryland Fund, L.P. (affiliated with Grotech Capital Partners), Liberty Ventures I, L.P. (affiliated with Liberty Ventures Partners), Liberty Ventures II, L.P. (affiliated with Liberty Ventures Partners) and Stockwell Fund, L.P. are our affiliates by virtue of
their positions with the Company, membership on our board of directors and/or the beneficial ownership of our common stock and their affiliation with a member of our board of directors.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Under the terms of each conversion agreement, each holder was entitled to elect prior to July&nbsp;12, 2006 to convert up to 31.5% of such holder&#146;s outstanding shares of Series&nbsp;B and Series&nbsp;C preferred stock into shares of our common stock. As part of this conversion,
the accrued but unpaid dividends on the converted shares were taken into account in calculating the number of shares of common stock issuable upon conversion of the shares of Series&nbsp;B and Series&nbsp;C preferred stock. The provisions of the conversion agreements became
effective upon the filing of the Registration Statement on Form S-1 of which this prospectus is a part.</font></p>
</div>
<p>&nbsp;</p>
<p align="center"><font face="serif" size="2">85</font></p>
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<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Under such arrangements:</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">Britannia Holdings Limited converted 199,788 shares and 165,318 shares of Series B and Series C preferred stock, respectively, into 391,228 shares and 244,398 shares of our common stock, which included 139,229 shares and 79,080 shares of our common stock,
respectively, on account of accrued dividends;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">Carl E. Smith converted 19,726 shares of Series C preferred stock into 28,061 shares of our common stock, which included 8,335 shares of our common stock on account of accrued dividends;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">David St. Clair converted 19,978 shares and 68,502 shares of Series B and Series C preferred stock, respectively, into 39,120 shares and 96,544 shares of our common stock, which included 13,922 shares and 28,042 shares of our common stock, respectively, on account of
accrued dividends;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">Grotech Partners V, L.P. converted 655,306 shares and 850,332 shares of Series B and Series C preferred stock, respectively, into 1,283,233 shares and 1,257,087 shares of our common stock, which included 456,674 shares and 406,755 shares of our common stock,
respectively, on account of accrued dividends;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">Grotech V Maryland Fund, L.P. converted 10,655 shares and 13,825 shares of Series B and Series C preferred stock, respectively, into 20,864 shares and 20,438 shares of our common stock, which included 7,425 shares and 6,613 shares of our common stock, respectively,
on account of accrued dividends;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">Liberty Ventures I, L.P. converted 79,915 shares and 66,117 shares of Series B and Series C preferred stock, respectively, into 156,490 shares and 97,744 shares of our common stock, which included 55,691 shares and 31,627 shares of our common stock, respectively, on
account of accrued dividends;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">Liberty Ventures II, L.P. converted 86,574 shares and 71,644 shares of Series B and Series C preferred stock, respectively, into 169,530 shares and 105,914 shares of our common stock, which included 60,332 shares and 34,270 shares of our common stock, respectively,
on account of accrued dividends; and</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">Stockwell Fund, L.P. converted 173,150 shares and 143,288 shares of Series B and Series C preferred stock, respectively, into 339,064 shares and 211,829 shares of our common stock, which included 120,665 shares and 68,541 shares of our common stock, respectively,
on account of accrued dividends.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><div align="left"><font face="serif" size="2"><b>Relatives of Directors and Executive Officers Employed by the Company</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">While we encourage employees at all levels to refer people they know, including relatives, for employment at the Company, we have adopted a policy limiting the employment of relatives. The policy provides that in no situation will relatives work in positions in which
one directly manages the other, and only under special circumstances will a relative be given the authority to influence, directly or indirectly, any term or condition of employment of the other. The Company currently employs Robert Capobianco, the son of John Capobianco,
our President and Chief Operating Officer, as a Product Market Analyst. Pursuant to the terms of his employment with the Company, Robert Capobianco is to receive $65,000 in annual cash compensation during 2006 (excluding fringe benefits and bonus opportunities). Both
Robert Capobianco and John Capobianco have provided written acknowledgements to the Company
confirming that John Capobianco will not have any influence or involvement in the decisions regarding
 Robert Capobianco&#146;s employment with the Company.</font></p></div>
<p align="left"><font face="serif" size="2"><b>Incentive Bonus Pool</b></font></p>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The compensation committee of our
    board of directors has approved a special incentive bonus pool in an aggregate
    amount of $0.6 million. This pool will be allocated amongst certain of our
    employees based on our 2005 performance as well as the performance of such
    employees. All of our executive officers who were our employees as of December
    31, 2005 will be eligible to receive awards, including David St. Clair, John
    H. Capobianco, Carl E. Smith, Henry A. DePhillips, III, M.D. and Danielle
    Russella Bantivoglio.</font></p>
</div>
<p align="center"><font face="serif" size="2">86</font></p>
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<p align="center"><font face="serif" size="2"><b>PRINCIPAL AND SELLING SHAREHOLDERS</b></font></p>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The following table sets forth information known to us with respect to beneficial ownership of our common stock as of August&nbsp;10, 2006 by:</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">each person, or group of affiliated persons, known by us to own beneficially more than 5% of our outstanding common stock;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">each of our directors;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">each of our named executive officers;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">all of our current executive officers and directors as a group; and</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">each selling shareholder.</font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">In the table, the number of shares of our common stock beneficially owned before this offering assumes the following events, which are described in &#147;Conversion and Exercise Transactions&#148; elsewhere in this prospectus:</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the conversion of all outstanding shares of our Series&nbsp;A preferred stock, including the accrued and unpaid dividends thereon, into 4,686,247 shares of our common stock, which will automatically occur immediately prior to the consummation of this offering;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the conversion, upon the filing of the Registration Statement on Form&nbsp;S-1 of which this prospectus is a part, of 1,266,991 shares and 1,528,199 shares of Series B and Series C preferred stock (including accrued and unpaid dividends thereon) into 2,480,476 and 2,243,861
shares of common stock pursuant to the conversion agreements discussed in &#147;Conversion and Exercise Transactions&#148; elsewhere in this prospectus;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the conversion of all of the then outstanding shares of our Series B preferred stock and Series C preferred stock into 6,798,640 shares of our common stock, which will automatically occur immediately prior to the consummation of this offering;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the conversion of all outstanding options to purchase shares of Series C preferred stock into options to purchase common stock at the then applicable conversion rate of the Series C preferred stock in effect upon the completion of this offering; and</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the issuance of 435,000 shares of our common stock at a weighted average exercise price of $1.31 per share upon the exercise of outstanding warrants that would otherwise terminate upon the consummation of this offering.</font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. Shares of our common stock subject to options or warrants currently exercisable or exercisable within 60 days of August&nbsp;10, 2006 are deemed to be
outstanding for calculating the percentage of outstanding shares of the person holding these options or warrants, but are not deemed outstanding for calculating the percentage of any other person. Percentage of beneficial ownership is based upon 23,201,425 shares of our
common stock outstanding as of August&nbsp;10, 2006, and &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; shares of our common stock outstanding upon completion of this offering. To our knowledge, except as set forth in the footnotes to this table and subject to applicable community property laws, each person named in
the table has sole voting and investment power with respect to the shares set forth opposite such person&#146;s name. Except as otherwise indicated, the address of each of the persons in this table is as follows: c/o MEDecision, Inc., 601 Lee Road, Chesterbrook Corporate Center,
Wayne, Pennsylvania 19087.</font></p>
</div>
<p align="center"><font face="serif" size="2">87</font></p>
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<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="8" align="center" valign="bottom"><font face="serif" size="1"><b>Percentage of Shares</b><br>
<b>Outstanding</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="8" valign="bottom"><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="bottom">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1"><b>Name of Beneficial Owner</b></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center"><font face="serif" size="1"><b>Number of</b><br>
<b>Shares</b><br>
<b>Beneficially</b><br>
<b>Owned</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center"><font face="serif" size="1"><b>Number of</b><br>
<b>Shares to be</b><br>
<b>Sold in this</b><br>
<b>Offering</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center"><font face="serif" size="1"><b>Number of</b><br>
<b>Shares to be</b><br>
<b>Sold if</b><br>
<b>Overallotment</b><br>
<b>Option is</b><br>
<b>Exercised</b><br>
<b>in Full</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center"><font face="serif" size="1"><b>Before this</b><br>
<b>Offering</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center"><font face="serif" size="1"><b>After this</b><br>
<b>Offering</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center"><font face="serif" size="1"><b>After this</b><br>
<b>Offering if</b><br>
<b>Overallotment</b><br>
<b>Option is</b><br>
<b>Exercised</b><br>
<b>in Full</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1"><i>Five percent shareholders:</i></font></div></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Funds Affiliated with Grotech Capital Group<sup>(1)</sup></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">6,287,495</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">27.1</font></td>
    <td valign="bottom"><font face="serif" size="1">%</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Stockwell Fund, L.P.<sup>(2)</sup></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">4,165,279</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">17.8</font></td>
    <td valign="bottom"><font face="serif" size="1">%</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Funds Affiliated with Liberty Ventures<sup>(3)</sup></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">3,456,315</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">14.8</font></td>
    <td valign="bottom"><font face="serif" size="1">%</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">DWS Investment GmbH<sup>(4)</sup></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">1,931,721</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">8.3</font></td>
    <td valign="bottom"><font face="serif" size="1">%</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Britannia Holdings Limited<sup>(5)</sup></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">1,543,132</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">6.7</font></td>
    <td valign="bottom"><font face="serif" size="1">%</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1"><i>Directors and named executive officers:</i></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">David St. Clair<sup>(6)</sup></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">3,960,687</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">16.8</font></td>
    <td valign="bottom"><font face="serif" size="1">%</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">John H. Capobianco<sup>(7)</sup></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">1,510,750</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">6.1</font></td>
    <td valign="bottom"><font face="serif" size="1">%</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Carl E. Smith<sup>(8)</sup></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">332,459</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">1.4</font></td>
    <td valign="bottom"><font face="serif" size="1">%</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Henry A. DePhillips, III, M.D.<sup>(9)</sup></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">90,625</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">*</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Danielle Russella Bantivoglio<sup>(10)</sup></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">37,500</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">*</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Ronald D. Nall</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Kristel L. Schimmoller<sup>(11)</sup></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">200,000</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">*</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Mary Jo Timlin-Hoag<sup>(12)</sup></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">6,250</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">*</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Frank A. Adams<sup>(1)(13)</sup></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">6,287,495</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">27.1</font></td>
    <td valign="bottom"><font face="serif" size="1">%</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Charles P. Cullen<sup>(1)(14)</sup></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">6,287,495</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">27.1</font></td>
    <td valign="bottom"><font face="serif" size="1">%</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Thomas R. Morse<sup>(3)</sup></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">3,456,315</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">14.8</font></td>
    <td valign="bottom"><font face="serif" size="1">%</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Timothy W. Wallace<sup>(15)</sup></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">50,000</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">*</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">All directors and named executive officers</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">15,932,081</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">61.6</font></td>
    <td valign="bottom"><font face="serif" size="1">%</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1"><i>Other selling shareholders:</i></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">David R. Bohn<sup>(16)</sup></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">5,010</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">*</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Leonard Brooks, III<sup>(17)</sup></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">9,005</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">*</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Cap
          Gemini Ernst &amp; Young US, LLC<sup>(18)</sup></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">677,589</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">2.9</font></td>
    <td valign="bottom"><font face="serif" size="1">%</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">E. Galey Clarke<sup>(19)</sup></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">25,665</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">*</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">J. Allen Dougherty, IRA<sup>(20)</sup></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">12,829</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
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    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">*</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
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    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">J. Allen Dougherty TTEE UTD 12/22/97<br>
FBO Peter Wetherill<sup>(21)</sup></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">38,497</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">*</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Frank Drazka<sup>(22)</sup></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">4,271</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">*</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Kevin Gilbert<sup>(23)</sup></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">48,017</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">*</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Janney Montgomery Scott LLC<sup>(24)</sup></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">32,735</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">*</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Anne Kavanagh<sup>(25)</sup></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">5,010</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">*</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Phillip K. Keating<sup>(26)</sup></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">6,035</font></td>
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    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Martin Magida<sup>(27)</sup></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">1,389</font></td>
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  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Mark
          O&#146;Neill<sup>(28)</sup></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">7,692</font></td>
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    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Terri Moffa Paramito and<br>
Albert J. Paramito, JT Ten<sup>(29)</sup></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">25,664</font></td>
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  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">The Peregrine Equity Fund, LLP<sup>(30)</sup></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">25,665</font></td>
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    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">John Torrence<sup>(31)</sup></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">2,562</font></td>
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    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Stephen Todd Walker<sup>(32)</sup></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">10,255</font></td>
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    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Samuel D. Weaver<sup>(33)</sup></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">51,337</font></td>
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    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Elizabeth Gross Weese Trust,<br>
Brian D. Weese, Trustee<sup>(34)</sup></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">51,327</font></td>
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    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Harrison Wehner, III<sup>(35)</sup></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">5,010</font></td>
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    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Peter Zurkow<sup>(36)</sup></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">14,378</font></td>
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    <td width="3%"><font face="serif" size="1">*</font></td>
    <td><div align="left"><font face="serif" size="1">Indicates beneficial ownership of less than 1% of the total outstanding common stock.</font></div></td>
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    <td width="3%"><font face="serif" size="1">(1)</font></td>
    <td><div align="left"><font face="serif" size="1">Represents 100,597 shares of common stock held by Grotech V Maryland Fund, L.P. and 6,186,898 shares of common stock held by Grotech Partners V, L.P. Grotech Capital Group, LLC is the general partner of each of Grotech V Maryland Fund, L.P. and Grotech Partners V,
L.P. Voting and investment power over the [&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;] shares beneficially owned by Grotech Capital Group, LLC is [shared by &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;]. The address of Grotech Capital Group, LLC is 9690 Deereco Road, Suite 800, Timonium, MD 21093.</font></div></td>
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<p>&nbsp;</p>
<p align="center"><font face="serif" size="2">88</font></p>
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<a name="p89"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
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    <td width="3%"><font face="serif" size="1">(2)</font></td>
    <td><div align="left"><font face="serif" size="1">Includes 150,000 shares of common stock issuable upon exercise of warrants that are immediately exercisable held by Stockwell Fund, L.P. The Stockwell Fund, L.P. is a _____ limited partnership, the general partner of which is Stockwell Managers, LLC. Voting and
investment power over the [&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;] shares beneficially owned by Stockwell Fund, L.P. is [held by _____]. The address of Stockwell Fund, L.P. is 222 West Adams Street, Suite 1000, Chicago, IL 60606.</font></div></td>
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    <td width="3%"><font face="serif" size="1">(3)</font></td>
    <td><div align="left"><font face="serif" size="1">Includes 2,156,982 shares of common stock held by Liberty Ventures I, L.P., 162,000 shares of common stock issuable upon exercise of warrants that are immediately exercisable by Liberty Ventures I, L.P., 668,709 shares of common stock held by Liberty Ventures II, L.P.
and 468,624 shares of common stock held by Commonwealth Venture Partners II, L.P. Thomas R. Morse is the president and sole stockholder of Liberty Ventures, Inc., which is the general partner of Liberty Ventures I, L.P. Mr.&nbsp;Morse is also a managing director of the
general partner of Liberty Ventures II, L.P. Mr.&nbsp;Morse is a general partner of Commonwealth Venture Partners II, L.P. Voting and investment power over the shares beneficially owned by Liberty Ventures I, L.P., Liberty Ventures II, L.P. and Commonwealth Venture Partners
II, L.P. is held by Mr.&nbsp;Morse. Mr.&nbsp;Morse disclaims beneficial ownership of these shares, except to the extent of his pecuniary interest in the named funds. The address of Mr.&nbsp;Morse and each of the funds is c/o Liberty Venture Partners, One Commerce Square, 2005 Market
St., Suite 2040, Philadelphia, PA 19103-7012.</font></div></td>
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    <td width="3%"><font face="serif" size="1">(4)</font></td>
    <td><div align="left"><font face="serif" size="1">Includes 48,000 shares of common stock issuable upon exercise of warrants that are immediately exercisable held by DWS Investments GmbH. The address of DWS Investment GmbH is Mainzer Lanstr. 178-190, 60612 Frankfurt, Germany.</font></div></td>
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    <td width="3%"><font face="serif" size="1">(5)</font></td>
    <td><div align="left"><font face="serif" size="1">The address of Britannia Holdings Limited is Tudor House, Le Bordage, First Floor, St. Peter Port, Guernsey GY1 1DB.</font></div></td>
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    <td width="3%"><font face="serif" size="1">(6)</font></td>
    <td><div align="left"><font face="serif" size="1">Includes options to purchase 206,250 shares of common stock and options to purchase 70,000 shares of Series C preferred stock, which will be converted into options to purchase 70,000 shares of common stock, held by Mr.&nbsp;St. Clair that are exercisable within 60 days of
August&nbsp;10, 2006. Also includes 75,000 shares of common stock issuable upon exercise of warrants that are immediately exercisable held by Mr.&nbsp;St. Clair, and 270,000 shares of common stock for which Mr.&nbsp;St. Clair has voting power pursuant to pledge agreements with
certain holders of record of such shares.</font></div></td>
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    <td width="3%"><font face="serif" size="1">(7)</font></td>
    <td><div align="left"><font face="serif" size="1">Includes options to purchase 1,503,750 shares of our common stock and options to purchase 7,000 shares of Series C preferred stock, which will be converted into options to purchase 7,000 shares of common stock, held by Mr.&nbsp;Capobianco that are exercisable within 60 days
of August&nbsp;10, 2006.</font></div></td>
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    <td width="3%"><font face="serif" size="1">(8)</font></td>
    <td><div align="left"><font face="serif" size="1">Includes options to purchase 252,500 shares of common stock and options to purchase 9,000 shares of Series C preferred stock, which will be converted into options to purchase 9,000 shares of common stock, held by Mr.&nbsp;Smith that are exercisable within 60 days of
August&nbsp;10, 2006.</font></div></td>
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    <td width="3%"><font face="serif" size="1">(9)</font></td>
    <td><div align="left"><font face="serif" size="1">Includes options to purchase 90,625 shares of common stock held by Dr.&nbsp;DePhillips that are exercisable within 60 days of August&nbsp;10, 2006.</font></div></td>
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    <td width="3%"><font face="serif" size="1">(10)</font></td>
    <td><div align="left"><font face="serif" size="1">Includes options to purchase 37,500 shares of common stock held by Ms.&nbsp;Russella Bantivoglio that are exercisable within 60 days of August&nbsp;10, 2006.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="1">(11)</font></td>
    <td><div align="left"><font face="serif" size="1">Includes options to purchase 100,000 shares of common stock held by Ms.&nbsp;Schimmoller that are exercisable within 60 days of August&nbsp;10, 2006.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="1">(12)</font></td>
    <td><div align="left"><font face="serif" size="1">Includes options to purchase 6,250 shares of common stock held by Ms.&nbsp;Timlin-Hoag that are exercisable within 60 days of August&nbsp;10, 2006.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="1">(13)</font></td>
    <td><div align="left"><font face="serif" size="1">Frank A. Adams is the managing director of Grotech Capital Group, LLC. As such, Mr.&nbsp;Adams may be deemed to have shared voting and investment power with respect to shares held by funds affiliated with Grotech Capital Group. Mr.&nbsp;Adams disclaims beneficial ownership
of the securities held by funds affiliated with Grotech Capital Group, except to the extent of his pecuniary interests therein, if any.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="1">(14)</font></td>
    <td><div align="left"><font face="serif" size="1">Charles P. Cullen is the Chief Financial Officer of Grotech Management Company, which provides services to funds affiliated with Grotech Capital Group. As such, Mr.&nbsp;Cullen may be deemed to have shared voting and investment power with respect to shares held by funds
affiliated with Grotech Capital Group. Mr.&nbsp;Cullen disclaims beneficial ownership of the securities held by funds affiliated with Grotech Capital Group, except to the extent of his pecuniary interests therein, if any.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="1">(15)</font></td>
    <td><div align="left"><font face="serif" size="1">Includes options to purchase 50,000 shares of common stock held by Mr.&nbsp;Wallace that are exercisable within 60 days of August&nbsp;10, 2006.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="1">(16)</font></td>
    <td><div align="left"><font face="serif" size="1">The address of David R. Bohn is 11 South Drive, Larchmont, New York 10538.</font></div></td>
  </tr>
</table>
<p>&nbsp;</p>
<p align="center"><font face="serif" size="2">89</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="p90"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="1">(17)</font></td>
    <td><div align="left"><font face="serif" size="1">The address of Leonard Brooks, III is 119 Noe Avenue, Chatham, New Jersey 07928.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="1">(18)</font></td>
    <td><div align="left"><font face="serif" size="1">The address of Cap Gemini
          Ernst &amp; Young US, LLC is 600 Memorial Drive, Suite 100 Cambridge,
          Massachusetts 02139.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="1">(19)</font></td>
    <td><div align="left"><font face="serif" size="1">The address of E. Galey Clarke is 12 Winding Lane, Greenwich, Connecticut 06831.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="1">(20)</font></td>
    <td><div align="left"><font face="serif" size="1">The address of J. Allen Dougherty, IRA is 6 The Green, Woodstock, Vermont 05091.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="1">(21)</font></td>
    <td><div align="left"><font face="serif" size="1">The address of J. Allen Dougherty TTEE UTD 12/22/97 FBO Peter Wetherill is 6 The Green, Woodstock, Vermont 05091.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="1">(22)</font></td>
    <td><div align="left"><font face="serif" size="1">The address of Frank Drazka is 136 East 55th Street, New York, New York 10022.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="1">(23)</font></td>
    <td><div align="left"><font face="serif" size="1">The address of Kevin Gilbert is [&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;].</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="1">(24)</font></td>
    <td><div align="left"><font face="serif" size="1">The address of Janney Montgomery Scott LLC is 1801 Market Street, Philadelphia, Pennsylvania 19103.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td width="3%"><font face="serif" size="1">(25) </font></td>
    <td><div align="left"><font face="serif" size="1">The address of Anne Kavanagh
    is [&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;].</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="1">(26)</font></td>
    <td><div align="left"><font face="serif" size="1">The address of Phillip K. Keating is 30 Green Avenue, Rye, New York 10580.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="1">(27)</font></td>
    <td><div align="left"><font face="serif" size="1">The address of Martin Magida is 59 Raymond Street, Darien, Connecticut 06820.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="1">(28)</font></td>
    <td><div align="left"><font face="serif" size="1">The address of Mark O&#146;Neill is 6 Gladstone Road, Wallingford, Pennsylvania 19086.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="1">(29)</font></td>
    <td><div align="left"><font face="serif" size="1">The address of Terri Moffa Paramito and Albert J. Paramito, JT Ten is 772 Riverton Road, Moorestown, New Jersey 08057.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="1">(30)</font></td>
    <td><div align="left"><font face="serif" size="1">The address of The Peregrine Equity Fund, LLP is 3000 Two Logan Square, Eighteenth and Arch Streets, Philadelphia, Pennsylvania, 19103.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="1">(31)</font></td>
    <td><div align="left"><font face="serif" size="1">The address of John Torrence is 402 Harrier Row, Marlton, New Jersey 08053.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="1">(32)</font></td>
    <td><div align="left"><font face="serif" size="1">The address of Stephen Todd Walker is 611 Rose Lane, Bryn Mawr, Pennsylvania 19010.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="1">(33)</font></td>
    <td><div align="left"><font face="serif" size="1">The address of Samuel D. Weaver is 12 Winding Lane, Greenwich, Connecticut 06831.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="1">(34)</font></td>
    <td><div align="left"><font face="serif" size="1">The address of Elizabeth Gross Weese Trust, Brian D. Weese, Trustee is 6413 Pratt Avenue, Baltimore, Maryland 21212.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="1">(35)</font></td>
    <td><div align="left"><font face="serif" size="1">The address of Harrison Wehner, III is 322 King Caesar Road, Duxbury, Massachusetts 02332.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="1">(36)</font></td>
    <td><div align="left"><font face="serif" size="1">The address of Peter Zurkow is 6 Rectory Lane, Scarsdale, New York 10583.</font></div></td>
  </tr>
</table>
<p align="center"><font face="serif" size="2">90</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="p91"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font face="serif" size="2"></font><font face="serif" size="2"><b>DESCRIPTION OF CAPITAL STOCK</b></font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>General</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Upon the consummation of this offering, our amended and restated articles of incorporation will authorize the issuance of up to &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of common stock, par value $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share and &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of preferred stock, par value $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share, the rights and preferences of which may be established from time to time by our board of directors.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">As of August&nbsp;10, 2006, not taking into consideration the effect of the conversion agreements discussed in &#147;Conversion and Exercise Transactions&#148; elsewhere in this prospectus, we had outstanding:</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">2,333,333 shares of Series A preferred stock held by three shareholders;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">4,022,252 shares of Series B preferred stock held by 29 shareholders;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">4,851,549 shares of Series C preferred stock held by 36 shareholders; and</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">6,557,201 shares of common stock held by 91 shareholders.</font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Upon the consummation of this offering, we will convert all of the outstanding shares of (i) Series A preferred stock into 4,686,247 shares of our common stock; (ii) Series B preferred stock into 3,475,290 shares of our common stock; and (iii) Series C preferred stock
into 3,323,350 shares of our common stock, assuming an initial public offering price of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; , the midpoint of the range set forth on the cover page of this prospectus. Accordingly, upon the consummation of this offering, we will have shares of common stock issued and
outstanding, and no shares of Series A preferred stock, Series B preferred stock or Series C preferred stock will be outstanding.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The following description summarizes some of the key terms of our capital stock. For a complete description of these terms, you should refer to our amended and restated articles of incorporation and our second amended and restated bylaws, each of which will be in
effect upon the consummation of this offering, and by the provisions of applicable law. Copies of our amended and restated articles of incorporation and second amended and restated bylaws are included as exhibits to the registration statement of which this prospectus is a part.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Common Stock</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Holders of common stock are entitled to one vote for each share for the election of directors and on all other matters submitted to a vote of shareholders, and do not have cumulative voting rights in the election of directors. Whenever corporate action is to be taken by
vote of the shareholders, it becomes authorized upon receiving the affirmative vote of a majority of the votes cast by all shareholders entitled to vote on the matter. Holders of common stock are entitled to receive, as, when and if declared by our board of directors from time to
time, such dividends and other distributions in cash, stock or property from our assets or funds legally available for such purposes.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">No preemptive rights, liquidation rights or sinking fund provisions apply to our common stock. All outstanding shares of common stock are fully paid and non-assessable. In the event of our liquidation, dissolution or winding up, holders of our common stock are entitled
to share ratably in the assets available for distribution.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The rights, preferences and privileges of holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Preferred Stock</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our board of directors has the authority, without action by our shareholders, to designate and issue preferred stock in one or more series and to designate the rights, preferences and privileges of each series, including voting rights, dividend rights, conversion rights, and
redemption and liquidation preferences. The purpose of authorizing our board of directors to issue preferred stock and determine its rights and preferences</font></p>
</div>
<p align="center"><font face="serif" size="2">91</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="p92"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="left"><font face="serif" size="2">is to eliminate delays associated with a shareholder vote on specific issuances. The issuance of preferred stock will affect, and may adversely affect, the rights of holders of our common stock. It
is not possible to state the actual effect of the issuance of any shares of preferred stock upon the rights of holders of our common stock until our board of directors determines the specific rights
of the holders of such preferred stock. However, the effects might include, among other things:</font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">restricting dividends on our common stock;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">diluting the voting power of our common stock;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">impairing the liquidation rights of our common stock; or</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">delaying or preventing a change in our control without further action by the shareholders.</font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Upon the consummation of this offering, no shares of preferred stock will be outstanding, and we have no present plans to issue any shares of preferred stock.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Options to Purchase Common Stock</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">As of August&nbsp;10, 2006, there were outstanding options to purchase a total of 6,010,163 shares of our common stock, at a weighted average exercise price of $2.12 per share, of which 3,459,389 underlying shares were vested on such date. The foregoing assumes that the
options to purchase Series C preferred stock are converted into options to purchase shares of our common stock upon consummation of this offering. After the consummation of this offering, no additional awards will be granted pursuant to our Amended and Restated Stock
Option Plan or our Series&nbsp;C Stock Equity Incentive Plan. After this offering, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; shares of our common stock will be available for issuance under our 2006 Equity Incentive Plan.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Warrants to Purchase Common Stock</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">As of August&nbsp;10, 2006, there
    were warrants to purchase a total of 1,298,720 shares of our common stock
    outstanding at a weighted average exercise price of $1.38 per share, warrants
    to purchase 435,000 shares of our common stock will terminate upon the  consummation
    of this offering.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Registration Rights</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Pursuant to the provisions of the Second Amended and Restated Registration Rights Agreement dated as of September&nbsp;25, 2001 by and among MEDecision, Inc. and the Holders party thereto (as such term is defined therein), the Holders, which will collectively hold% of our common stock outstanding after the consummation of this offering, will be entitled to certain registration rights with respect to the registration of those shares under the Securities Act. The Second Amended and Restated Registration Rights Agreement provides
that if we determine to register any of our securities under the Securities Act, either for our own account or for the account of a security holder or holders, including in connection with this offering, the Holders are entitled to written notice of the registration and are entitled to
include their shares of our common stock in such registration. In addition, the Holders have the right, at any time, to demand that we use all reasonable best efforts to effect the registration of their shares of our common stock on up to two occasions. If we qualify for
registration on Form&nbsp;S-3, such Holders each have unlimited rights to request registrations on Form&nbsp;S-3, but not more than one such registration in any 12 month period. All of these registration rights are subject to certain conditions and limitations, including the right of the
underwriters to limit the number of shares included in an offering, including in this offering. We are required to pay all registration expenses except any underwriting discounts or commissions or transfer taxes of the Holders related to such registrations pursuant to the Second
Amended and Restated Registration Rights Agreement. In addition, in the event that any shares owned by a Holder are proposed to be offered by means of a registration statement pursuant to this agreement, we have agreed to indemnify and hold harmless such Holder, any
underwriter participating in such offering, each officer, partner, manager and director of such person, each person, if any, who may control such Holder or underwriter and each representative of any Holder serving on our board of directors from and against all demands, claims,
actions, assessments, losses, damages, liabilities, costs and expenses imposed upon any breach of representation or warranty made by us in</font></p>
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<p align="left"><font face="serif" size="2">any underwriting agreement or any untrue statement of a material fact contained in the registration statement or any omission of a material fact.</font></p>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Pursuant to the provisions of a Warrant Purchase Agreement dated June&nbsp;15, 2001, PNC Bank, National Association, which holds a warrant to purchase shares of common stock equal to &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;% of our common stock outstanding after the consummation of this offering,
will be entitled to certain registration rights with respect to the registration of those shares under the Securities Act after the consummation of this offering. The agreement provides that if we determine to register any of our securities under the Securities Act, then PNC Bank is
entitled to written notice of the registration and to include its shares of our common stock issuable upon exercise of the warrants in such registration. These registration rights are subject to certain conditions and limitations, including the right of the underwriters to limit the
number of shares included in an offering. PNC Bank agreed in the Warrant Purchase Agreement not to sell or otherwise transfer our equity securities during the 10 days prior to and during the 180-day period beginning on the effective date of the registration statement for the
initial public offering or during the 90-day period beginning on the effective date of the registration statement for any subsequent offering in which it participates, unless otherwise permitted by the underwriters.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Anti-Takeover Effects of Provisions of Our Articles of Incorporation, Our Bylaws and Pennsylvania Law</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our amended and restated articles of incorporation and second amended and restated bylaws, each of which shall be effective upon the consummation of this offering, as well as laws of the Commonwealth of Pennsylvania contain various provisions intended to promote
stability of our shareholder base and render more difficult certain unsolicited or hostile attempts to take us over which could disrupt us, divert the attention of our directors, executive officers and employees and adversely affect the independence and integrity of our business. A
summary of these provisions of our amended and restated articles of incorporation and second amended and restated bylaws, each as in effect upon the consummation of this offering, and Pennsylvania law is set forth below.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2"><i>Classified Board of Directors; Removal of Directors.</i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to our amended and restated articles of incorporation, the number of directors on our board of directors shall not be less than one or greater than &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; as determined by a majority vote of our board of
directors. The directors will be divided into three classes, each class&nbsp;to consist as nearly as possible of one-third of the directors. Directors elected by our shareholders at an annual meeting of shareholders will be elected by a plurality of all votes cast at such annual meeting.
Initially, the terms of office of the three classes of directors will expire, respectively, at the annual meeting of shareholders in 2007, 2008 and 2009. After the expiration of the terms of the initial classified board of directors, the terms of the successors of each of the three
classes of directors will expire three years from the year of their respective election. See &#147;Management&#151;Composition of Board of Directors&#148; elsewhere in this prospectus.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our second amended and restated bylaws provide that except as otherwise provided for or fixed by or pursuant to an amendment to the second amended and restated bylaws setting forth the rights of the holders of any class or series of preferred stock, newly created
directorships resulting from any increase in the number of directors and any vacancies on our board of directors resulting from death, resignation, disqualification, removal or other cause will be filled by the affirmative vote of a majority of the remaining directors then in office,
even though less than a quorum of the members of the board of directors, or by a sole remaining director. Any director elected in accordance with the preceding sentence will hold office for the full term of the class of directors in which the new directorship was created or the
vacancy occurred and until such director&#146;s successor shall have been duly elected and qualified. No decrease in the number of directors constituting our board of directors will shorten the term of any incumbent director. Subject to the rights of holders of any preferred stock,
any director may be removed from office only for cause by the affirmative vote of the holders of at least 80% of the voting power of all of our outstanding capital stock entitled to vote generally in the election of directors, voting together as a single class.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">These provisions of our second amended and restated bylaws would preclude a third-party from removing incumbent directors and simultaneously gaining control of our board of directors by filling the</font></p>
</div>
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<p align="left"><font face="serif" size="2">vacancies created by removal with its own nominees. Under the classified board of directors provisions described above, it would take at least two elections of directors for any individual or
group to gain control of our board of directors. Accordingly, these provisions could discourage a third-party from initiating a proxy contest, making a tender offer or otherwise attempting to gain
control of us.</font></p>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2"><i>Special Shareholders&#146; Meetings and Right to Act by Written Consent.</i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our second amended and restated bylaws provide that a special meeting of shareholders may be called only by the chairman of our board of directors or our Chief Executive Officer or upon a
resolution adopted by a majority of our entire board of directors. Our shareholders are not generally permitted to call, or to require that the board of directors call, a special meeting of shareholders pursuant to the terms of our amended and restated articles of incorporation.
Moreover, the business permitted to be conducted at any special meeting of shareholders is limited to the business brought before the meeting pursuant to the notice of the meeting given by us. Our second amended and restated bylaws provide that any action of shareholders
may be taken only at a meeting of the shareholders or a class&nbsp;of shareholders and may not be taken without a meeting through the execution of a consent or consents thereto by the shareholders.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2"><i>Procedures for Shareholder Nominations and Proposals.</i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our second amended and restated bylaws establish an advance notice procedure for shareholders to nominate candidates for election as directors and to propose any new business at any annual meeting. With
respect to shareholder nominations and proposals, only persons nominated in accordance with this procedure are eligible to serve as directors, and only business brought before the annual meeting in accordance with this procedure may be conducted at the annual meeting.
Under this procedure, notice of shareholder nominations and proposals for new business at the annual meeting must be received by our secretary not later than 60 days nor earlier than 90 days before the first anniversary of the previous year&#146;s annual meeting; provided,
however, that if the annual meeting date is more than 30 days before or more than 60 days after the anniversary date, notice must be received no more than 90 days before or later than the later of 60 days before the annual meeting date or the 15<sup>th</sup> day following the day on
which we first publicly announced the annual meeting. For nominations and proposals for any special meetings, our second amended and restated bylaws require notice not more than 90 days nor less than 60 days before the special meeting or the 15<sup>th</sup> day following the day on
which we first publicly announced the special meeting. Our second amended and restated bylaws provide that notice to our secretary with respect to any shareholder nomination or proposal must include certain information regarding the nominee, the proposal and the
shareholder nominating a director or proposing business.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">By requiring advance notice of nominations by our shareholders, this procedure will afford our board of directors an opportunity to consider the qualifications of the proposed nominees and, to the extent deemed necessary or desirable by our board of directors, to inform
shareholders about such qualifications. By requiring advance notice of other proposed business, this shareholder notice procedure will provide a more orderly procedure for conducting annual meetings of our shareholders and, to the extent deemed necessary or desirable by our
board of directors, will provide our board of directors with an opportunity to inform our shareholders, prior to such meetings, of the board of directors&#146; position regarding action to be taken with respect to such business, so that our shareholders can better decide whether to
attend such a meeting or to grant a proxy regarding the disposition of any such business.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Although our second amended and restated bylaws do not give the board of directors any power to approve or disapprove shareholder nominations for the election of directors or proposals for action, our Chairman of the board of directors has the power to determine
compliance with the shareholder notice procedure described above. Our second amended and restated bylaws also may have the effect of precluding a contest for the election of directors or the consideration of shareholder proposals if the proper procedures are not followed,
and of discouraging or deterring a third-party from conducting a solicitation of proxies to elect its own slate of directors or to approve its own proposal, without regard to whether consideration of such nominees or proposals might be harmful or beneficial to us and our
shareholders.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2"><i>Authorized but Unissued Shares.</i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The authorized but unissued shares of our common stock and preferred stock are available for future issuance without shareholder approval, subject to various limitations imposed by the NASDAQ Global Market. These additional
shares may be used for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee</font></p>
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<p align="left"><font face="serif" size="2">benefit plans. The existence of authorized but unissued shares of common stock and preferred stock could make it more difficult or discourage an attempt to obtain control of us by means of a
proxy contest, tender offer, merger or otherwise.</font></p>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2"><i>Amendment of Our Articles of Incorporation and Bylaws.</i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our amended and restated articles of incorporation, which shall be effective upon the consummation of this offering, provide that, unless previously approved by our board of directors, the affirmative vote of at
least 80% of the voting power of all of our outstanding capital stock entitled to vote generally in the election of directors, voting together as a single class, would be required to:</font></p>
</div>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">amend or repeal the provisions of our amended and restated articles of incorporation with respect to the election of directors;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">amend or repeal the provisions of our amended and restated articles of incorporation with respect to amendments to our amended and restated articles of incorporation; and</font></div></td>
  </tr>
</table>
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  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">adopt any provision inconsistent with such provisions.</font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">In addition, our second amended and restated bylaws, which shall be effective upon the consummation of this offering, provide that the amendment or repeal by our shareholders of any bylaws made by our board of directors would require the affirmative vote of at least
80% of the voting power of all of our outstanding capital stock entitled to vote generally in the election of directors.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2"><i>Pennsylvania Anti-Takeover Law.</i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are subject to the following anti-takeover provisions under Pennsylvania law.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Subchapter F of the Pennsylvania Business Corporation Law generally prohibits a &#147;business combination&#148; with a shareholder or group of shareholders (and affiliates and associates of such shareholders) who beneficially own(s) at least 20% of the voting power of a
public corporation, or an interested shareholder, for a five-year period following the date on which the holder became an interested shareholder unless this business combination or the acquisition by the shareholder or group of shareholders of at least 20% of the voting power
of the corporation is approved in advance by our board of directors or approved by certain majority of those shareholders who are not an interested shareholders nor affiliates or associates thereof. This provision may discourage open market purchases of our stock or a non-
negotiated tender or exchange offer for our stock and, accordingly, may be considered disadvantageous by a shareholder who would desire to participate in any such transaction.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Under Section&nbsp;1715 of the Pennsylvania Business Corporation Law, our directors are not required to regard the interests of any particular group, including those of the shareholders, as being dominant or controlling in considering our best interests. The directors may
consider, to the extent they deem appropriate, such factors as:</font></p>
</div>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the effects of any action upon any group affected by such action, including our shareholders, employees, suppliers, customers and creditors, and communities in which we have stores, offices or other establishments;</font></div></td>
  </tr>
</table>
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    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">our short-term and long-term interests, including benefits that may accrue to us from our long-term plans and the possibility that these interests may be best served by our continued independence;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the resources, intent and conduct of any person seeking to acquire control of us; and</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">all other pertinent factors.</font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Section&nbsp;1715 further provides that any act of our board of directors, a committee of the board of directors or an individual director relating to or affecting an acquisition or potential or proposed acquisition of control to which a majority of our disinterested directors
have assented will be presumed to satisfy the standard of care set forth in the Pennsylvania Business Corporation Law, unless it is proven by clear and convincing evidence that our disinterested directors did not consent to such act in good faith after reasonable investigation.
As a result of this and the other provisions of Section&nbsp;1715, our directors are provided with</font></p>
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<p align="left"><font face="serif" size="2">broad discretion with respect to actions that may be taken in response to acquisitions or proposed acquisitions of corporate control.</font></p>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The rights and limitations provided by Section&nbsp;1715 may discourage open market purchases of our common stock or a non-negotiated tender or exchange offer for our common stock and, accordingly, may be considered disadvantageous by a shareholder who would
desire to participate in any such transaction. As a result, the rights and limitations provided by Section&nbsp;1715 may have a depressive effect on the price of our common stock.</font></p>
</div>
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    <td><div align="left"><font face="serif" size="2"><b>The NASDAQ Global Market Listing</b></font></div></td>
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</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We have applied to have our common stock approved for quotation on the NASDAQ Global Market under the symbol &#147;MEDE.&#148;</font></p>
</div>
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    <td><div align="left"><font face="serif" size="2"><b>Transfer Agent and Registrar</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The transfer agent and registrar for our common stock is &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;. Its address is &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, and its telephone number is (&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.</font></p>
</div>
<p align="center"><font face="serif" size="2">96</font></p>
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<p align="center"><font face="serif" size="2"><b>SHARES ELIGIBLE FOR FUTURE SALE</b></font></p>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Prior to this offering, there has
    been no public market for our common stock, and we cannot assure you that
    a significant public market for our common stock will develop or be sustained
    after the consummation of this offering. Future sales of substantial amounts
    of our  common stock in the public market, or the possibility of those sales,
    could reduce prevailing market prices. Some shares will not be available
    for sale shortly after this offering because of contractual and legal restrictions
    on resale as described below. Sales of substantial
amounts of our common stock in the public market after any of these restrictions
    on sale lapse, or the perception that those sales may occur, could adversely
    affect the prevailing market price of our common stock and impair our ability
    to raise equity capital in the future.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Upon the consummation of this offering, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; shares
    of our common stock will be outstanding. If the underwriters exercise their
    overallotment option in full, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; shares
    of our common stock will be outstanding. The shares of common stock being
    sold in this offering,  other than shares sold in our directed share program,
    will be freely tradable, other than by any of our &#147;affiliates&#148; as
    defined in Rule&nbsp;144(a) under the Securities Act, without restriction
    or registration under the Securities Act. All remaining shares were issued
    and sold by us in
private transactions and are &#147;restricted securities&#148; as that term is
defined under Rule&nbsp;144 of the Securities Act. These remaining securities
are eligible for public sale if registered under the Securities Act or sold in
accordance with Rule&nbsp;144 or Rule&nbsp;701 under the Securities
Act, which are summarized below, or another applicable exemption from registration.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">As a result of contractual lock-up agreements with us or the underwriters as described below, and subject to the provisions of Rules 144, 144(k) and 701 summarized below, these securities will be available for sale in the public market as follows:</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Eligibility of Restricted Shares For Sale in Public Market</b></font></div></td>
  </tr>
 <tr>
    <td>&nbsp;</td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1"><b>Days after Date of this Prospectus</b></font></div></td>
    <td valign="top"><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&nbsp;</font></td>
    <td align="center" valign="top"><font face="serif" size="1"><b>Shares Eligible</b><br>
<b>for Sale</b></font></td>
    <td valign="top"><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&nbsp;</font></td>
    <td align="center"><font face="serif" size="1"><b>Comment</b></font></td>
    <td valign="top"><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="bottom">
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">As of the date of this prospectus</font></div></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom" width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="center" width="12%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom" width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="35%"><font face="serif" size="2">Shares not locked up and eligible for sale subject to Rule&nbsp;144</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">90 days after the date of this prospectus</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td align="center"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">Shares not locked up and eligible for sale subject to Rule&nbsp;144</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">180 days after the date of this prospectus</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td align="center"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">Lock-up terminates (unless extended); shares eligible for sale
subject to Rule&nbsp;144 and Rule&nbsp;701 (including options
exercisable for shares of our common stock that will
be vested and eligible for sale 180 days after the date of this
prospectus</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Thereafter</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td align="center"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Some of the shares in the table above, including shares held by executive officers and directors, listed as not being saleable until 180 days after the date of this prospectus may become saleable at a sooner date, as described under &#147;Lock-up Agreements&#148; below.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Lock-Up Agreements</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">All of our directors and officers,
    and certain of our shareholders, holding in the aggregate 29,539,057 shares
    of our common stock, or securities convertible into shares of our common
    stock
    outstanding before this offering, have signed contractual lock-up agreements
    pursuant to which they have agreed with the underwriters that, subject to
    certain exceptions, for a period of 180 days following the date of this prospectus,
    they will not offer, sell, assign, transfer, pledge or contract to sell or
    otherwise dispose of or hedge any shares of our
common stock or any securities convertible into or exchangeable for shares of
    our common stock without the prior written consent of Cowen and Company,
    LLC. In addition, if we issue an earnings release or material news or a material
    event relating to us occurs during the last 17 days of the lock-up period
  or if,</font></p>
</div>
<p align="center"><font face="serif" size="2">97</font></p>
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<p align="left"><font face="serif" size="2">prior to the expiration of the 180 days, we announce that we will release earnings results during the 16-day period beginning on the 180<sup>th</sup> day, the restrictions imposed by the underwriters&#146; lock-
up agreements may be extended until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event for all such
shares. See the description of lock-up agreements in the &#147;Underwriting&#148; section of this prospectus.</font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><div align="left"><font face="serif" size="2"><b>Rule</b>&nbsp;<b>144</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">In general, under Rule&nbsp;144 as currently in effect, beginning 90 days after the effective date of this offering, a person who has beneficially owned restricted securities for at least one year, including the holding period of any prior owner other than one of our affiliates, is
entitled to sell a number of restricted shares within any three-month period that does not exceed the greater of:</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">one percent of the number
          of shares of our common stock then outstanding, which will equal shares
          immediately after this offering; and</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the average weekly trading volume of our common stock during the four calendar weeks preceding the filing of a notice on Form&nbsp;144 with respect to the sale.</font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Sales of restricted shares under Rule&nbsp;144 are also subject to requirements regarding the manner of sale, notice, and the availability of current public information about us. Rule&nbsp;144 also provides that affiliates that sell shares of our common stock that are not restricted
shares must nonetheless comply with the same restrictions applicable to restricted shares, other than the holding period requirement.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Rule</b>&nbsp;<b>144(k)</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Under Rule&nbsp;144(k), a person who is not deemed to have been our affiliate at any time during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least two years, including the holding period of any prior owner other than
an affiliate, may sell those shares without complying with the manner-of-sale, public information, volume limitation or notice provisions of Rule&nbsp;144.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Rule</b>&nbsp;<b>701</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Under Rule&nbsp;701, shares of our common stock acquired upon the exercise of currently outstanding options or pursuant to other rights granted under written compensatory plans or contracts may be resold, to the extent not subject to the lock-up agreements:</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">by persons other than affiliates, beginning 90 days after the effective date of this offering, subject only to the manner-of-sale provisions of Rule&nbsp;144; and</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">by affiliates, subject to the manner-of-sale, current public information and filing requirements of Rule&nbsp;144, in each case, without compliance with the one-year holding period requirement of Rule&nbsp;144.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><div align="left"><font face="serif" size="2"><b>Form</b>&nbsp;<b>S-8 Registration Statements</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We intend to file one or more registration statements on Form&nbsp;S-8 under the Securities Act following this offering to register the shares of our common stock that are issuable pursuant to our 2006 Equity Incentive Plan, our Series C Stock Equity Incentive Plan and our
Amended and Restated Stock Option Plan. These registration statements are expected to become effective upon filing. Shares covered by these registration statements will then be eligible for sale in the public markets, subject to the lock-up agreements and, to the extent that it
applies, to Rule&nbsp;144 limitations applicable to affiliates.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Registration Rights</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Pursuant to the provisions of a Second Amended and Restated Registration Rights Agreement dated as of September&nbsp;25, 2001 by and among MEDecision, Inc. and the holders party thereto, the holders, which will collectively hold &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;% of our common stock
outstanding after the consummation of this offering, will be entitled to certain registration rights with respect to the registration of those shares under the Securities Act.</font></p>
</div>
<p>&nbsp;</p>
<p align="center"><font face="serif" size="2">98</font></p>
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<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Pursuant to the provisions of a warrant purchase agreement dated June&nbsp;15, 2001, PNC Bank, National Association, which holds a warrant to purchase shares of common stock equal to &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;% of our common stock outstanding after the consummation of this offering,
will be entitled to certain registration rights with respect to the registration of those shares under the Securities Act. For more information, see &#147;Description of Capital Stock&#151;Registration Rights&#148; elsewhere in this prospectus. After such registration, these shares of our common
stock will become freely tradable without restriction under the Securities Act. These sales could have a material adverse effect on the prevailing market price of our common stock.</font></p>
</div>
<p align="center"><font face="serif" size="2">99</font></p>
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<p align="center"><font face="serif" size="2"><b>CERTAIN MATERIAL U.S. FEDERAL INCOME TAX</b><br>
<b>CONSIDERATIONS FOR NON-U.S. HOLDERS</b></font></p>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The following is a general discussion of material U.S. federal income and estate tax considerations with respect to the acquisition, ownership and disposition of shares of our common stock applicable to non-U.S. holders. In general, a &#147;non-U.S. holder&#148; is any holder
other than:</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">a citizen or resident of the United States;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">a corporation created or organized in or under the laws of the United States or any political subdivision thereof;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">an estate, the income of which is includable in gross income for U.S. federal income tax purposes regardless of its source; or</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">a trust if (i) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (ii) it has a valid election in effect under applicable
Treasury regulations to be treated as a United States person.</font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Generally, an individual may be treated as a resident of the United States in any calendar year for U.S. federal income tax purposes by, among other ways, being present in the United States for at least 31 days in that calendar year and for an aggregate of at least 183
days during a three-year period ending in the current calendar year. For purposes of this calculation, such individual would count all of the days in which he or she was present in the current year, one-third of the days present in the immediately preceding year, and one-sixth of
the days present in the second preceding year. Residents are taxed for U.S. federal income tax purposes as if they were citizens of the United States.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">This discussion is based on current provisions of the Internal Revenue Code of 1986, as amended, final, temporary or proposed Treasury regulations promulgated thereunder, judicial opinions, published positions of the Internal Revenue Service and all other applicable
authorities, all of which are subject to change (possibly with retroactive effect). We assume in this discussion that a non-U.S. holder holds shares of our common stock as a capital asset (generally property held for investment).</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">This discussion does not address all aspects of U.S. federal income and estate taxation that may be important to a particular non-U.S. holder in light of that non-U.S. holder&#146;s individual circumstances, nor does it address any aspects of U.S. state, local or non-U.S. taxes.
This discussion also does not consider any specific facts or circumstances that may apply to a non-U.S. holder subject to special treatment under the U.S. federal income tax laws, including without limitation:</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">banks, insurance companies or other financial institutions;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">partnerships;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">tax-exempt organizations;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">tax-qualified retirement plans;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">dealers in securities or currencies;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">traders in securities that elect to use a mark-to-market method of accounting for their securities holdings;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">certain U.S. expatriates; and</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">persons that will hold common stock as a position in a hedging transaction, &#147;straddle&#148; or &#147;conversion transaction&#148; for tax purposes.</font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Accordingly, we urge prospective investors to consult with their own tax advisors regarding the U.S. federal, state, local and non-U.S. income and other tax considerations of acquiring, holding and disposing of shares of our common stock.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">If a partnership holds shares of our common stock, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. Any partner in a partnership holding shares of our common stock should consult its own tax
advisors.</font></p>
</div>
<p>&nbsp;</p>
<p align="center"><font face="serif" size="2">100</font></p>
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<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Dividends</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">In general, distributions made to a non-U.S. holder are treated as dividends if they are paid out of our current or accumulated earnings and profits. To the extent distributions exceed our current and accumulated profits, they are treated as a return of capital which reduces
the basis of the non-U.S. holder in our common stock, and to the extent in excess of such basis, they are treated as capital gain from the sale of our common stock. Dividends we pay, if any, to a non-U.S. holder will be subject to U.S. withholding tax at a rate of 30% on the
gross amount of the dividend. The withholding tax might not apply or might apply at a reduced rate if the non-U.S. holder can claim the benefits of an applicable income tax treaty between the United States and the non-U.S. holder&#146;s country of residence. A non-U.S. holder
must demonstrate its entitlement to treaty benefits by providing an Internal Revenue Service Form&nbsp;W-8BEN or appropriate substitute form to us or our paying agent. Also, special rules apply if the dividends are effectively connected with a trade or business carried on by the
non-U.S. holder within the United States and, if a treaty applies, are attributable to a permanent establishment of the non-U.S. holder within the United States. Dividends effectively connected with a U.S. trade or business, and, if a treaty applies, attributable to a permanent
establishment of a non-U.S. holder, generally will not be subject to U.S. withholding tax if the non-U.S. holder files certain forms, including Internal Revenue Service Form&nbsp;W-8ECI (or any successor form), with the payor of the dividend, and generally will be subject to U.S.
federal income tax on a net basis, in the same manner as if the non-U.S. holder were a resident of the United States. A non-U.S. holder that is a corporation may be subject to an additional &#147;branch profits tax&#148; at a rate of 30% (or a reduced rate as may be specified by an
applicable income tax treaty) on the repatriation from the United States of its &#147;effectively connected earnings and profits,&#148; subject to certain adjustments. A non-U.S. holder of shares of our common stock eligible for a reduced rate of U.S. withholding tax pursuant to an
income tax treaty may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund with the Internal Revenue Service.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Gain on Sale or Other Disposition of Common Stock</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">In general, a non-U.S. holder will not be subject to U.S. federal income tax on any gain realized upon the sale or other disposition of the holder&#146;s shares of our common stock unless:</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the gain is effectively connected with a trade or business carried on by the non-U.S. holder within the United States and, if required by an applicable income tax treaty as a condition to subjecting a non-U.S. holder to United States income tax on a net basis, the gain is
attributable to a permanent establishment of the non-U.S. holder maintained in the United States, in which case a non-U.S. holder will be subject to U.S. federal income tax on any gain realized upon the sale or other disposition on a net basis, in the same manner as if the
non-U.S. holder were a resident of the United States. Furthermore, the branch profits tax discussed above may also apply if the non-U.S. holder is a corporation;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the non-U.S. holder is an individual and is present in the United States for 183 days or more in the taxable year of disposition and certain other tests are met, in which case a non-U.S. holder will be subject to a flat 30% tax on any gain realized upon the sale or other
disposition, which tax may be offset by United States source capital losses (even though the individual is not considered a resident of the United States);</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the non-U.S. holder is subject to tax pursuant to the provisions of the Internal Revenue Code regarding the taxation of U.S. expatriates; or</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">we are or have been a U.S. real property holding corporation (a USRPHC) for U.S. federal income tax purposes at any time within the shorter of the five-year period preceding the disposition and the non-U.S. holder&#146;s holding period. We do not believe that we are or have
been a USRPHC, and we do not anticipate becoming a USRPHC. If we have in the past or were to become a USRPHC at any time during this period, generally gains realized upon a disposition of shares of our common stock by a non-U.S. holder that did not directly or
indirectly own more than 5% of our common stock during this period would not be subject to U.S. federal income tax, provided that our common stock is &#147;regularly traded on an established securities market&#148; (within the meaning of Section&nbsp;897(c)(3) of the Internal
Revenue Code). Our common stock will be treated as regularly traded on an established securities market during any period in which it is listed on a registered national securities exchange or any over-the-counter market, including the NASDAQ Global Market.</font></div></td>
  </tr>
</table>
<p>&nbsp;</p>
<p align="center"><font face="serif" size="2">101</font></p>
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<div style="page-break-before:always"></div>
<page>
<a name="p102"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>U.S. Federal Estate Tax</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Shares of our common stock that are owned or treated as owned by an individual who is not a citizen or resident (as defined for U.S. federal estate tax purposes) of the United States at the time of death will be includible in the individual&#146;s gross estate for U.S. federal
estate tax purposes, unless an applicable estate tax treaty provides otherwise, and therefore may be subject to U.S. federal estate tax.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Backup Withholding, Information Reporting and Other Reporting Requirements</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Generally, we must report annually to the Internal Revenue Service and to each non-U.S. holder the amount of dividends paid to, and the tax withheld with respect to, each non-U.S. holder. These reporting requirements apply regardless of whether withholding was
reduced or eliminated by an applicable tax treaty. Copies of this information also may be made available under the provisions of a specific treaty or agreement with the tax authorities in the country in which the non-U.S. holder resides or is established.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">U.S. backup withholding tax is imposed (at a current rate of 28%) on certain payments to persons that fail to furnish the information required under the U.S. information reporting requirements. A non-U.S. holder of shares of our common stock will be subject to this
backup withholding tax on dividends we pay unless the holder certifies, under penalties of perjury, among other things, its status as a non-U.S. holder (and we or our paying agent do not have actual knowledge or reason to know the holder is a United States person) or
otherwise establishes an exemption.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Under the Treasury regulations, the payment of proceeds from the disposition of shares of our common stock by a non-U.S. holder made to or through a U.S. office of a broker generally will be subject to information reporting and backup withholding unless the
beneficial owner certifies, under penalties of perjury, among other things, its status as a non-U.S. holder (and we or our paying agent do not have actual knowledge or reason to know the holder is a United States person) or otherwise establishes an exemption. The payment of
proceeds from the disposition of shares of our common stock by a non-U.S. holder made to or through a non-U.S. office of a broker generally will not be subject to backup withholding and information reporting, except as noted below. In the case of proceeds from a
disposition of shares of our common stock by a non-U.S. holder made to or through a non-U.S. office of a broker that is:</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">a U.S. person;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">a &#147;controlled foreign corporation&#148; for U.S. federal income tax purposes;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">a foreign person 50% or more of whose gross income from certain periods is effectively connected with a U.S. trade or business; or</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">a foreign partnership if at any time during its tax year (i) one or more of its partners are U.S. persons who, in the aggregate, hold more than 50% of the income or capital interests of the partnership or (ii) the foreign partnership is engaged in a U.S. trade or business.</font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Information reporting (but not backup withholding) will apply unless the broker has documentary evidence in its files that the owner is a non-U.S. holder and certain other conditions are satisfied, or the beneficial owner otherwise establishes an exemption (and the broker
has no actual knowledge or reason to know to the contrary).</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment to a non-U.S. holder can be refunded or credited against the non-U.S. holder&#146;s U.S. federal income tax liability, if any, provided that the required
information is furnished to the Internal Revenue Service in a timely manner.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2"><b>THE FOREGOING DISCUSSION OF CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH PROSPECTIVE HOLDER OF SHARES OF
OUR COMMON STOCK SHOULD CONSULT HIS, HER OR ITS OWN TAX ADVISER WITH RESPECT TO THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF
COMMON STOCK.</b></font></p>
</div>
<p align="center"><font face="serif" size="2">102</font></p>
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<div style="page-break-before:always"></div>
<page>
<a name="p103"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font face="serif" size="2"></font><font face="serif" size="2"><b>UNDERWRITING</b></font></p>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We, the selling shareholders and
    the underwriters for this offering named below have entered into an underwriting
    agreement with respect to our common stock being offered. Subject to the
    terms and conditions of the underwriting agreement, each underwriter has
     severally agreed to purchase from us and the selling shareholders the number
    of shares of our common stock set forth opposite its name below. Cowen and
    Company, LLC, Wachovia Capital Markets, LLC, CIBC World Markets Corp. and
    Pacific Growth Equities, LLC are the
representatives of the underwriters.</font></p>
</div>
<table width="80%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1"><b>Underwriters</b></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Number of</b><br>
<b>Shares</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="1"><hr align="left" width="60" size="1" noshade>
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Cowen and Company, LLC</font></div></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Wachovia Capital Markets, LLC</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">CIBC World Markets Corp.</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Pacific Growth Equities, LLC</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Total</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The underwriting agreement provides that the obligations of the underwriters are conditional and may be terminated at their discretion based on their assessment of the state of the financial markets. The obligations of the underwriters may also be terminated upon the
occurrence of the events specified in the underwriting agreement. The underwriters have agreed, severally and not jointly, to purchase all of the shares sold under the underwriting agreement if any of these shares are purchased, other than those shares covered by the
overallotment option described below. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the non-defaulting underwriters may be increased or the underwriting agreement may be terminated.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We and the selling shareholders have agreed to indemnify the underwriters against specified liabilities, including liabilities under the Securities Act of 1933, and to contribute to payments the underwriters may be required to make in respect thereof.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The underwriters are offering the shares, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel and other conditions specified in the underwriting agreement. The underwriters reserve the right to
withdraw, cancel or modify offers to the public and to reject orders in whole or in part.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2"><i>Overallotment Option to Purchase Additional Shares.</i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The selling shareholders have granted to the underwriters an option to purchase up to &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;additional shares of common stock at the public offering price, less the underwriting discount. This option is
exercisable for a period of 30 days. The underwriters may exercise this option solely for the purpose of covering overallotments, if any, made in connection with the sale of common stock offered hereby. To the extent that the underwriters exercise this option, the underwriters
will purchase additional shares from the selling shareholders in approximately the same proportion as shown in the table above.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2"><i>Discounts and Commissions.</i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table shows the public offering price, underwriting discount and proceeds, before expenses to us and the selling shareholders. These amounts are shown assuming both no exercise and full exercise of the underwriters&#146; option
to purchase additional shares.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We estimate that the total expenses of this offering, excluding underwriting discount, will be approximately $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; and are payable by us.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="5" align="center" valign="bottom"><font face="serif" size="1"><b>Total</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="5" valign="bottom"><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Per Share</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Without</b><br>
<b>Overallotment</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>With</b><br>
<b>Overallotment</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Public offering price</font></div></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Underwriting discount</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Proceeds, before expenses, to us</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Proceeds, before expenses, to selling shareholders</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
</table>
<p>&nbsp;</p>
<p align="center"><font face="serif" size="2">103</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="p104"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The underwriters propose to offer the shares of common stock to the public at the public offering price set forth on the cover of this prospectus. The underwriters may offer the shares of common stock to securities dealers at the public offering price less a concession
not in excess of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; per share. The underwriters may allow, and the dealers may reallow, a discount not in excess of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; per share to other dealers. If all of the shares are not sold at the public offering price, the underwriters may change the offering price and other
selling terms.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2"><i>Discretionary Accounts.</i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The underwriters do not intend to confirm sales of the shares to any accounts over which they have discretionary authority.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2"><i>Market Information.</i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior to this offering, there has been no public market for shares of our common stock. The initial public offering price will be determined by negotiations between us and the representatives of the underwriters.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">An active trading market for the shares may not develop. It is also possible that after this offering the shares will not trade in the public market at or above the initial public offering price.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We have applied for the quotation of our common stock on the NASDAQ Global Market under the symbol &#147;MEDE.&#148;</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2"><i>Stabilization.</i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with this offering, the underwriters may engage in stabilizing transactions, overallotment transactions, syndicate covering transactions, penalty bids and purchases to cover positions created by short sales.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">Stabilizing transactions permit bids to purchase shares of common stock so long as the stabilizing bids do not exceed a specified maximum, and are engaged in for the purpose of preventing or retarding a decline in the market price of our common stock while this offering
is in progress.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">Overallotment transactions involve sales by the underwriters of shares of common stock in excess of the number of shares the underwriters are obligated to purchase. This creates a syndicate short position which may be either a covered short position or a naked short
position. In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number of shares that they may purchase in the overallotment option. In a naked short position, the number of shares involved is greater than the number of
shares in the overallotment option. The underwriters may close out any short position by exercising their overallotment option and/or purchasing shares in the open market.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">Syndicate covering transactions involve purchases of common stock in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider,
among other things, the price of shares available for purchase in the open market as compared with the price at which they may purchase shares through exercise of the overallotment option. If the underwriters sell more shares than could be covered by exercise of the
overallotment option and, therefore, have a naked short position, the position can be closed out only by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that after pricing there could be downward
pressure on the price of the shares in the open market that could adversely affect investors who purchase in this offering.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when our common stock originally sold by that syndicate member is purchased in stabilizing or syndicate covering transactions to cover syndicate short positions.</font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of our common stock. As a result, the price of
our common stock in the open market may be higher than it would otherwise be in the absence of these transactions. Neither we nor the underwriters make any representation or prediction as to the effect that the transactions described above may have on the price of our
common stock. These transactions may be effected on the NASDAQ Global Market, in the over-the-counter market or otherwise and, if commenced, may be discontinued at any time.</font></p>
</div>
<p>&nbsp;</p>
<p align="center"><font face="serif" size="2">104</font></p>
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<div style="text-indent:3%">
<p align="left"><font face="serif" size="2"><i>Lock-Up Agreements.</i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to certain &#147;lock-up&#148; agreements, we and our executive officers, directors and certain of our other shareholders, have agreed, subject to certain exceptions, not to offer, sell, contract to sell, announce any intention to sell, pledge or
otherwise dispose of, enter into any swap or other agreement that transfers, in whole or in part, the economic consequence of ownership of, directly or indirectly, or file with the Securities and Exchange Commission a registration statement under the Securities Act relating to,
and common stock or securities convertible into or exchangeable or exercisable for any common stock without the prior written consent of Cowen and Company, LLC, for a period of 180 days after the date of the pricing of this offering. The 180-day restricted period will be
automatically extended if (i)&nbsp;during the last 17 days of the 180-day restricted period we issue an earnings release or material news or a material event relating to us occurs or (ii) prior to the expiration of the 180-day restricted period, we announce that we will release earnings
results or become aware that material news or a material event will occur during the 16-day period beginning on the last day of the 180-day restricted period, in either of which case the restrictions described above will continue to apply until the expiration of the 18-day period
beginning on the issuance of the earnings release or the occurrence of the material news or material event.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">This lock-up provision applies to common stock and to securities convertible into or exchangeable or exercisable for or replaceable with common stock. It also applies to common stock owned now or acquired later by the person executing the agreement or for which the
person executing the agreement later acquires the power of disposition. The exceptions permit us, among other things and subject to restrictions, to (i)&nbsp;issue common stock or options pursuant to employee benefit plans; (ii) issue common stock upon exercise of outstanding
options or warrants; or (iii) file registration statements on Form&nbsp;S-8. The exceptions permit parties to the &#147;lock-up&#148; agreements, among other things and subject to restrictions, to (i) participate in transfers or exchanges involving common stock or securities convertible into
common stock or (ii) make certain gifts. In addition, the lock-up provision will not restrict broker-dealers from engaging in market making and similar activities conducted in the ordinary course of their business.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2"><i>Directed Share Program.</i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At our request, the underwriters have reserved up to &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of our common stock for sale, at the initial public offering price, through a directed share program to our business associates, employees and friends and family members of our
employees. There can be no assurance that any of the reserved shares will be so purchased. The number of shares available for sale to the general public in this offering will be reduced to the extent the reserved shares are purchased in the directed share program. Any reserved
shares of common stock not purchased through the directed share program will be offered to the general public on the same basis as the other common stock offered hereby.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2"><i>Electronic Offer, Sale and Distribution of Shares.</i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A prospectus in electronic format may be made available on the websites maintained by one or more of the underwriters or selling group members, if any, participating in this offering and one or more of the
underwriters participating in this offering may distribute prospectuses electronically. The representatives may agree to allocate a number of shares to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be
allocated by the underwriters and selling group members in a manner that will make internet distributions on the same basis as other allocations. Other than the prospectus in the electronic format, the information on these websites is not part of this prospectus or the
registration statement of which this prospectus forms a part, has not been approved or endorsed by us or any underwriter in its capacity as underwriter, and should not be relied upon by investors.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2"><i>Other Relationships.</i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain of the underwriters and their affiliates may in the future provide various investment banking, commercial banking and other financial services for us and our affiliates for which they may in the future receive customary fees.</font></p>
</div>
<p align="center"><font face="serif" size="2">105</font></p>
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<p align="center"><font face="serif" size="2"></font><font face="serif" size="2"><b>LEGAL MATTERS</b></font></p>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The validity of the shares of our common stock offered hereby will be passed upon for us by Pepper Hamilton LLP, Philadelphia, Pennsylvania. Pepper Hamilton LLP has provided legal services to us since 1999. Certain current and former partners of Pepper Hamilton
LLP are partners in The Peregrine Equity Fund, LLP, which owns 7,241 shares of Series B preferred stock, 5,983 shares of Series C preferred stock and 10,549 shares of common stock. Certain legal matters in connection with this offering will be passed upon for the
underwriters by Wilson Sonsini Goodrich &amp; Rosati, Professional Corporation, New York, New&nbsp;York.</font></p>
</div>
<p align="center"><font face="serif" size="2"><b>EXPERTS</b></font></p>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The financial statements included
    in this prospectus and elsewhere in the registration statement have been
    audited by Grant Thornton LLP, an independent registered public accounting
    firm, as indicated in their reports with respect thereto, and are included
    herein in reliance upon the authority of said firm as experts in auditing
  and accounting in giving such reports.</font></p>
</div>
<p align="center"><font face="serif" size="2"><b>WHERE YOU CAN FIND MORE INFORMATION</b></font></p>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We filed with the Securities and Exchange Commission a registration statement on Form&nbsp;S-1 under the Securities Act for the shares of our common stock to be sold in this offering. This prospectus, which forms a part of the registration statement, does not contain all
of the information in the registration statement and the exhibits that were filed with the registration statement. For further information with respect to us and our common stock, we refer you to the registration statement and the exhibits that were filed with the registration
statement. Statements contained in this prospectus about the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and we refer you to the full text of the contract or other document filed as an exhibit
to the registration statement. A copy of the registration statement and the exhibits that were filed with the registration statement may be inspected without charge at the public reference facilities maintained by the Securities and Exchange Commission Room 1580, 100 F Street,
N.E., Washington, D.C. 20549, and copies of all or any part of the registration statement may be obtained from the Securities and Exchange Commission upon payment of the prescribed fee. Information on the operation of the public reference facilities may be obtained by
calling the Securities and Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission maintains a website that contains reports, proxy and information statements, and other information regarding registrants that file electronically with the Securities
and Exchange Commission. The address of the site is http://www.sec.gov. You may also request copies of these filings, at no cost, by telephone at (610) 540-0202 or by mail to: 601 Lee Road, Chesterbrook Corporate Center, Wayne, Pennsylvania 19087, Attention: Investor
Relations.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We maintain an Internet website at http://www.medecision.com (which is not intended to be an active hyperlink in this prospectus). The information contained on, connected to or that can be accessed via our website is not part of this prospectus.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Upon the consummation of this offering,
    we will become subject to the information and periodic reporting requirements
    of the Exchange Act, and, in accordance with such requirements, will file
    periodic reports, proxy statements, and other information with the  Securities
    and Exchange Commission. These periodic reports, proxy statements and other
    information will be available for inspection and copying at the regional
    offices, public reference facilities and website of the Securities and Exchange
    Commission referred to above. We
intend to furnish our shareholders with annual reports containing financial statements
    audited by our independent accountants.</font></p>
</div>
<p align="center"><font face="serif" size="2">106</font></p>
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<p align="center"><font face="serif" size="2"></font><font face="serif" size="2"><b>INDEX TO CONSOLIDATED FINANCIAL STATEMENTS</b></font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Report of Independent Registered Public Accounting Firm</font></div></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">F-2</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Consolidated Statements of Operations for the three months ended March&nbsp;31, 2006 and 2005 (unaudited) and the years ended December&nbsp;31, 2005, 2004 and 2003</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">F-3</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Consolidated Balance Sheets as of March&nbsp;31, 2006 (unaudited) and December&nbsp;31, 2005 and 2004</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">F-4</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Consolidated Statements of Convertible Preferred Stock, Redeemable Convertible Preferred Stock and Stockholders&#146; Deficiency for the three months ended March&nbsp;31, 2006 (unaudited) and the years ended December&nbsp;31, 2005, 2004 and 2003</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">F-5</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Consolidated Statements of Cash Flows for the three months ended March&nbsp;31, 2006 and 2005 (unaudited) and the years ended December&nbsp;31, 2005, 2004 and 2003</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">F-6</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Notes to Consolidated Financial Statements</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">F-7</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
</table>
<p align="center"><font face="serif" size="2">F-1</font></p>
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<p align="center"><font face="serif" size="2"></font><font face="serif" size="2"><b>Report of Independent Registered Public Accounting Firm</b></font></p>
<p align="left"><font face="serif" size="2">The Board of Directors<br>
MEDecision, Inc.:</font></p>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We have audited the accompanying
    consolidated balance sheets of MEDecision, Inc. and Subsidiaries as of December&nbsp;31,
    2005 and 2004, and the related consolidated statements of operations, convertible
    preferred stock, redeemable convertible preferred stock and
stockholders&#146; deficiency and cash flows for each of the three years in the
period ended December 31, 2005. These consolidated financial statements are the
responsibility of the Company&#146;s management. Our responsibility is to express
an opinion on these consolidated financial
statements based on our audits.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company&#146;s internal
control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of MEDecision, Inc. and Subsidiaries as of December&nbsp;31, 2005 and 2004, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">As disclosed in footnote 2 to the financial statements, the Company restated its financial statements as of and for the years ended December&nbsp;31, 2004 and 2003.</font></p>
</div>
<p align="left"><font face="serif" size="2">/s/
  Grant Thornton LLP<br>
Philadelphia, Pennsylvania</font></p>
<p align="left"><font face="serif" size="2">July 19, 2006 (except for footnote 13, <i>Subsequent Events</i>,<br>
as to which the date is August 1, 2006)</font></p>
<p align="center"><font face="serif" size="2">F-2</font></p>
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<p align="center"><font face="serif" size="2"></font><font face="serif" size="2"><b>MEDECISION, INC. AND SUBSIDIARIES</b></font></p>
<p align="center"><font face="serif" size="2"><b>Consolidated Statements of Operations</b><br>
<b>(in thousands, except share and per share data)</b></font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="5" align="center" valign="bottom"><font face="serif" size="1"><b>Three Months Ended March</b>&nbsp;<b>31,</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="8" align="center" valign="bottom"><font face="serif" size="1"><b>Year Ended December</b>&nbsp;<b>31,</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="5" valign="bottom"><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="8" valign="bottom"><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2006</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2005</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2005</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2004</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2003</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="5" align="center" valign="bottom"><font face="serif" size="1"><b>(unaudited)</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="5" align="center" valign="bottom"><font face="serif" size="1"><b>(as restated)</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2"><i>Revenue</i></font></div></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Term license revenue</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">415</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">652</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">9,729</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">6,260</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2,439</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Subscription, maintenance and transaction fees</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">5,308</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">3,542</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">17,187</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">14,666</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">12,600</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Professional services</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">3,103</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,786</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">11,680</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">7,102</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">5,488</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:9%"><font face="serif" size="2">Total revenue</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">8,826</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">5,980</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">38,596</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">28,028</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">20,527</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Cost of revenue</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">3,555</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">3,268</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">15,315</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">13,072</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">9,331</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Gross margin</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">5,271</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2,712</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">23,281</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">14,956</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">11,196</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2"><i>Operating expenses</i></font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Sales and marketing</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2,205</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,250</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">7,778</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">4,668</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">3,211</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Research and development</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,561</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">600</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2,627</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">3,243</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">3,903</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">General and administrative</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2,475</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,804</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">9,707</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">6,320</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">4,343</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:9%"><font face="serif" size="2">Total operating expenses</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">6,241</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">3,654</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">20,112</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">14,231</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">11,457</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">(Loss) income from operations</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(970</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(942</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">3,169</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">725</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(261</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">(Gain) loss on change in fair value of redeemable convertible preferred stock conversion options</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(158</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(118</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">4,334</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,850</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(42</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Interest
          expense, net</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">60</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">41</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">274</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">175</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">249</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Loss before benefit for income taxes</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(872</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(865</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(1,439</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(1,300</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(468</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Benefit for income taxes</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">416</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">386</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">6,491</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Net (loss) income</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(456</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(479</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">5,052</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(1,300</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(468</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Accretion of convertible preferred shares and redeemable convertible preferred shares</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(821</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(644</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(6,226</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(2,983</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(3,275</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Loss available to common shareholders</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(1,277</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(1,123</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(1,174</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(4,283</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(3,743</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Loss per share available to common shareholders, basic and diluted</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(0.19</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(0.17</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(0.18</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(0.67</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(0.60</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Weighted average shares used to compute loss available to common shareholders per common share, basic and diluted</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">6,549,699</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">6,441,869</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">6,458,129</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">6,378,732</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">6,215,840</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
</table>
<p align="center"><font face="serif" size="2"><i>The accompanying notes are an integral part of these consolidated financial statements.</i></font></p>
<p align="left"><font face="serif" size="2">&nbsp;</font></p>
<p align="center"><font face="serif" size="2">F-3</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="pf4"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font face="serif" size="2"></font><font face="serif" size="2"><b>MEDECISION, INC. AND SUBSIDIARIES</b></font></p>
<p align="center"><font face="serif" size="2"><b>Consolidated Balance Sheets</b><br>
<b>(in thousands, except share and per share data)</b></font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td rowspan="3"><font face="serif" size="1">&nbsp;</font><font face="serif" size="1">&nbsp;</font><font face="serif" size="1">&nbsp;</font></td>
    <td rowspan="3"><font face="serif" size="1">&nbsp;</font><font face="serif" size="1">&nbsp;</font><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" rowspan="3" align="center" valign="bottom"><font face="serif" size="1"><b>March</b>&nbsp;<b>31,</b></font><br>
	<font face="serif" size="1">&nbsp;</font><font face="serif" size="1"><b>2006</b></font></td>
    <td rowspan="3"><font face="serif" size="1">&nbsp;</font><font face="serif" size="1">&nbsp;</font><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="5" align="center" valign="bottom"><font face="serif" size="1"><b>December</b>&nbsp;<b>31,</b></font></td>
    <td rowspan="3"><font face="serif" size="1">&nbsp;</font><font face="serif" size="1">&nbsp;</font><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td colspan="5" valign="bottom"><font face="serif" size="1"><hr noshade size="1"></font></td>
  </tr>
  <tr valign="top">
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2005</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2004</b></font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>(unaudited)</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>(as restated)</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr align="center" valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2"><b>Assets</b></font></div></td>
    <td align="left" width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left" width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left" width="8%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left" width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left" width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left" width="8%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left" width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left" width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left" width="8%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left" width="2%"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2"><i>Current assets</i></font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Cash and cash equivalents</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">4,612</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2,447</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">431</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Accounts receivable, net of allowances for doubtful accounts of $28 (unaudited), $55 and $98</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">6,992</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">10,363</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">4,401</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Prepaid expenses</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,760</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">553</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">383</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Other current assets</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">145</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">227</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">621</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Deferred income taxes</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">3,192</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2,776</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Total current assets</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">16,701</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">16,366</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">5,836</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2"><i>Property and equipment</i></font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Computer equipment and software</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">10,859</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">10,434</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">7,707</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Leasehold improvements</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2,034</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2,032</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,514</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Office equipment and furniture</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,491</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,363</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">924</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><font size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">14,384</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">13,829</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">10,145</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Less accumulated depreciation and amortization</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(7,662</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(7,216</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(5,892</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Net property and equipment</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">6,722</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">6,613</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">4,253</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Capitalized
          software, net of accumulated amortization of $6,168 (unaudited), $6,091
          and $5,297</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">3,546</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">3,274</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,664</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Other assets</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">367</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">341</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">466</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Deferred income taxes</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">5,689</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">5,689</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:9%; text-indent:-3%"><font face="serif" size="2">Total assets</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">33,025</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">32,283</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">12,219</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr align="center" valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2"><b>Liabilities, Convertible Preferred Stock,</b><br>
<b>Redeemable Convertible Preferred Stock and Stockholders&#146; Deficiency</b></font></div></td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2"><i>Current liabilities</i></font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Current portion of capital lease obligations</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,337</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,162</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">552</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Current portion of long-term note payable</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">100</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">100</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Accounts payable</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2,110</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2,006</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,237</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Accrued payroll and related costs</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,734</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,803</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">534</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Other accrued expenses</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,318</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,826</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,459</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Conversion option on the convertible preferred stock and the convertible redeemable preferred stock</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">6,071</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">6,229</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,895</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Deferred revenue</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">11,227</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">9,617</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">5,885</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Total current liabilities</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">23,897</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">22,743</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">11,562</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2"><i>Long-term liabilities</i></font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Capital lease obligations</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2,429</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2,440</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,180</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Note&nbsp;payable</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">50</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">75</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Deferred rent</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,482</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,510</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">994</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Deferred
          tax liability</font></div></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,720</font></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,720</font></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Other long-term liabilities</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">22</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">22</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">28</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Total long-term liabilities</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">5,703</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">5,767</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2,202</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Commitments and contingencies</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Series
          A convertible preferred stock, no par value; authorized 2,333,333 shares;
          issued and outstanding 2,333,333 shares at December 31, 2004</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">5,983</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Series B redeemable convertible preferred stock, no par value; authorized 7,500,000 shares; issued and outstanding 4,022,252 shares at March 31, 2006 (unaudited), December 31, 2005 and December 31, 2004</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">28,973</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">28,545</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">26,833</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Series C redeemable convertible preferred stock, no par value; authorized 7,500,000 shares; issued and outstanding 4,851,549 shares at March 31, 2006 (unaudited), December 31, 2005 and December 31, 2004</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">7,692</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">7,555</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">7,006</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2"><i>Stockholders&#146; deficiency</i></font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left: 6%; text-indent: -3%"><font face="serif" size="2">Series
          A convertible preferred stock no par value; authorized 2,333,333 shares;
          issued and outstanding 2,333,333 shares at March&nbsp;31, 2006 and
          December&nbsp;31,
    2005</font></div></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td align="right" valign="bottom"><font face="serif" size="2">6,377</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">6,298</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Common
          stock, no par value; authorized 50,000,000 shares; issued and outstanding
          6,549,954 shares at March 31, 2006 (unaudited), 6,549,454 shares at
          December&nbsp;31, 2005 and 6,438,242 shares at December 31, 2004</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">13,739</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">13,631</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">13,365</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left: 6%; text-indent: -3%"><font face="serif" size="2">Additional
          paid in capital-beneficial conversion feature</font></div>
    </td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td align="right" valign="bottom"><font face="serif" size="2">3,827</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">3,650</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Accumulated deficit</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(57,183</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(55,906</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(54,732</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Total stockholders&#146; deficiency</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(33,240</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(32,327</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(41,367</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Total liabilities, convertible preferred stock, redeemable convertible preferred stock and stockholders&#146; deficiency</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">33,025</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">32,283</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">12,219</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
</table>
<p align="center"><font face="serif" size="2"><i>The accompanying notes are an integral part of these consolidated financial statements.</i></font></p>
<p>&nbsp;</p>
<p align="center"><font face="serif" size="2">F-4</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="pf5"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font face="serif" size="2"></font><font face="serif" size="2"><b>MEDECISION, INC. AND SUBSIDIARIES</b></font></p>
<p align="center"><font face="serif" size="2"><b>Consolidated Statements of Convertible Preferred Stock, </b><br>
<b>Redeemable Convertible Preferred Stock and Stockholders&#146; Deficiency</b><br>
<b>(in thousands, except per share data)</b></font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="19" align="center"><font face="serif" size="1">&nbsp;</font><font face="serif" size="1"><b>Stockholders&#146; Deficiency</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="19"><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td rowspan="2"><font face="serif" size="1">&nbsp;</font><font face="serif" size="1">&nbsp;</font></td>
    <td rowspan="2"><font face="serif" size="1">&nbsp;</font><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" rowspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Series
          A</b><br>
          <b>redeemable</b><br>
<b>convertible</b><br>
<b>preferred</b></font><font face="serif" size="1"><b><br>
stock</b></font></td>
    <td rowspan="2"><font face="serif" size="1">&nbsp;</font><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" rowspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Series B</b><br>
<b>redeemable</b><br>
<b>convertible</b><br>
<b>preferred</b></font><font face="serif" size="1"><b><br>
stock</b></font></td>
    <td rowspan="2"><font face="serif" size="1">&nbsp;</font><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" rowspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Series C</b><br>
<b>redeemable</b><br>
<b>convertible</b><br>
<b>preferred</b></font><font face="serif" size="1"><b><br>
stock</b></font></td>
    <td rowspan="2">&nbsp;</td>
    <td colspan="2" rowspan="2" align="center" valign="bottom"><b><font face="serif" size="1">Series A<br>
      convertible<br>
      preferred<br>
		stock</font></b></td>
    <td rowspan="2"><font face="serif" size="1">&nbsp;</font><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="5" align="center" valign="bottom"><font face="serif" size="1"><b>Common Stock</b><br>
<hr noshade size="1"></font></td>
    <td rowspan="2">&nbsp;</td>
    <td colspan="2" rowspan="2" align="center" valign="bottom"><b><font size="1" face="Times New Roman, Times, serif">Additional<br>
      Paid-in<br>
	Capital</font><font face="serif" size="1">&#151;</font><font size="1" face="Times New Roman, Times, serif"><br>
	Beneficial<br>
    </font></b><b><font size="1" face="Times New Roman, Times, serif">Conversion Feature</font></b></td>
    <td rowspan="2">&nbsp;</td>
    <td rowspan="2"><font face="serif" size="1">&nbsp;</font><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" rowspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Accumulated<br>
    </b></font><font face="serif" size="1"><b>Deficit</b></font></td>
    <td rowspan="2"><font face="serif" size="1">&nbsp;</font><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" rowspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Total</b></font></td>
    <td rowspan="2"><font face="serif" size="1">&nbsp;</font><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Shares</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Amount</b></font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td>&nbsp;</td>
    <td align="right" valign="bottom"><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td>&nbsp;</td>
    <td colspan="2"><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Balance at December&nbsp;31, 2002 (restated)</font></div></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">$</font></td>
    <td align="right" width="6%"><font face="serif" size="1">5,353</font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">$</font></td>
    <td align="right" width="6%"><font face="serif" size="1">22,368</font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">$</font></td>
    <td align="right" width="6%"><font face="serif" size="1">5,491</font></td>
    <td width="2%">&nbsp;</td>
    <td width="2%" align="left"><font face="serif" size="1">$</font></td>
    <td width="2%" align="right"><font face="serif" size="1">&#151;</font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" width="6%"><font face="serif" size="1">6,208</font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">$</font></td>
    <td align="right" width="6%"><font face="serif" size="1">13,317</font></td>
    <td width="2%">&nbsp;</td>
    <td width="1%"><font face="serif" size="1">$</font></td>
    <td width="6%" align="right"><font face="serif" size="1">&#151;</font></td>
    <td width="2%">&nbsp;</td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">$</font></td>
    <td align="right" width="6%"><font face="serif" size="1">(46,706</font></td>
    <td width="2%"><font face="serif" size="1">)</font></td>
    <td width="1%"><font face="serif" size="1">$</font></td>
    <td align="right" width="6%"><font face="serif" size="1">(33,389</font></td>
    <td width="2%"><font face="serif" size="1">)</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Net loss</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td>&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td>&nbsp;</td>
    <td width="1%">&nbsp;</td>
    <td width="6%" align="right"><font face="serif" size="1">&#151;</font></td>
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(468</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(468</font></td>
    <td><font face="serif" size="1">)</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Accretion of convertible preferred stock and redeemable convertible preferred stock issuance costs</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">659</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">43</font></td>
    <td>&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td>&nbsp;</td>
    <td width="1%">&nbsp;</td>
    <td width="6%" align="right"><font face="serif" size="1">&#151;</font></td>
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(704</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(704</font></td>
    <td><font face="serif" size="1">)</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Accretion of convertible preferred stock and redeemable convertible preferred stock dividends</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">315</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">1,712</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">544</font></td>
    <td>&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&nbsp;</font></td>
    <td>&nbsp;</td>
    <td width="1%">&nbsp;</td>
    <td width="6%" align="right">&nbsp;</td>
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(2,571</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(2,571</font></td>
    <td><font face="serif" size="1">)</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Shares issued for acquisition</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">198</font></td>
    <td>&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td>&nbsp;</td>
    <td width="1%">&nbsp;</td>
    <td width="6%" align="right"><font face="serif" size="1">&#151;</font></td>
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Issuance of Series C redeemable convertible preferred stock as compensation</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">156</font></td>
    <td>&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td>&nbsp;</td>
    <td width="1%">&nbsp;</td>
    <td width="6%" align="right"><font face="serif" size="1">&#151;</font></td>
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Exercise of stock options</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td>&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">14</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">11</font></td>
    <td>&nbsp;</td>
    <td width="1%">&nbsp;</td>
    <td width="6%" align="right"><font face="serif" size="1">&#151;</font></td>
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">11</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#ffffff">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td>&nbsp;</td>
    <td align="left"><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td align="right"><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td>&nbsp;</td>
    <td width="1%"><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td width="6%"><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Balance as of December&nbsp;31, 2003 (restated)</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">5,668</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">24,739</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">6,432</font></td>
    <td>&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">6,222</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">13,328</font></td>
    <td>&nbsp;</td>
    <td width="1%">&nbsp;</td>
    <td width="6%" align="right"><font face="serif" size="1">&#151;</font></td>
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(50,449</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(37,121</font></td>
    <td><font face="serif" size="1">)</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Net income</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td>&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td>&nbsp;</td>
    <td width="1%">&nbsp;</td>
    <td width="6%" align="right">&nbsp;</td>
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(1,300</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(1,300</font></td>
    <td><font face="serif" size="1">)</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Accretion of convertible preferred stock and redeemable convertible preferred stock issuance costs</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">382</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">25</font></td>
    <td>&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td>&nbsp;</td>
    <td width="1%">&nbsp;</td>
    <td width="6%" align="right">&nbsp;</td>
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(407</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(407</font></td>
    <td><font face="serif" size="1">)</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Accretion of convertible preferred stock and redeemable convertible preferred stock dividends</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">315</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">1,712</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">549</font></td>
    <td>&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td>&nbsp;</td>
    <td width="1%">&nbsp;</td>
    <td width="6%" align="right">&nbsp;</td>
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(2,576</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(2,576</font></td>
    <td><font face="serif" size="1">)</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Issuance of stock options below fair market value</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td>&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">21</font></td>
    <td>&nbsp;</td>
    <td width="1%">&nbsp;</td>
    <td width="6%" align="right">&nbsp;</td>
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">21</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Exercise of stock options</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td>&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">216</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">16</font></td>
    <td>&nbsp;</td>
    <td width="1%">&nbsp;</td>
    <td width="6%" align="right">&nbsp;</td>
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">16</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#ffffff">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td>&nbsp;</td>
    <td align="left"><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td align="right"><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td>&nbsp;</td>
    <td width="1%"><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td width="6%" align="right"><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Balance at December&nbsp;31, 2004 (restated)</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">5,983</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">26,833</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">7,006</font></td>
    <td>&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">6,438</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">13,365</font></td>
    <td>&nbsp;</td>
    <td width="1%">&nbsp;</td>
    <td width="6%" align="right"><font face="serif" size="1">&#151;</font></td>
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(54,732</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(41,367</font></td>
    <td><font face="serif" size="1">)</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Net income</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td>&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td>&nbsp;</td>
    <td width="1%">&nbsp;</td>
    <td width="6%">&nbsp;</td>
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">5,052</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font size="1" face="serif">5,052</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Accretion of convertible preferred stock and redeemable convertible preferred stock dividends</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">36</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">1,712</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">549</font></td>
    <td>&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="right"><font face="serif" size="1">279</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td>&nbsp;</td>
    <td width="1%">&nbsp;</td>
    <td width="6%" align="right"><font face="serif" size="1">3,650</font></td>
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(6,226</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(2,297</font></td>
    <td><font face="serif" size="1">)</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Reclassification</font></div>
    </td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font size="1" face="serif">(6,019</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td>&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="right"><font face="serif" size="1">6,019</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font size="1" face="serif">&nbsp;</font></td>
    <td>&nbsp;</td>
    <td width="1%">&nbsp;</td>
    <td width="6%" align="right"><font face="serif" size="1">&nbsp;</font></td>
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">6,019</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Issuance of stock options below fair market value</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td>&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">256</font></td>
    <td>&nbsp;</td>
    <td width="1%">&nbsp;</td>
    <td width="6%">&nbsp;</td>
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">256</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Exercise of stock options</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td>&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">111</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">10</font></td>
    <td>&nbsp;</td>
    <td width="1%">&nbsp;</td>
    <td width="6%">&nbsp;</td>
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">10</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#ffffff">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td>&nbsp;</td>
    <td align="left"><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td align="right"><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td>&nbsp;</td>
    <td width="1%"><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td width="6%"><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Balance at December&nbsp;31, 2005</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">28,545</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">7,555</font></td>
    <td>&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="right"><font face="serif" size="1">6,298</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">6,549</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">13,631</font></td>
    <td>&nbsp;</td>
    <td width="1%">&nbsp;</td>
    <td width="6%" align="right"><font face="serif" size="1">3,650</font></td>
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(55,906</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(32,327</font></td>
    <td><font face="serif" size="1">)</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Net loss (unaudited)</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td>&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td>&nbsp;</td>
    <td width="1%">&nbsp;</td>
    <td width="6%" align="right">&nbsp;</td>
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(456</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(456</font></td>
    <td><font face="serif" size="1">)</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Issuance of stock options (unaudited)</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td>&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">108</font></td>
    <td>&nbsp;</td>
    <td width="1%">&nbsp;</td>
    <td width="6%" align="right">&nbsp;</td>
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">108</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Accretion of convertible preferred stock and redeemable convertible preferred stock dividends (unaudited)</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">428</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">137</font></td>
    <td>&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="right"><font face="serif" size="1">79</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">1</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td>&nbsp;</td>
    <td width="1%">&nbsp;</td>
    <td width="6%" align="right"><font face="serif" size="1">177</font></td>
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(821</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">(565</font></td>
    <td><font face="serif" size="1">)</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#ffffff">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td>&nbsp;</td>
    <td align="left"><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td align="right"><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td>&nbsp;</td>
    <td width="1%"><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td width="6%" align="right"><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Balance at March&nbsp;31, 2006 (unaudited)</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">28,973</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">7,692</font></td>
    <td>&nbsp;</td>
    <td align="left"><font face="serif" size="1">$</font></td>
    <td align="right"><font size="1" face="serif">6,377</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right"><font face="serif" size="1">6,550</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">13,739</font></td>
    <td>&nbsp;</td>
    <td width="1%"><font face="serif" size="1">$</font></td>
    <td width="6%" align="right"><font face="serif" size="1">3,827</font></td>
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">(57,183</font></td>
    <td><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">$</font></td>
    <td align="right"><font face="serif" size="1">(33,240</font></td>
    <td><font face="serif" size="1">)</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#ffffff">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td>&nbsp;</td>
    <td align="left"><hr noshade size="2">
    </td>
    <td align="right"><hr noshade size="2">
    </td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td>&nbsp;</td>
    <td width="1%"><hr noshade size="2">
    </td>
    <td width="6%" align="right"><hr noshade size="2">
    </td>
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
</table>
<p align="center"><font face="serif" size="2"><i>The accompanying notes are an integral part of these consolidated financial statements.</i></font></p>
<p align="left"><font face="serif" size="2">&nbsp;</font></p>
<p align="center"><font face="serif" size="2">F-5</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="pf6"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font face="serif" size="2"></font><font face="serif" size="2"><b>MEDECISION, INC. AND SUBSIDIARIES</b></font></p>
<p align="center"><font face="serif" size="2"><b>Consolidated Statements of Cash Flows</b><br>
<b>(in thousands)</b></font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="5" align="center" valign="bottom"><font face="serif" size="1"><b>Three Months Ended</b><br>
<b>March</b>&nbsp;<b>31,</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="8" align="center" valign="bottom"><font face="serif" size="1"><b>Year Ended December</b>&nbsp;<b>31,</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="5" valign="bottom"><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="8" valign="bottom"><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2006</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2005</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2005</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2004</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2003</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="5" align="center" valign="bottom"><font face="serif" size="1"><b>(unaudited)</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="5" align="center" valign="bottom"><font face="serif" size="1"><b>(as restated)</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1"><i>Cash flows from operating activities</i></font></div></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="1">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="1">Net (loss) income</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(456</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(479</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font size="1" face="serif">5,052</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(1,300</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(468</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="1">Adjustments to reconcile net (loss) income to net cash provided by operating activities:</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="1">Depreciation and amortization</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">446</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">322</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">1,324</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">1,173</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">1,112</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="1">(Gain) loss on change in fair value of redeemble convertible preferred stock conversion options</font></div>
    </td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="1" face="serif">(158</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(118</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">4,334</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">1,850</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(42</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="1">Amortization of capitalized software</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="1" face="serif">77</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="1" face="serif">197</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="1" face="serif">793</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">701</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">949</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="1">Stock compensation expense</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">108</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">24</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">256</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">21</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="1" face="serif">156</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="1">Stock
          issued as consideration for acquisition</font></div>
    </td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="1" face="serif">198</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="1">Amortization of deferred financing cost</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">5</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">5</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">20</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">22</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">72</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="1">(Recovery of) provision for doubtful accounts</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(27</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(53</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(43</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">5</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(137</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="1">Deferred income tax benefit</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(416</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(386</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(6,491</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="1">Decrease (increase) in assets</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="1">Accounts receivable</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">3,398</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="1" face="serif">845</font></td>
    <td valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(5,919</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(2,393</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">884</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="1">Prepaid expenses and other assets</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(1,155</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">248</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">329</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(214</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(943</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="1">Increase (decrease) in liabilities</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="1">Accounts payable</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">104</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">36</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">769</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(85</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(249</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="1">Accrued payroll and related costs</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(69</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(324</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">1,269</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(158</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(16</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="1">Other accrued expenses</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(536</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(539</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="1" face="serif">252</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">859</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(300</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="1">Deferred revenue</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">1,610</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="1" face="serif">2,436</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">3,732</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">2,024</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">2,038</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="1">Net cash provided by operating activities</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">2,931</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">2,214</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">5,677</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">2,505</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">3,254</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1"><i>Cash flows from investing activities</i></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="1">Capitalized software</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(350</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(453</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(2,403</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(1,158</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(82</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="1">Purchase of property and equipment</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(129</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(64</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(764</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(860</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(696</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="1">Net cash used in investing activities</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(479</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(517</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(3,167</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(2,018</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(778</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1"><i>Cash flows from financing activities</i></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="1">Proceeds from exercise of common stock options</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">4</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">10</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">16</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">11</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="1">Repayment of capital lease obligations</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(262</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(129</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(679</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(412</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(350</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="1">Net borrowings on line of credit</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(424</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(873</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="1">Repayment of subordinated note payable</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(500</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="1">Borrowings on equipment note payable, bank</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">250</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">250</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="1">Repayment on equipment note payable, bank</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(25</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(75</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="1">Net cash (used in) provided by financing activities</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(287</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">125</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(494</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(820</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(1,712</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Net increase (decrease) in cash and cash equivalents</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">2,165</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">1,822</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">2,016</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">(333</font></td>
    <td valign="bottom"><font face="serif" size="1">)</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">764</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Cash and cash equivalents, beginning of period</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">2,447</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">431</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">431</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">764</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Cash and cash equivalents, end of period</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">4,612</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">2,253</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">2,447</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">431</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">764</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Supplemental disclosures of cash flow information:</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="1">Cash paid during the period for interest</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">55</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">36</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">253</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">155</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">184</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1">Supplemental disclosures of noncash investing and financing activities:</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="1">Property and equipment acquired under capital leases</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">426</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">104</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">2,549</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">1,695</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">144</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="1">Tenant improvement allowance received under operating lease</font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">371</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">982</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="1">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&#151;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
</table>
<p align="center"><font face="serif" size="2"><i>The accompanying notes are an integral part of these consolidated financial statements.</i></font></p>
<p align="left"><font face="serif" size="2">&nbsp;</font></p>
<p align="center"><font face="serif" size="2">F-6</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="pf7"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font face="serif" size="2"></font><font face="serif" size="2"><b>MEDECISION, INC. AND SUBSIDIARIES</b><br>&nbsp;<br>
</font><font face="serif" size="2"><b>Notes to Consolidated Financial Statements</b><br>
<b>(in thousands, except share and per share data)</b></font></p>
<p align="left"><font face="serif" size="2">&nbsp;</font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2"><b>(1)</b></font></td>
    <td><div align="left"><font face="serif" size="2"><b>Business</b></font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">MEDecision, Inc. (Parent) and its wholly-owned subsidiaries, Optimed Medical Systems, LLC (Optimed), and Collaborative Care Consortium (C3), collectively, the Company, provide technology-based clinical decision support and transaction management solutions
to managed care payers in the healthcare industry located in the United States. The Parent began operations in 1988, Optimed began operations in 2003 and C3 began operations in 2005. The Parent, Optimed and C3 are all incorporated in the Commonwealth of
Pennsylvania. The consolidated financial statements include the accounts of the Parent, Optimed and C3. All material intercompany balances and transactions have been eliminated. The Company operates in one business segment, namely the healthcare information
technology industry.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2"><b>(2)</b></font></td>
    <td><div align="left"><font face="serif" size="2"><b>Restatement of Financial Statements</b></font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">Subsequent to the issuance of the Company&#146;s financial statements for the year ended December&nbsp;31, 2004, management reviewed the revenue recognition accounting policies and concluded that certain modifications were necessary to correct its method of accounting
for reimbursable expenses billed to, and paid by, its customers. The Company previously netted amounts received against the related expenses included in cost of revenue. The restated results reflect an increase in revenue and cost of revenue of approximately $531 and
$308 for the year ended December 31, 2004 and $1,609 and $178 for the year ended December 31, 2003.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">In addition, the Company
          determined that it had not accounted for the conversion options embedded
          in its Series C redeemable convertible preferred stock and Series B redeemable
          convertible preferred stock. The restated results include the value of the conversion options on
          the Series C redeemable convertible preferred stock and the Series
          B redeemable convertible preferred stock using the fair value method
          at the end of each quarter with the change in fair value recorded against
          earnings.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font face="serif" size="2">The restated results also include the value
        of the beneficial conversion option for the Series C redeemable convertible
        preferred stock and the Series A convertible preferred stock using the
        intrinsic value method at the end of each quarter, with the resultant
        gains or loss recognition recorded against accumulated deficit.</font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">The Company granted stock options to employees in 2004 at an exercise price determined by the board of directors at the grant dates to approximate the fair market value of the common stock. In 2006, management engaged the services of an independent appraiser to
value the common stock. As a result of that valuation, the fair market value of the stock increased by $0.76 per share in 2004. Consequently, the exercise price of stock options granted in 2004 was less than the revised fair market value and, in accordance with
Statement of Financial Accounting Standards No.&nbsp;123, <i>Stock Based Compensation</i>, the Company recorded $21 in expense in the year ended December 31, 2004 for the excess of fair market value over the exercise price of the options.</font></div></td>
  </tr>
</table>
<p align="center"><font face="serif" size="2">F-7</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="pf8"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font face="serif" size="2"></font><font face="serif" size="2"><b>MEDECISION, INC. AND SUBSIDIARIES</b><br>&nbsp;<br>
</font><font face="serif" size="2"><b>Notes to Consolidated Financial Statements</b><br>
<b>(in thousands, except share and per share data)</b></font></p>
<p align="left"><font face="serif" size="2">&nbsp;</font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">The following is a summary of the significant effects of the restatement on the Company&#146;s consolidated balance sheet at December&nbsp;31, 2004 and 2003 and the Company&#146;s consolidated statements of operations and cash flows for the periods then ended.</font></div></td>
  </tr>
 <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
</table>
<table width="100%" border="0" align="center" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td align="left"><font size="1" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font face="serif" size="1">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font face="serif" size="1">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="1" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="1" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td colspan="4" align="center" valign="bottom"><font size="1" face="serif"><b>December
          31, 2004</b></font></td>
    <td align="left" valign="bottom">&nbsp;</td>
    <td colspan="4" align="center" valign="bottom"><font size="1" face="serif"><b>December
          31, 2003</b></font></td>
    <td align="left" valign="bottom">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font face="serif" size="1">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font face="serif" size="1">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font face="serif" size="1">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="1" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td colspan="4" align="left" valign="bottom"><hr noshade size="1">
    </td>
    <td align="left" valign="bottom">&nbsp;</td>
    <td colspan="4" align="left" valign="bottom"><hr noshade size="1"></td>
    <td align="left" valign="bottom">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font face="serif" size="1">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font face="serif" size="1">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font face="serif" size="1">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font face="serif" size="1">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="center" valign="bottom"><font size="1" face="serif"><b>As restated</b></font></td>
    <td align="left" valign="bottom">&nbsp;</td>
    <td align="right" valign="bottom">&nbsp;</td>
    <td align="center" valign="bottom"><font size="1" face="serif"><b>As previously<br>
      reported</b></font></td>
    <td align="left" valign="bottom">&nbsp;</td>
    <td align="center" valign="bottom"><font size="1" face="serif"><b>As restated</b></font></td>
    <td align="left" valign="bottom">&nbsp;</td>
    <td align="right" valign="bottom">&nbsp;</td>
    <td align="center" valign="bottom"><font size="1" face="serif"><b>As previously<br>
      reported</b></font></td>
    <td align="left" valign="bottom">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="1" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="1" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="1" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="1" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left">
    <hr noshade size="1"></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left">
    <hr noshade size="1"></td>
    <td align="left">&nbsp;</td>
    <td align="left">
    <hr noshade size="1"></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left">
    <hr noshade size="1"></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="1" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="1" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="1" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="1" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="1" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="1" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="left"><font size="1" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="1" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="serif">&nbsp;</font></td>
    <td width="1%" align="left">&nbsp;</td>
    <td width="1%" align="right">&nbsp;</td>
    <td width="1%" align="left"><font size="1" face="serif">&nbsp;</font></td>
    <td width="1%" align="left">&nbsp;</td>
    <td width="1%" align="right">&nbsp;</td>
    <td width="1%" align="left"><font size="1" face="serif">&nbsp;</font></td>
    <td width="1%" align="left">&nbsp;</td>
    <td width="1%" align="right">&nbsp;</td>
    <td width="1%" align="left"><font size="1" face="serif">&nbsp;</font></td>
    <td width="1%" align="left">&nbsp;</td>
    <td width="1%" align="right">&nbsp;</td>
    <td width="1%" align="left"><font size="1" face="serif">&nbsp;</font></td>
    <td width="1%" align="left">&nbsp;</td>
    <td width="1%" align="right">&nbsp;</td>
    <td width="10%" align="left"><font size="1" face="serif">&nbsp;</font></td>
    <td width="2%" align="left">&nbsp;</td>
    <td width="1%" align="right">&nbsp;</td>
    <td width="10%" align="left"><font size="1" face="serif">&nbsp;</font></td>
    <td width="2%" align="left">&nbsp;</td>
    <td width="10%" align="left"><font size="1" face="serif">&nbsp;</font></td>
    <td width="2%" align="left">&nbsp;</td>
    <td width="1%" align="right">&nbsp;</td>
    <td width="10%" align="left"><font size="1" face="serif">&nbsp;</font></td>
    <td width="1%" align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#FFFFFF">
    <td colspan="7" align="left"><font size="2" face="serif"><b>Balance sheet
          data:</b></font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td colspan="7" align="left"><font size="2" face="serif">Cash and cash equivalents</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 431 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 426 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 764 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 764 </font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#FFFFFF">
    <td colspan="4" align="left"><font size="2" face="serif">Accounts receivable</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 4,401 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 5,178 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 2,013 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 2,870 </font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td colspan="4" align="left"><font size="2" face="serif">Prepaid expenses</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 383 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 408 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 180 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 253</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#FFFFFF">
    <td colspan="4" align="left"><font size="2" face="serif">Other current assets</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 621 </font></td>

    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 611 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 1,071 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 1,071 </font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td colspan="4" align="left"><font size="2" face="serif">Total current assets</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 5,836 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 6,623 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 4,028 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 4,958</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#FFFFFF">
    <td colspan="10" align="left"><font size="2" face="serif">Computer equipment
        and software</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 7,707 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 7,707 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 6,058 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 5,118</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td colspan="7" align="left"><font size="2" face="serif">Leasehold improvements</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 1,514 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 1,472 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 60 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif">&#151;</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#FFFFFF">
    <td colspan="7" align="left"><font size="2" face="serif">Office equipment
        and furniture</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 924 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 966 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 490 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 496</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td colspan="10" align="left"><font size="2" face="serif">Accumulated depreciation
        and amortization</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> (5,892</font></td>
    <td align="left"><font size="2" face="serif">)</font></td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> (5,890</font></td>
    <td align="left"><font size="2" face="serif">)</font></td>
    <td align="right"><font size="2" face="serif"> (4,719</font></td>
    <td align="left"><font size="2" face="serif">)</font></td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> (4,719</font></td>
    <td align="left"><font size="2" face="serif">)</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#FFFFFF">
    <td colspan="7" align="left"><font size="2" face="serif">Net property and
        equipment</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 4,253 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 4,255 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 1,889 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 1,892 </font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td colspan="4" align="left"><font size="2" face="serif">Capitalized software</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 1,664 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 1,762 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 1,207 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 1,346 </font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#FFFFFF">
    <td colspan="4" align="left"><font size="2" face="serif">Other assets</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 466 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 479 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 26 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 28 </font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td colspan="4" align="left"><font size="2" face="serif">Total assets</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 12,219 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 13,119 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 7,150 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 8,236 </font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#FFFFFF">
    <td colspan="10" align="left"><font size="2" face="serif">Current portion
        of capital lease obligations</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 552 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 548 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 275</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 275</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td colspan="10" align="left"><font size="2" face="serif">Current portion
        of long-term note payable</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif">&#151;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif">&#151;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif">424 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif">424 </font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#FFFFFF">
    <td colspan="4" align="left"><font size="2" face="serif">Accounts payable</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 1,237 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 1,248 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 1,322 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 1,421 </font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td colspan="10" align="left"><font size="2" face="serif">Accrued payroll
        and related taxes</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 534 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 538 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 692 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 812 </font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#FFFFFF">
    <td colspan="7" align="left"><font size="2" face="serif">Other accrued expenses</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 1,459 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 1,270 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 485 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 512</font></td>
    <td align="left">&nbsp;</td>

  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td colspan="13" align="left"><font size="2" face="serif">Conversion option
        on the convertible preferred stock</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 1,895 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif">&#151;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 45 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif">&#151;</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#FFFFFF">
    <td colspan="4" align="left"><font size="2" face="serif">Deferred revenue</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 5,885 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 6,666 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 3,861 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 4,553 </font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td colspan="7" align="left"><font size="2" face="serif">Total current liabilities</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 11,562 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 10,270 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 7,104 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 7,996</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#FFFFFF">
    <td colspan="7" align="left"><font size="2" face="serif">Capital lease obligations</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 1,180 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 1,194 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 174 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 171 </font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td colspan="4" align="left"><font size="2" face="serif">Deferred rent</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 994 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 1,022 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 81 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 81 </font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#FFFFFF">
    <td colspan="7" align="left"><font size="2" face="serif">Other long-term
        liabilities</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 28 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif">&#151;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 74 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 20</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td colspan="7" align="left"><font size="2" face="serif">Total long-term
        liabilities</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 2,202 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 2,216 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 329 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 272</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#FFFFFF">
    <td colspan="10" align="left"><font size="2" face="serif">Series A convertible
        preferred stock</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 5,983 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 5,981 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 5,668 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 5,666 </font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td colspan="13" align="left"><font size="2" face="serif">Series B redeemable
        convertible preferred stock</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 26,833 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 26,773 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 24,739 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 24,783 </font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#FFFFFF">
    <td colspan="13" align="left"><font size="2" face="serif">Series C redeemable
        convertible preferred stock</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 7,006 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 7,158 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 6,431 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 6,588 </font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td colspan="4" align="left"><font size="2" face="serif">Common stock</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 13,365 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 13,288 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 13,328 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 13,272 </font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#FFFFFF">
    <td colspan="4" align="left"><font size="2" face="serif">Accumulated deficit</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> (54,732</font></td>
    <td align="left"><font size="2" face="serif">)</font></td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> (52,567</font></td>
    <td align="left"><font size="2" face="serif">)</font></td>
    <td align="right"><font size="2" face="serif"> (50,449</font></td>
    <td align="left"><font size="2" face="serif">)</font></td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> (50,342</font></td>
    <td align="left"><font size="2" face="serif">)</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td colspan="7" align="left"><font size="2" face="serif">Total stockholders'
        deficiency (equity)</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> (41,367</font></td>
    <td align="left"><font size="2" face="serif">)</font></td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 633</font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> (37,121</font></td>
    <td align="left"><font size="2" face="serif">)</font></td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> (32,485</font></td>
    <td align="left"><font size="2" face="serif">)</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#FFFFFF">
    <td colspan="10" align="left"><font size="2" face="serif">Total liabilities,
        convertible preferred stock,</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#FFFFFF">
    <td colspan="13" align="left"><font size="2" face="serif"> redeemable convertible
        preferred stock and</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#FFFFFF">
    <td colspan="7" align="left"><font size="2" face="serif"> stockholders' deficiency</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 12,219 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 13,119 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 7,150 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 8,236 </font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom">
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom">
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#FFFFFF">
    <td colspan="10" align="left"><font size="2" face="serif"><b>Statement of
          operations data:</b></font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td colspan="4" align="left"><font size="2" face="serif">Term license revenue</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 6,260 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 8,035 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 2,439 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 2,679 </font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#FFFFFF">
    <td colspan="13" align="left"><font size="2" face="serif">Subscription, maintenance
        and transaction fees</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 14,666 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 12,748 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 12,600 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 11,054 </font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td colspan="4" align="left"><font size="2" face="serif">Professional services</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 7,102 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 6,714 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 5,488 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 5,185 </font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#FFFFFF">
    <td colspan="4" align="left"><font size="2" face="serif">Total revenue</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 28,028 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 27,497 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 20,527 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 18,918 </font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td colspan="4" align="left"><font size="2" face="serif">Cost of revenue</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 13,072 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 12,764 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 9,331 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 9,153</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#FFFFFF">
    <td colspan="4" align="left"><font size="2" face="serif">Gross margin</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 14,956 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 14,733 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 11,196 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif">9,765</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td colspan="4" align="left"><font size="2" face="serif">Sales and marketing</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 4,668 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 4,665 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 3,211 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 3,194</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#FFFFFF">
    <td colspan="7" align="left"><font size="2" face="serif">Research and development</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 3,243 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 3,243 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 3,903 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif">3,903</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td colspan="7" align="left"><font size="2" face="serif">General and administrative</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 6,320 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 6,009 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 4,343 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 4,624</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#FFFFFF">
    <td colspan="7" align="left"><font size="2" face="serif">Total operating
        expenses</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 14,231 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 13,917 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 11,457 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 11,721</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td colspan="7" align="left"><font size="2" face="serif">Income (loss) from
        operations</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 725 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 816 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> (261</font></td>
    <td align="left"><font size="2" face="serif">)</font></td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> (1,957</font></td>
    <td align="left"><font size="2" face="serif">)</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#FFFFFF">
    <td colspan="10" align="left"><font size="2" face="serif">Change in fair
        value of conversion options</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 1,850 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif">&#151;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> (42</font></td>
    <td align="left"><font size="2" face="serif">)</font></td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif">&#151;</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td colspan="4" align="left"><font size="2" face="serif">Interest expense</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 175 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 167 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 249 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 246</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#FFFFFF">
    <td colspan="13" align="left"><font size="2" face="serif">(Loss) income before
        benefit for income taxes</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> (1,300</font></td>
    <td align="left"><font size="2" face="serif">)</font></td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 649 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> (468</font></td>
    <td align="left"><font size="2" face="serif">)</font></td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> (2,203</font></td>
    <td align="left"><font size="2" face="serif">)</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td colspan="4" align="left"><font size="2" face="serif">Net (loss) income</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> (1,300</font></td>
    <td align="left"><font size="2" face="serif">)</font></td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 649 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> (468</font></td>
    <td align="left"><font size="2" face="serif">)</font></td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> (2,203</font></td>
    <td align="left"><font size="2" face="serif">)</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#FFFFFF">
    <td colspan="10" align="left"><font size="2" face="serif">Accretion of convertible
        preferred shares</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#FFFFFF">
    <td colspan="13" align="left"><font size="2" face="serif"> and redeemable
        convertible preferred shares</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> (2,983</font></td>
    <td align="left"><font face="serif" size="2">)</font></td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif">&#151;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> (3,275</font></td>
    <td align="left"><font face="serif" size="2">)</font></td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif">&#151;</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td colspan="13" align="left"><font face="serif" size="2">(Loss) income available
        to common shareholders</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font face="serif" size="2"> (4,283</font></td>
    <td align="left"><font face="serif" size="2">)</font></td>
    <td align="right">&nbsp;</td>
    <td align="right"><font face="serif" size="2"> 649 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font face="serif" size="2"> (3,743</font></td>
    <td align="left"><font face="serif" size="2">)</font></td>
    <td align="right">&nbsp;</td>
    <td align="right"><font face="serif" size="2"> (2,203</font></td>
    <td align="left"><font face="serif" size="2">)</font></td>
  </tr>
  <tr valign="bottom">
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom">
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#FFFFFF">
    <td colspan="7" align="left"><font size="2" face="serif"><b>Statement of
          cash flows data:</b></font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom">
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#FFFFFF">
    <td colspan="4" align="left"><font size="2" face="serif">Net (loss) income</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font face="serif" size="2"> (1,300</font></td>
    <td align="left"><font face="serif" size="2">)</font></td>
    <td align="right">&nbsp;</td>
    <td align="right"><font face="serif" size="2">649</font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font face="serif" size="2">(468</font></td>
    <td align="left"><font face="serif" size="2">)</font></td>
    <td align="right">&nbsp;</td>
    <td align="right"><font face="serif" size="2">(2,203</font></td>
    <td align="left"><font face="serif" size="2">)</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td colspan="7" align="left"><font size="2" face="serif">Depreciation and
        amortization</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font face="serif" size="2"> 1,173 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font face="serif" size="2">1,171</font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font face="serif" size="2">1,112</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font face="serif" size="2">1,113</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#ffffff">
    <td colspan="10" align="left"><div style="margin-left: 3%; text-indent: -3%"><font size="2" face="serif">(Gain)
          loss on change in fair value of redeemable convertible preferred stock
    conversion options</font></div></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 1,850 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif">&#151;&nbsp;&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif">38&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif">&#151;</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td colspan="10" align="left"><font size="2" face="serif">Amortization of
        capitalized software</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font face="serif" size="2"> 701 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font face="serif" size="2">742</font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font face="serif" size="2">949</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font face="serif" size="2">992</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#ffffff">
    <td colspan="7" align="left"><font size="2" face="serif">Stock compensation
        expense</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font face="serif" size="2"> 21 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font face="serif" size="2">&#151;&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font face="serif" size="2">156&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font face="serif" size="2">&#151;&nbsp;</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td colspan="10" align="left"><font size="2" face="serif">Shares issued as consideration for acquisition</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font face="serif" size="2">&#151;&nbsp;&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font face="serif" size="2">&#151;&nbsp;&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font face="serif" size="2">198</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font face="serif" size="2">&#151;&nbsp;&nbsp;</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#FFFFFF">
    <td colspan="10" align="left"><font size="2" face="serif">Amortization of
        deferred financing cost</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font face="serif" size="2">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font face="serif" size="2"> 22 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font face="serif" size="2">22</font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font face="serif" size="2">72</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font face="serif" size="2">72</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td colspan="13" align="left"><font face="serif" size="2">(Recovery of) provision
        for doubtful accounts</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font face="serif" size="2"> 5 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font face="serif" size="2">(11</font></td>
    <td align="left"><font face="serif" size="2">)</font></td>
    <td align="right"><font face="serif" size="2">(137</font></td>
    <td align="left"><font face="serif" size="2">)</font></td>
    <td align="right">&nbsp;</td>
    <td align="right"><font face="serif" size="2">(13</font></td>
    <td align="left"><font face="serif" size="2">)</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#FFFFFF">
    <td colspan="13" align="left"><font face="serif" size="2">(Decrease) increase in accounts receivable </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font face="serif" size="2"> (2,393</font></td>
    <td align="left"><font face="serif" size="2">)</font></td>
    <td align="right">&nbsp;</td>
    <td align="right"><font face="serif" size="2">(2,297</font></td>
    <td align="left"><font face="serif" size="2">)</font></td>
    <td align="right"><font face="serif" size="2">884</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font face="serif" size="2">1,865</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td colspan="13" align="left"><font face="serif" size="2">(Decrease) increase in prepaid expenses and other assets</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font face="serif" size="2"> (214</font></td>
    <td align="left"><font face="serif" size="2">)</font></td>
    <td align="right">&nbsp;</td>
    <td align="right"><font face="serif" size="2">(156</font></td>
    <td align="left"><font face="serif" size="2">)</font></td>
    <td align="right"><font face="serif" size="2">(943</font></td>
    <td align="left"><font face="serif" size="2">)</font></td>
    <td align="right">&nbsp;</td>
    <td align="right"><font face="serif" size="2">(1,075</font></td>
    <td align="left"><font face="serif" size="2">)</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#FFFFFF">
    <td colspan="10" align="left"><font size="2" face="serif">Increase (decrease)
        in accounts payable</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> (85</font></td>
    <td align="left"><font size="2" face="serif">)</font></td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif">(172</font></td>
    <td align="left"><font size="2" face="serif">)</font></td>
    <td align="right"><font size="2" face="serif">(249</font></td>
    <td align="left"><font size="2" face="serif">)</font></td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif">(137</font></td>
    <td align="left"><font face="serif" size="2">)</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td colspan="13" align="left"><font size="2" face="serif">Increase (decrease)
        in accrued payroll and related costs</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> (158</font></td>
    <td align="left"><font size="2" face="serif">)</font></td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif">(274</font></td>
    <td align="left"><font size="2" face="serif">)</font></td>
    <td align="right"><font size="2" face="serif">16</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif">89</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#FFFFFF">
    <td colspan="13" align="left"><font size="2" face="serif">Increase (decrease)
        in other accrued expenses</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 859 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif">1,679</font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif">(304</font></td>
    <td align="left"><font size="2" face="serif">)</font></td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif">172</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td colspan="4" align="left"><font size="2" face="serif">Increase in deferred revenue</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 2,024 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif">2,113</font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif">2,038</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif">2,390</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#ffffff">
    <td colspan="10" align="left"><font size="2" face="serif">Net cash provided
        by operating activities</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 2,505 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif">3,446</font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif">3,254</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif">3,259</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td colspan="4" align="left"><font size="2" face="serif">Capitalized software</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif">(1,158</font></td>
    <td align="left"><font size="2" face="serif">)</font></td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif">(1,158</font></td>
    <td align="left"><font size="2" face="serif">)</font></td>
    <td align="right"><font size="2" face="serif">(82</font></td>
    <td align="left"><font size="2" face="serif">)</font></td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif">(82</font></td>
    <td align="left"><font size="2" face="serif">)</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#ffffff">
    <td colspan="10" align="left"><font size="2" face="serif">Purchase of property
        and equipment</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif">(860</font></td>
    <td align="left"><font size="2" face="serif">)</font></td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif">(1,839</font></td>
    <td align="left"><font size="2" face="serif">)</font></td>
    <td align="right"><font size="2" face="serif">(696</font></td>
    <td align="left"><font face="serif" size="2">)</font></td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif">(699</font></td>
    <td align="left"><font size="2" face="serif">)</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td colspan="10" align="left"><font size="2" face="serif">Net cash used in
        investing activities</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif">(2,018</font></td>
    <td align="left"><font size="2" face="serif">)</font></td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif">(2,997&nbsp;</font></td>
    <td align="left"><font size="2" face="serif">)</font></td>
    <td align="right"><font size="2" face="serif">(778</font></td>
    <td align="left"><font size="2" face="serif">)</font></td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif">(781</font></td>
    <td align="left"><font size="2" face="serif">)</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#FFFFFF">
    <td colspan="10" align="left" bgcolor="#ffffff"><font size="2" face="serif">Proceeds from exercise of common stock options</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif">16</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif">16</font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="serif">11</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif">11</font></td>
    <td align="left">&nbsp;</td>
  </tr>

  <tr valign="bottom" bgcolor="#eeeeee">
    <td colspan="10" align="left"><font size="2" face="serif">Repayment of capital lease obligation</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif">(412</font></td>
    <td align="left"><font size="2" face="serif">)</font></td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif">(399</font></td>
    <td align="left"><font size="2" face="serif">)</font></td>
    <td align="right"><font size="2" face="serif">(350</font></td>
    <td align="left"><font size="2" face="serif">)</font></td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif">(352</font></td>
    <td align="left"><font size="2" face="serif">)</font></td>
  </tr>

  <tr valign="bottom" bgcolor="#ffffff">
    <td colspan="10" align="left"><font size="2" face="serif">Net borrowings on line of credit</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif">(424</font></td>
    <td align="left"><font size="2" face="serif">)</font></td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif">(424</font></td>
    <td align="left"><font size="2" face="serif">)</font></td>
    <td align="right"><font size="2" face="serif">(873</font></td>
    <td align="left"><font size="2" face="serif">)</font></td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif">(873</font></td>
    <td align="left"><font size="2" face="serif">)</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#eeeeee">
    <td colspan="10" align="left"><font size="2" face="serif">Net cash used in
        financing activities</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font face="serif" size="2">(820</font></td>
    <td align="left"><font face="serif" size="2">)</font></td>
    <td align="right">&nbsp;</td>
    <td align="right"><font face="serif" size="2">(807</font></td>
    <td align="left"><font face="serif" size="2">)</font></td>
    <td align="right"><font face="serif" size="2">(1,712</font></td>
    <td align="left"><font face="serif" size="2">)</font></td>
    <td align="right">&nbsp;</td>
    <td align="right"><font face="serif" size="2">(1,712</font></td>
    <td align="left"><font face="serif" size="2">)</font></td>
  </tr>
  <tr valign="bottom" bgcolor="#ffffff">
    <td colspan="10" align="left"><font size="2" face="serif">Cash
        paid for interest</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font face="serif" size="2">155</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font face="serif" size="2">171</font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font face="serif" size="2">184</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font face="serif" size="2">180</font></td>
    <td align="left">&nbsp;</td>
  </tr>
</table>

<p align="center"><font face="serif" size="2">F-8</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="pf9"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font face="serif" size="2"></font><font face="serif" size="2"><b>MEDECISION, INC. AND SUBSIDIARIES</b><br>&nbsp;<br>
</font><font face="serif" size="2"><b>Notes to Consolidated Financial Statements</b><br>
<b>(in thousands, except share and per share data)</b></font></p>
<p align="left"><font face="serif" size="2">&nbsp;</font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2"><b>(3)</b></font></td>
    <td><div align="left"><font face="serif" size="2"><b>Summary of Significant Accounting Policies and Practices</b></font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2"><i>(a)</i></font></td>
    <td><div align="left"><font face="serif" size="2"><i>Basis of presentation</i></font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">The accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. The interim consolidated
financial statements have been prepared using the interim basis of reporting and, as such, reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the results for the periods
presented. The nature of our business is such that the results of any interim period are not necessarily indicative of the results for a full year.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2"><i>(b)</i></font></td>
    <td><div align="left"><font face="serif" size="2"><i>Use of Estimates</i></font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, which require management to make assumptions and estimates that affect the reported amounts of assets and liabilities in
the financial statements, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting periods. Management believes that the estimates used are reasonable, although
actual amounts could differ from those estimates and the differences could have a material impact on the consolidated financial statements.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2"><i>(c)</i></font></td>
    <td><div align="left"><font face="serif" size="2"><i>Revenue Recognition</i></font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">The Company derives its revenue primarily from three sources: (i)&nbsp;initial term and renewal license fees for its Advanced Medical Management Clinical Rules and Processes modules; (ii)&nbsp;recurring revenue consisting of annual recurring fees for its Analytics and
Disease Management, Transactions and Information Exchange modules, transaction revenue associated with member eligibility verification, clinical adjudication of treatment requests and access of on-demand member health information and technical and clinical
maintenance and support fees; and (iii)&nbsp;fees for discrete professional services. The Company&#146;s standard license agreement typically provides a time-based license, five years in duration, to use its solutions. The Company may license its software in multiple element
arrangements if the customer purchases any combination of maintenance, consulting, training or hosting services in conjunction with the software product license.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">The Company recognizes revenue pursuant to the requirements of AICPA Statement of Position (SOP) 97-2, <i>Software Revenue Recognition</i>; as amended by SOP 98-9, <i>Software Revenue Recognition, </i>With Respect to Certain Transactions; SOP 81-1, <i>Accounting for
Performance of Construction-type and Certain Production-type Contracts</i>; the Securities and Exchange Commission&#146;s (SEC) Staff Accounting Bulletin (SAB) No.&nbsp;104, <i>Revenue Recognition</i>; Emerging Issues Task Force (EITF) Issue No.&nbsp;00-21, <i>Revenue
Arrangements with Multiple Deliverables</i>; EITF Issue No.&nbsp;00-03, <i>Application of AICPA Statement of Position 97-2, </i>to <i>Arrangements That Include the Right to Use Software Stored on Another Entity&#146;s Hardware</i>; EITF Issue No.&nbsp;03-05, <i>Applicability of AICPA
Statement of Position 97-2, Software Revenue Recognition, to Non-Software Deliverables in an Arrangement Containing More-Than Incidental Software</i>; and other authoritative accounting guidance.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">The Company recognizes revenue using the residual method when vendor-specific objective evidence (VSOE) of fair value exists for all of the undelivered elements in the arrangement, but does not exist for one or more delivered elements and all revenue recognition
criteria in SOP 97-2 other than the requirement for VSOE of fair value of each delivered element of the </font></div></td>
  </tr>
</table>
<p align="center"><font face="serif" size="2">F-9</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="pf10"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font face="serif" size="2"></font><font face="serif" size="2"><b>MEDECISION, INC. AND SUBSIDIARIES</b><br>&nbsp;<br>
</font><font face="serif" size="2"><b>Notes to Consolidated Financial Statements</b><br>
<b>(in thousands, except share and per share data)</b></font></p>
<p align="left"><font face="serif" size="2">&nbsp;</font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">arrangement are satisfied. The Company allocates revenue to each undelivered element based on its respective fair value determined by the price charged when that element is sold
separately or, for elements not yet sold separately, the price is established by management if it is probable that the price will not change before the element is sold separately. The
Company defers revenue for the undelivered elements and recognizes the residual amount of the arrangement fee, if any, when the basic criteria in SOP 97-2 have been met.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">Provided that the customer&#146;s contract does not require significant production, modification or customization of the software under SOP 97-2, the Company recognizes revenue when the following four criteria have been met:</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">persuasive evidence of an arrangement exists;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">delivery of our basic software code has occurred;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the license fee is fixed or determinable; and</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">collection of the license fee is probable.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">For contracts where the Company provides software hosting services, when all other revenue recognition criteria have been met, the Company recognizes transaction fee revenue upon delivery of the software and hosting revenue over the hosting period unless:</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the customer cannot take possession of the software at any time during the hosting period without significant penalty; or</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the customer cannot contract with another hosting provider without significant effort or expenditure; or</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the software&#146;s functionality is compromised by the termination of the Company&#146;s hosting services.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">Under these circumstances, the Company recognizes all revenue under the arrangement ratably over the longer of the hosting period or the maintenance period.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">If at the outset of an arrangement the Company determines that the arrangement fee is not fixed or determinable, then revenue is deferred until the arrangement fee becomes due and payable by the customer, assuming all other revenue recognition criteria have been
met. If at the outset of an arrangement the Company determines that collectibility is not probable, then revenue is deferred until payment is received. The Company&#146;s license agreements typically do not provide for a right of return other than during the standard
warranty period of 90 days. Historically, we have not incurred warranty expense or experienced returns of our products. If an arrangement allows for customer acceptance of the software or services, then the Company defers revenue recognition until the earlier of
customer acceptance or when the acceptance rights lapse.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">The Company also licenses software under short-term time-based licenses, which generally include maintenance during the license period. License and maintenance revenue related to these arrangements is recognized ratably over the license term. Revenue for
multiyear time-based licenses and the provision of maintenance, whether separately priced or not, is recognized ratably over the license term unless a substantive maintenance renewal rate exists, in which case the residual amount is recognized as software revenue
when the basic criteria in SOP 97-2 have been met.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">The Company&#146;s initial maintenance term is generally in the range of one to five years, renewable by the customer on an annual basis thereafter. The Company&#146;s customers typically prepay maintenance for periods of one to 12 months. Maintenance revenue is deferred
and recognized </font></div></td>
  </tr>
</table>
<p align="center"><font face="serif" size="2">F-10</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="pf11"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font face="serif" size="2"></font><font face="serif" size="2"><b>MEDECISION, INC. AND SUBSIDIARIES</b><br>&nbsp;<br>
</font><font face="serif" size="2"><b>Notes to Consolidated Financial Statements</b><br>
<b>(in thousands, except share and per share data)</b></font></p>
<p align="left"><font face="serif" size="2">&nbsp;</font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">ratably over the term of the maintenance contract. If a customer on maintenance is specifically identified as a bad debtor, then the Company would cease recognizing maintenance
revenue except to the extent that maintenance fees have already been collected.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">While the statements of work with customers may specify multiple elements, the Company believes that the services elements included in its contractual arrangements with customers are not essential to the functionality of its software, which can operate in a
standalone fashion upon installation. These services elements do not include significant modification or customization of its software, but may include configuring, designing and implementing simple interfaces with other customer software, installation and
configuration of third-party software, and training in the use of company and third-party software. The timing of payments for software is independent of the payment terms for the services elements in its contractual arrangements with customers. In multi-element
arrangements involving software and consulting, training or other services that are not essential to the functionality of the software, the services revenue is accounted for separately from the software revenue. VSOE for services did not exist during 2004 and prior years.
As a result, revenue attributable to all elements in a multi-element arrangement, including services, in 2004 and 2003 were deferred until the related services were completed and only then recognized as revenue, assuming VSOE exists for all other undelivered
elements. In situations when revenue is deferred as a result of ongoing services, the costs associated with all delivered elements are also deferred and recognized as expense when the services are completed. As of March&nbsp;31, 2006 (unaudited) and December&nbsp;31, 2005,
2004 and 2003, $0, $0, $543 and $1,001, respectively, of deferred costs were included within prepaid expenses and other current assets for such periods. In late 2004, the Company introduced package pricing for the various service elements of its contractual
arrangements with customers, and now recognizes VSOE for services elements based on that pricing. Accordingly, beginning in 2005, the Company recognized revenue for delivered elements and undelivered elements in a multiple element arrangement based on
VSOE.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">Consulting, training and other services are typically sold under fixed-price arrangements and are recognized using the percentage-of-completion method based on direct labor costs incurred to date as a percentage of total estimated project costs required to complete the
project. Consulting services primarily comprise implementation support related to the installation and configuration of the Company&#146;s products and do not typically require significant production, modification or customization of the software. In arrangements that
require significant production, modification or customization of the software and where services are not available from third-party suppliers, the consulting and license fees are recognized concurrently. When total cost estimates exceed revenue in a fixed-price
arrangement, the estimated losses are recognized immediately in cost of revenue.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">The assumptions, risks and uncertainties inherent with the application of the percentage-of-completion method affect the timing and amounts of revenue and expenses reported. Numerous internal and external factors can affect estimates, including direct labor rates,
utilization and efficiency variances.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">Where contractual arrangements with customers include the sale of third-party software, revenue is recognized for the sale of the third-party software, and the related expense is included in cost of revenue.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">In accordance with EITF Issue No.&nbsp;01-14, <i>Income Statement Characterization of Reimbursements Received for &#147;Out of Pocket Expenses Incurred,&#148; </i>the Company accounts for out-of-pocket expenses rebilled to customers as maintenance, consulting and training
revenue, with the related costs included in cost of revenue. For the three months ended March&nbsp;31, 2006 and 2005 (unaudited) and the years ended December&nbsp;31, 2005, 2004 and 2003, reimbursed expenses totaled $123, $146, $427, $367 and $251, respectively.</font></div></td>
  </tr>
</table>
<p>&nbsp;</p>
<p align="center"><font face="serif" size="2">F-11</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="pf12"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font face="serif" size="2"></font><font face="serif" size="2"><b>MEDECISION, INC. AND SUBSIDIARIES</b><br>&nbsp;<br>
</font><font face="serif" size="2"><b>Notes to Consolidated Financial Statements</b><br>
<b>(in thousands, except share and per share data)</b></font></p>
<p align="left"><font face="serif" size="2">&nbsp;</font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">The Company also generates revenue from transactions that flow through its Web portal. Fees from these transactions are billed to customers in arrears on a monthly basis and are recognized in the period in which the transactions occur.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2"><i>(d)</i></font></td>
    <td><div align="left"><font face="serif" size="2"><i>Cost of Revenue</i></font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">Our cost of revenue primarily consists of:</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">compensation and related employee benefits for our professional services, product support and product hosting staff;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">amortization of internally developed and purchased capitalized software;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">third-party licence and
          maintenance fees primarily for third-party software incorporated in
          our Advanced Medical Management module;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">solution hosting costs associated with a third-party secured facility;</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">costs of independent contractors that provide consulting and professional services to our customers; and</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">travel, lodging and other
          out-of-pocket expenses for our staff and independent consultants to
          perform work at a customer&#146;s site for which we receive reimbursement.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2"><i>(e)</i></font></td>
    <td><div align="left"><font face="serif" size="2"><i>Cash and cash equivalents</i></font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">Cash equivalents are highly liquid investments with original maturities of 90 days or less. Such investments are stated at cost, which approximates for value.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2"><i>(f)</i></font></td>
    <td><div align="left"><font face="serif" size="2"><i>Accounts Receivable</i></font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">Trade accounts receivable
          are recorded at the invoiced amount and do not bear interest. The majority
          of the Company&#146;s accounts receivable are due from trade customers.
          Credit is extended based on evaluation of the customer&#146;s financial
          condition. Collateral is not  required. Accounts receivable payment
          terms are typically 30 days and are stated in the financial statements
          at amounts due from customers net of an allowance for doubtful accounts.
          Accounts outstanding longer than the payment terms are considered past
          due. The
Company determines the allowance by considering a number of factors, including
          the length of time trade accounts receivable are past due, previous
          loss history, the customer&#146;s current ability to pay its obligations
          and the condition of the general economy and the  industry as a whole.
          The allowance for doubtful accounts is the Company&#146;s best estimate
          of the amount of probable credit losses in the Company&#146;s existing
          accounts receivable. Account balances are charged off against the allowance
          after all means of collection have  been exhausted and the potential
          for recovery is considered remote. Payments subsequently received on
          such receivables are credited to the allowance for doubtful accounts.
          The Company does not have any off-balance-sheet credit exposure related
          to its customers.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr align="center" valign="top">
    <td width="6%" valign="bottom">&nbsp;</td>
    <td valign="bottom"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1"><b>Period Ended</b></font></div></td>
    <td align="left" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="1"><b>Balance at</b><br>
<b>Beginning of</b><br>
<b>Period</b></font></td>
    <td align="left" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="1"><b>Charged</b></font></td>
    <td align="left" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="1"><b>Write-Offs</b></font></td>
    <td align="left" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="1"><b>Balance at</b><br>
<b>End of Period</b></font></td>
    <td align="left"><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr align="center" valign="top">
    <td>&nbsp;</td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">March&nbsp;31, 2006 (unaudited)</font></div></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom" width="1%"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">55</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom" width="1%"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">(27</font></td>
    <td valign="bottom" width="2%"><font face="serif" size="2">)</font></td>
    <td valign="bottom" width="1%">&nbsp;</td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">&#151;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom" width="1%"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">28</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">December&nbsp;31, 2005</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">98</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(25</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td valign="bottom" width="1%"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(18</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">55</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">December&nbsp;31, 2004</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">93</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">16</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(11</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">98</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">December&nbsp;31, 2003</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">230</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(124</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(13</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">93</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">Accounts receivable include unbilled revenue for services performed but not billed. Unbilled revenue as of March&nbsp;31, 2006 (unaudited) and December&nbsp;31, 2005, and 2004 was $1,121, $1,324 and $888, respectively.</font></div></td>
  </tr>
</table>
<p>&nbsp;</p>
<p align="center"><font face="serif" size="2">F-12</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="pf13"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font face="serif" size="2"></font><font face="serif" size="2"><b>MEDECISION, INC. AND SUBSIDIARIES</b><br>&nbsp;<br>
</font><font face="serif" size="2"><b>Notes to Consolidated Financial Statements</b><br>
<b>(in thousands, except share and per share data)</b></font></p>
<p align="left"><font face="serif" size="2">&nbsp;</font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2"><i>(g)</i></font></td>
    <td><div align="left"><font face="serif" size="2"><i>Prepaid expenses</i></font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">Prepaid expenses consist primarily of amounts paid for annual software maintenance contracts.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2"><i>(h)</i></font></td>
    <td><div align="left"><font face="serif" size="2"><i>Property and Equipment</i></font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">Property and equipment are stated at cost. Property and equipment under capital leases are stated at the present value of future minimum lease payments at the inception of the lease.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">In 2005 and 2004, the Company received lease incentives of $371 and $982, respectively, relating to tenant improvement allowances in conjunction with entering into an operating lease for its corporate headquarters. Such tenant improvement allowances have been
recorded as leasehold improvements and are being amortized over the life of the lease. These tenant improvement allowances are not included as collateral under the Company&#146;s borrowing agreement with a bank since title to such asset is deemed to be held by the
landlord. See also Note&nbsp;3(p) below.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">Depreciation and amortization
          on property and equipment are calculated on the straight-line method
          over the estimated useful lives of the assets. The estimated useful
          life of computer equipment and software is three to five years,
          while office equipment and furniture is four to seven years. Property
          and
          equipment held under capital leases and leasehold improvements are
          amortized on a straight-line basis over the shorter of the lease term
          or estimated useful life of the asset. Total depreciation and amortization
          expense for the three
months ended March&nbsp;31, 2006 and 2005 (unaudited) and for the years ended
December&nbsp;31, 2005, 2004 and 2003 was $446, $322, $1,324, $1,173 and $1,112,
respectively, which is included in general and administrative expense in the
accompanying statements of
operations.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2"><i>(i)</i></font></td>
    <td><div align="left"><font face="serif" size="2"><i>Capitalized Software Costs</i></font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">Capitalized software costs are stated on the balance sheet at the lower of unamortized capitalized costs or net realizable value.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">The Company capitalizes purchased and internally developed software in accordance with Statement of Financial Accounting Standards (SFAS) No.&nbsp;86, <i>Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed.</i> The capitalization of
costs of internally developed software begins when technological feasibility is established. Amortization begins and capitalization ends when the product is available for general release to customers. Annual amortization of capitalized software costs is the greater of the
amount computed using a)&nbsp;the ratio that the current gross revenue for a product bears to the total of current and anticipated future gross revenue for that product or (b)&nbsp;on a straight-line basis over the estimated economic life of the product, which ranges from three to
five years. The company performs quarterly reviews to ensure that the estimated future gross revenue from each product exceeds the unamortized costs.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">During the three months
          ended March&nbsp;31, 2006 and 2005 (unaudited) and the years ended
          December&nbsp;31,
          2005, 2004 and 2003, the Company capitalized $318, $333, $2,002, $869
          and $0, respectively, related to internally developed software costs
          and $32, $121, $401, $289 and $82, respectively, of purchased software
          from third-parties. Amortization of capitalized software costs amounted
          to $77, $197, $794, $700 and $949 for the three months ended March&nbsp;31,
          2006 and 2005 (unaudited) and the years ended December&nbsp;31,
2005, 2004 and 2003, respectively, which was recorded in cost of revenue.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2"><i>(j)</i></font></td>
    <td><div align="left"><font face="serif" size="2"><i>Other Assets</i></font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">Other current assets and other assets consist of deferred financing costs and refundable deposits. Deferred financing costs are amortized over the life of the borrowing. Deferred costs represent </font></div></td>
  </tr>
</table>
<p align="center"><font face="serif" size="2">F-13</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="pf14"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font face="serif" size="2"></font><font face="serif" size="2"><b>MEDECISION, INC. AND SUBSIDIARIES</b><br>&nbsp;<br>
</font><font face="serif" size="2"><b>Notes to Consolidated Financial Statements</b><br>
<b>(in thousands, except share and per share data)</b></font></p>
<p align="left"><font face="serif" size="2">&nbsp;</font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">internal payroll and other
          costs incurred in connection with software installation and customization.
          These costs are deferred until delivered or until recognized under
          the percentage-  of-completion method. In addition, other assets includes
          items such as prepaid insurance, miscellaneous receivables, prepaid
          rent and the long term portion of prepaid expenses.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1"></font></div></td>
    <td>&nbsp;</td>
    <td colspan="2" align="center" valign="bottom">&nbsp;</td>
    <td>&nbsp;</td>
    <td colspan="5" align="center" valign="bottom"><b><font size="1">December</font></b><font size="1">&nbsp;<b>31,</b></font><br>
<hr noshade size="1"></td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td width="6%">&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>March</b>&nbsp;<b>31, 2006</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2005</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2004</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>(unaudited)</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Other current assets:</font></div></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Deferred costs</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">543</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Prepaid insurance</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">63</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">77</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">64</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Deferred financing fees</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">55</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">60</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">10</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Deferred rent</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">64</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Miscellaneous receivables</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">27</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">26</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">4</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><font size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">145</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">227</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">621</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Other assets:</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Refundable deposits</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">230</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">214</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">320</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Long-term portion of prepaid expenses</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">137</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">127</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">146</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><font size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">367</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">341</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">466</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2"><i>(k)</i></font></td>
    <td><div align="left"><font face="serif" size="2"><i>Research and Development</i></font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">Research and development costs other than software costs capitalized in accordance with SFAS No.&nbsp;86 are expensed as incurred. Research and development costs expensed were $1,561, $600, $2,627, $3,243 and $3,903 in the three months ended March&nbsp;31, 2006 and
2005 (unaudited) and the years ended December&nbsp;31, 2005, 2004 and 2003, respectively.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2"><i>(l)</i></font></td>
    <td><div align="left"><font face="serif" size="2"><i>Advertising</i></font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">Advertising costs are expensed as incurred and amounted to $49, $77, $356, $144 and $108 in the three months ended March&nbsp;31, 2006 and 2005 (unaudited) and the years ended December&nbsp;31, 2005, 2004 and 2003, respectively. These costs are included in sales and
marketing expense in the accompanying statements of operations.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2"><i>(m)</i></font></td>
    <td><div align="left"><font face="serif" size="2"><i>Income Taxes</i></font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">Income taxes are accounted for in accordance with SFAS No.&nbsp;109, <i>Accounting for Income Taxes</i>, under the asset-and-liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded against deferred tax
assets if it is more likely than not that such assets will not be realized. The factors used to assess the likelihood of realization are the forecast of future taxable income the remaining time period to utilize any tax operating losses and tax credits, and available tax planning
strategies that could be implemented to realize deferred tax assets.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2"><i>(n)</i></font></td>
    <td><div align="left"><font face="serif" size="2"><i>Stock-Based Compensation</i></font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">Through the end of 2005, the Company measured stock-based compensation arrangements in accordance with the provisions of SFAS No.&nbsp;123, <i>Accounting for Stock-Based Compensation</i>, </font></div></td>
  </tr>
</table>
<p align="center"><font face="serif" size="2">F-14</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="pf15"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font face="serif" size="2"></font><font face="serif" size="2"><b>MEDECISION, INC. AND SUBSIDIARIES</b><br>&nbsp;<br>
</font><font face="serif" size="2"><b>Notes to Consolidated Financial Statements</b><br>
<b>(in thousands, except share and per share data)</b></font></p>
<p align="left"><font face="serif" size="2">&nbsp;</font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
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    <td><div align="left"><font face="serif" size="2">which permitted companies
          to continue to apply the provisions of Accounting Principles Board
          (APB) Opinion No.&nbsp;25, <i>Accounting for Stock
            Issued to Employees</i>, and related
interpretations. Under APB Opinion No.&nbsp;25, the Company did not record compensation
expense when stock options were granted to eligible participants as long as the
exercise price  was not less that the fair market value of the stock when the
option was granted. In accordance with, SFAS No.&nbsp;123 and SFAS No.&nbsp;148, <i>Accounting
for Stock-Based Compensation -
Transition and Disclosure</i>, the Company disclosed pro forma results of operations,
including per share data as if the minimum value-based method had been applied
in measuring  compensation expense for stock-based incentive awards. Although
the Company&#146;s board of directors used its best estimate of the fair value
of the Company&#146;s stock price and made
grants of stock options in 2003, 2004 and 2005 with exercise prices equal to
those estimates of fair value, a subsequent independent appraisal of the common
stock&#146;s value on the
grant dates resulted in recognizing stock-based compensation expense in the Consolidated
Statement of Operations for the years ended December&nbsp;31, 2005, 2004 and
2003 in the  amounts of $256, $21 and $0, respectively, for the difference between
the fair market value of the underlying common stock on the date of grant and
the option exercise price for
options granted under the Company&#146;s stock option plan. As a result, the
Company recorded expense for the intrinsic value.</font></div></td>
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<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
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    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">The Company accounts for equity instruments issued to non-employees in accordance with the provisions of SFAS No.&nbsp;123, EITF Issue No.&nbsp;96-18, <i>Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services</i> and FASB Interpretation No.&nbsp;28, <i>Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans&#151;an interpretation of APB Opinions No.</i>&nbsp;<i>15 and 25.</i></font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">The following table illustrates
          the effect on results of operations if the fair-value-based method
          had been applied to all outstanding and unvested awards in each period.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td colspan="2" align="center" valign="bottom">&nbsp;</td>
    <td>&nbsp;</td>
    <td colspan="9" align="center" valign="bottom">&nbsp;</td>
  </tr>
  <tr valign="bottom">
    <td>&nbsp;</td>
    <td width="6%">&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Three Months</b><br>
<b>Ended March</b>&nbsp;<b>31,</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="9" align="center" valign="bottom"><font face="serif" size="1"><b>Year Ended December</b>&nbsp;<b>31,</b></font></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="9" valign="bottom"><font face="serif" size="1"><hr noshade size="1"></font></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2005</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2005</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2004</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2003</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>(unaudited)</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Net (loss) income, as reported</font></div></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom" width="1%"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">(479</font></td>
    <td valign="bottom" width="2%"><font face="serif" size="2">)</font></td>
    <td valign="bottom" width="1%"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">5,052</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom" width="1%"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">(1,300</font></td>
    <td valign="bottom" width="2%"><font face="serif" size="2">)</font></td>
    <td valign="bottom" width="1%"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">(468</font></td>
    <td valign="bottom" width="2%"><font face="serif" size="2">)</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Add: stock-based compensation included in reported net (loss) income, net of taxes</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">161</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">21</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Deduct: total stock-based employee compensation expense determined under fair-value-based method for all awards, net of taxes</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(16</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(303</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(23</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Pro forma net (loss) income</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(495</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">4,910</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(1,302</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(468</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Add:
          Accretion of convertible preferred shares and redeemable convertible
          preferred
    shares</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(644</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(6,226</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(2,983</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(3,275</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td bgcolor="#eeeeee">&nbsp;</td>
    <td bgcolor="#eeeeee"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Pro forma net loss available to common shareholders, basic and diluted</font></div></td>
    <td bgcolor="#eeeeee"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#eeeeee"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" bgcolor="#eeeeee"><font face="serif" size="2">(1,139</font></td>
    <td valign="bottom" bgcolor="#eeeeee"><font face="serif" size="2">)</font></td>
    <td valign="bottom" bgcolor="#eeeeee"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" bgcolor="#eeeeee"><font face="serif" size="2">(1,316</font></td>
    <td valign="bottom" bgcolor="#eeeeee"><font face="serif" size="2">)</font></td>
    <td valign="bottom" bgcolor="#eeeeee"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" bgcolor="#eeeeee"><font face="serif" size="2">(4,285</font></td>
    <td valign="bottom" bgcolor="#eeeeee"><font face="serif" size="2">)</font></td>
    <td valign="bottom" bgcolor="#eeeeee"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" bgcolor="#eeeeee"><font face="serif" size="2">(3,743</font></td>
    <td valign="bottom" bgcolor="#eeeeee"><font face="serif" size="2">)</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td bgcolor="#ffffff">&nbsp;</td>
    <td bgcolor="#ffffff"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Pro
    forma net loss per share available to common shareholders, basic and diluted</font></div></td>
    <td bgcolor="#ffffff"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#ffffff"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" bgcolor="#ffffff"><font face="serif" size="2">(0.18</font></td>
    <td valign="bottom" bgcolor="#ffffff"><font face="serif" size="2">)</font></td>
    <td valign="bottom" bgcolor="#ffffff"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" bgcolor="#ffffff"><font face="serif" size="2">(0.20</font></td>
    <td valign="bottom" bgcolor="#ffffff"><font face="serif" size="2">)</font></td>
    <td valign="bottom" bgcolor="#ffffff"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" bgcolor="#ffffff"><font face="serif" size="2">(0.67</font></td>
    <td valign="bottom" bgcolor="#ffffff"><font face="serif" size="2">)</font></td>
    <td valign="bottom" bgcolor="#ffffff"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" bgcolor="#ffffff"><font face="serif" size="2">(0.60</font></td>
    <td valign="bottom" bgcolor="#ffffff"><font face="serif" size="2">)</font></td>
  </tr>
</table>
<p align="left"><font face="serif" size="2">&nbsp;</font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No.&nbsp;123R, <i>Share Based Payment: An Amendment of FASB Statements No.</i>&nbsp;<i>123 and 95</i>. This statement requires that the cost resulting from all share-based payment transactions be
recognized in the Company&#146;s consolidated financial statements. In addition, in March 2005 the Securities and Exchange Commission (SEC) released SEC Staff Accounting Bulletin (SAB) No.&nbsp;107, <i>Share-Based Payment</i>. SAB No.&nbsp;107 provides the SEC staff&#146;s position
regarding the application of SFAS No.&nbsp;123R and certain SEC rules and regulations, and also provides the staff&#146;s views regarding the valuation of share-based payment arrangements for public companies. Generally, the approach in SFAS No.&nbsp;123R </font></div></td>
  </tr>
</table>
<p align="center"><font face="serif" size="2">F-15</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="pf16"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font face="serif" size="2"></font><font face="serif" size="2"><b>MEDECISION, INC. AND SUBSIDIARIES</b><br>&nbsp;<br>
</font><font face="serif" size="2"><b>Notes to Consolidated Financial Statements</b><br>
<b>(in thousands, except share and per share data)</b></font></p>
<p align="left"><font face="serif" size="2">&nbsp;</font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">is similar to the approach described in SFAS No.&nbsp;123. However, SFAS No.&nbsp;123R requires all share-based payments to employees, including grants of employee stock options, to be
recognized in the statement of operations based on their fair values. Pro forma disclosure of fair value recognition, as prescribed under SFAS No.&nbsp;123, is no longer an alternative.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">Effective January&nbsp;1, 2006, the Company adopted the calculated value recognition provisions of SFAS No.&nbsp;123R utilizing the modified-prospective-transition method, as permitted by SFAS No. 123R. Under this transition method, compensation cost was recognized
during the three months ended March&nbsp;31, 2006 for the portion of outstanding vested awards, based on the grant-date calculated value of those awards.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">During the three months
          ended March&nbsp;31, 2006 (unaudited), 57,500 options were granted.
          For the three months ended March&nbsp;31, 2006 (unaudited), the Company
          recognized expense of $108 ($0.02 per share) as a result of the adoption
          SFAS No.&nbsp;123R.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">The options were valued using a Black-Scholes model. Under SFAS No.&nbsp;123R, the Company will continue to utilize the Black-Scholes model to estimate the calculated value related to employee stock options. The Company&#146;s assessment of the estimated compensation
charges for these other options is affected by the appraised valuation of its common stock relying on assumptions regarding a number of complex and subjective variables and the related tax impact.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">As of March&nbsp;31, 2006 (unaudited), there was $1,391 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under existing stock option plans. The total calculated measurement value of shares vested during the
three-months ended March&nbsp;31, 2006 was $103. The Company estimates that the cost for the year ended December&nbsp;31, 2006 will be $433.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">The Black-Scholes option pricing model is used by the Company to determine the weighted average fair value of options. The calculated value of options at date of grant and the assumptions utilized to determine such values are indicated in the following table:</font></div></td>
  </tr>
 <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td width="6%">&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="5" align="center" valign="bottom"><font face="serif" size="1"><b>Three Months</b><br>
<b>Ended</b><br>
<b>March</b>&nbsp;<b>31,</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="8" align="center" valign="bottom"><font face="serif" size="1"><b>Year Ended December</b>&nbsp;<b>31,</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="5" valign="bottom"><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="8" valign="bottom"><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2006</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2005</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2005</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2004</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2003</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="5" align="center" valign="bottom"><font face="serif" size="1"><b>(unaudited)</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Weighted average fair value at date of grant for options granted during the period</font></div></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom" width="1%"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">2.26</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom" width="1%"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">1.01</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom" width="1%"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">2.26</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom" width="1%"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">1.01</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom" width="1%"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">0.07</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Risk-free interest rates</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">3.9</font></td>
    <td valign="bottom"><font face="serif" size="2">%</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">3.9</font></td>
    <td valign="bottom"><font face="serif" size="2">%</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">4.0</font></td>
    <td valign="bottom"><font face="serif" size="2">%</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">4.0</font></td>
    <td valign="bottom"><font face="serif" size="2">%</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">5.4</font></td>
    <td valign="bottom"><font face="serif" size="2">%</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Expected stock price volatility</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">87.9</font></td>
    <td valign="bottom"><font face="serif" size="2">%</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Expected dividend yield</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><div align="left"><font face="serif" size="2">The Company determined its volatility factor through an analysis of peer companies in terms of market capitalization and total assets.
	The Company cannot compute expected volatility due to its lack of historical stock prices.</font></div></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2"><i>(o)</i></font></td>
    <td><div align="left"><font face="serif" size="2"><i>Impairment of Long-Lived Assets</i></font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">In accordance with SFAS No.&nbsp;144, long-lived assets, such as property and equipment, and other assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash
flows, then an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.</font></div></td>
  </tr>
</table>
<p align="center"><font face="serif" size="2">F-16</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="pf17"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font face="serif" size="2"></font><font face="serif" size="2"><b>MEDECISION, INC. AND SUBSIDIARIES</b><br>&nbsp;<br>
</font><font face="serif" size="2"><b>Notes to Consolidated Financial Statements</b><br>
<b>(in thousands, except share and per share data)</b></font></p>
<p align="left"><font face="serif" size="2">&nbsp;</font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2"><i>(p)</i></font></td>
    <td><div align="left"><font face="serif" size="2"><i>Deferred Rent and Lease
            Incentives</i></font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">The Company&#146;s operating leases contain predetermined fixed escalations of minimum rentals during the original lease terms. For these leases, the Company recognizes the related rent expense on a straight-line basis over the life of the lease and records the difference
between the amounts charged to operations and amounts paid as deferred rent. The Company also received certain lease incentives in conjunction with entering into operating leases in 2005 and 2004, which includes $371 and $982, respectively, in tenant improvement
allowances. These lease incentives were recorded as deferred rent at the beginning of the lease term and recognized as a reduction of rent expense over the lease term. See Note 3(h) above. As a result of the above, as of March&nbsp;31, 2006 (unaudited), and December&nbsp;31,
2005 and 2004, there is a deferred rent balance of $1,483, $1,446 and $1,025, respectively, of which $31 is included in other accrued expenses in current liabilities as of December 31, 2004, and $7 and $64 is included in other current assets at March&nbsp;31, 2006 (unaudited)
and December&nbsp;31, 2005, respectively.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2"><i>(q)</i></font></td>
    <td><div align="left"><font face="serif" size="2"><i>Accounting for Convertible Preferred Stock, Redeemable Convertible Preferred Stock and Derivative Shares</i></font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">The Company accounts for the preferred stock and related instruments in accordance with EITF Issue No.&nbsp;00-19, <i>Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company&#146;s Own Stock</i>; EITF Issue No.&nbsp;98-5, <i>Accounting for
Convertible Securities with Beneficial Conversion features or Contingent Adjustable Conversion Ratios</i>; EITF Issue No.&nbsp;00-27, <i>Application of Issue No.</i>&nbsp;<i>98-5 to Certain Convertible Instruments</i>; SFAS No.&nbsp;133, <i>Accounting for Derivative Instruments and Hedging
Activities </i>and other applicable professional standards. Preferred stock issued at a discount from the common fair value at the commitment date, i.e., the difference between the fair value of the common stock and the conversion price multiplied by the number of shares
issuable upon conversion, is recognized as beneficial conversion option in accordance with EITF Issue No.&nbsp;00-27. The beneficial conversion feature is recorded as a deemed dividend and will be amortized over the period from the issue date to the conversion date. The
conversion option embedded in the preferred stock is accounted in accordance with EITF Issue No.&nbsp;00-19 and recorded as liabilities and marked-to-market at each reporting period.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2"><i>(r)</i></font></td>
    <td><div align="left"><font face="serif" size="2"><i>Commitments and Contingencies</i></font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">In accordance with SFAS&nbsp;No. 5, <i>Accounting for Contingencies, </i>the Company records liabilities for loss contingencies when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2"><i>(s)</i></font></td>
    <td><div align="left"><font face="serif" size="2"><i>Fair Value of Financial Instruments</i></font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">As of March&nbsp;31, 2006
          and December&nbsp;31, 2005 and 2004, the Company has the following
          financial instruments: accounts receivable, accounts payable, accrued
          expenses and capital lease obligations and debt. The carrying value
          of these financial instruments  approximated fair value. Accrued expenses
          are stated at the amounts expected to be paid within the next 12&nbsp;months,
          and capital lease obligations are stated at the net present value of
          future minimum payments.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2"><i>(t)</i></font></td>
    <td><div align="left"><font face="serif" size="2"><i>Concentration of Credit Risk</i></font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">Financial instruments that potentially expose the Company to concentration of credit risk consist primarily of trade accounts receivable. Substantially all of the Company&#146;s sales and related accounts receivable are from customers in the health care industry located in North
America. Sales to two customers for the three months ended March&nbsp;31, 2006 were 43%; sales to three customers for the three months ended March&nbsp;31, 2005 were 32%; sales to one customer for the year ended December&nbsp;31, 2005 were 25%; sales to three customers for
the year ended December&nbsp;31, 2004 were </font></div></td>
  </tr>
</table>
<p align="center"><font face="serif" size="2">F-17</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="pf18"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font face="serif" size="2"></font><font face="serif" size="2"><b>MEDECISION, INC. AND SUBSIDIARIES</b><br>&nbsp;<br>
</font><font face="serif" size="2"><b>Notes to Consolidated Financial Statements</b><br>
<b>(in thousands, except share and per share data)</b></font></p>
<p align="left"><font face="serif" size="2">&nbsp;</font></p>
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    <td><div align="left"><font face="serif" size="2">38% and sales to two customers for the year ended December&nbsp;31, 2003 were 27%. At March&nbsp;31, 2006 (unaudited), December&nbsp;31, 2005 and 2004, trade receivables related to two, two
and three customers were 42%, 60% and 46%, respectively, of net accounts receivable. The Company does not require collateral or other security to support credit sales, but provides
an allowance for bad debts based on historical experience and specifically identified risks.</font></div></td>
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    <td><div align="left"><font face="serif" size="2">Cash balances are maintained at one bank. Accounts located in the United States are insured by the Federal Deposit Insurance Corporation (FDIC) up to $100,000. Certain operating cash accounts may exceed the FDIC insurance limits.</font></div></td>
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    <td width="3%"><font face="serif" size="2"><i>(u)</i></font></td>
    <td><div align="left"><font face="serif" size="2"><i>Earnings (Loss) Per Share</i></font></div></td>
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    <td><div align="left"><font face="serif" size="2">The Company follows SFAS No.&nbsp;128, <i>Earnings Per Share.</i> Under SFAS No.&nbsp;128, companies that are publicly held or have complex capital structures are required to present basic and diluted earnings per share on the face of the statement of operations. Earnings (loss)
per share are based on the weighted average number of shares and common stock equivalents outstanding during the period. Preferred stock issuance costs are accreted to the convertible preferred stock and reduce (increase) the net income (loss) available to common
shareholders. In the calculation of diluted earnings per share, shares outstanding are adjusted to assume conversion of the Company&#146;s preferred convertible stock and the exercise of options and warrants if they are dilutive. In the calculation of basic earnings per share,
weighted average numbers of shares outstanding are used as the denominator. The Company had a net loss available to common shareholders for the three months ended March&nbsp;31, 2006 and 2005 (unaudited) and for the years ended December&nbsp;31,
2005, 2004 and 2003. As a result, the common stock equivalents of stock options,
warrants and convertible securities issued and outstanding at those dates were
not included in the computation of diluted earnings per share for the years then
ended as they were antidilutive. Net income (loss) per share is computed as follows:</font></div></td>
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    <td colspan="5" align="center" valign="bottom"><font face="serif" size="1"><b>Three Months Ended</b><br>
<b>March</b>&nbsp;<b>31,</b></font></td>
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    <td colspan="8" align="center" valign="bottom"><font face="serif" size="1"><b>Year Ended December</b>&nbsp;<b>31,</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
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    <td colspan="5" valign="bottom"><font face="serif" size="1"><hr noshade size="1"></font></td>
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    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2006</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2005</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2005</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2004</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2003</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
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    <td colspan="5" align="center" valign="bottom"><font face="serif" size="1"><b>(unaudited)</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
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    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Net (loss) income</font></div></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom" width="1%"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">(456</font></td>
    <td valign="bottom" width="2%"><font face="serif" size="2">)</font></td>
    <td valign="bottom" width="1%"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">(479</font></td>
    <td valign="bottom" width="2%"><font face="serif" size="2">)</font></td>
    <td valign="bottom" width="1%"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">5,052</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom" width="1%"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">(1,300</font></td>
    <td valign="bottom" width="2%"><font face="serif" size="2">)</font></td>
    <td valign="bottom" width="1%"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">(468</font></td>
    <td valign="bottom" width="2%"><font face="serif" size="2">)</font></td>
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    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Accretion of convertible preferred and redeemable convertible preferred shares</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(821</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(644</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(6,226</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(2,983</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(3,275</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
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    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Net loss available to common shareholders</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(1,277</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(1,123</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(1,174</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(4,283</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(3,743</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Weighted average shares used to compute net income (loss) available to common shareholders, basic and diluted</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">6,549,699</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">6,441,869</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">6,458,129</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">6,378,732</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">6,215,840</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Loss per share available to common shareholders, basic and diluted</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(0.19</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(0.17</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(0.18</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(0.67</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(0.60</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
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</table>
<p align="left"><font face="serif" size="2">&nbsp;</font></p>
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    <td width="3%"><font face="serif" size="2"><i>(v)</i></font></td>
    <td><div align="left"><font face="serif" size="2"><i>Recently Issued Accounting Standards</i></font></div></td>
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</table>
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    <td><div align="left"><font face="serif" size="2">In December 2004, the FASB issued SFAS No.&nbsp;123R, <i>Share Based Payment: An Amendment of FASB Statements</i> <i>No.</i>&nbsp;<i>123 and 95</i>. This statement requires that the cost resulting from all share-based payment transactions be recognized in the Company&#146;s consolidated
financial statements. In addition, in March 2005 the SEC released SAB No.&nbsp;107, <i>Share-Based Payment</i>. SAB No.&nbsp;107 </font></div></td>
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<p align="center"><font face="serif" size="2">F-18</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="pf19"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font face="serif" size="2"></font><font face="serif" size="2"><b>MEDECISION, INC. AND SUBSIDIARIES</b><br>&nbsp;<br>
</font><font face="serif" size="2"><b>Notes to Consolidated Financial Statements</b><br>
<b>(in thousands, except share and per share data)</b></font></p>
<p align="left"><font face="serif" size="2">&nbsp;</font></p>
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    <td><div align="left"><font face="serif" size="2">provides the SEC&#146;s staff&#146;s position regarding the application of SFAS No.&nbsp;123R and certain SEC rules and regulations, and also provides the staff&#146;s views regarding the valuation of
share-based payment arrangements for public companies. Generally, the approach in SFAS No.&nbsp;123R is similar to the approach described in SFAS No.&nbsp;123. However, SFAS
No.&nbsp;123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the statement of operations based on their fair values. Pro
forma disclosure of fair value recognition, as prescribed under SFAS No.&nbsp;123, is no longer an alternative.</font></div></td>
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    <td><div align="left"><font face="serif" size="2">In the first quarter of
          2006, the Company adopted the fair value recognition provisions of
          SFAS No.&nbsp;123R utilizing the modified-prospective-transition method,
          as prescribed by SFAS No.&nbsp;123R. Under the transition method, compensation
          cost recognized during the
three months ended March&nbsp;31, 2006 includes (i)&nbsp;compensation cost for
all share-based payments granted prior to, but not yet vested as of January&nbsp;1,
2006, based on the grant date fair value estimated in accordance with SFAS No.&nbsp;123
and (ii)&nbsp;compensation
expense for all share-based payments granted subsequent to January&nbsp;1, 2006,
based on the grant-date fair value estimated in accordance with the provisions
of SFAS No.&nbsp;123R.
Under the modified-prospective-transition method, results for the prior periods
have not been restated. The effect of the change in the first quarter of 2006
was to increase net loss by $108 ($0.02 per share).</font></div></td>
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    <td><div align="left"><font face="serif" size="2">In May 2005, the FASB issued SFAS No.&nbsp;154, <i>Accounting Changes and Error Corrections &#150; a replacement of APB Opinion No.</i>&nbsp;<i>20 and FASB Statement No.</i>&nbsp;<i>3</i>. Among other changes, SFAS No.&nbsp;154 requires that a voluntary change in accounting principle be
applied retrospectively with all prior period financial statements presented on the new accounting principle, unless it is impracticable to do so. SFAS No.&nbsp;154 also provides that (i)&nbsp;a change in method of depreciating or amortizing a long-lived nonfinancial asset be
accounted for as a change in estimate (prospectively) that was effected by a change in accounting principle and (ii)&nbsp;correction of errors in previously issued financial statements should be termed a &#147;restatement.&#148; The new standard is effective for accounting changes
and correction of errors made in fiscal years beginning after December&nbsp;15, 2005. The Company does not expect adoption of SFAS No.&nbsp;154 to have a material effect on its results of operations or financial condition.</font></div></td>
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    <td><div align="left"><font face="serif" size="2">In June 2005 the Emerging Issues Task Force, or EITF, reached a consensus on EITF Issue No.&nbsp;04-10, <i>Determining Whether to Aggregate Operating Segments That Do Not Meet the Quantitative Thresholds.</i> This guidance requires that individual operating segments
that do not meet the quantitative thresholds set forth in SFAS No.&nbsp;131, <i>Disclosure about Segments of an Enterprise and Related Information</i>, for separate reporting may be aggregated only if the segments meet certain requirements. These requirements are applicable
for fiscal years ending after October&nbsp;13, 2004. The adoption of EITF Issue No.&nbsp;04-10 does not affect the Company because it operates in only one segment.</font></div></td>
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  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">In September 2005, the EITF reached consensus on Issue 05-02, <i>The Meaning of &#147;Conventional Convertible Debt Instrument&#148; </i>in EITF Issue No.&nbsp;00-19, <i>Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company&#146;s Own Stock.</i>
EITF 05-02 is effective for new instruments entered into and instruments modified in reporting periods beginning after June&nbsp;29, 2005. The adoption of EITF 05-02 is expected to have no impact on the Company&#146;s financial statements.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">At the June 15-16, 2005 EITF meeting, the EITF discussed EITF Issue No. 05-04, <i>The Effect of a Liquidated Damages Clause on a Freestanding Financial Instrument Subject to EITF Issue No.</i>&nbsp;<i>00-19, Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company&#146;s Own Stock</i>, or EITF 05-04. EITF 05-04 addresses how a liquidated damages clause payable in cash affects the accounting for a freestanding financial instrument subject to the </font></div></td>
  </tr>
</table>
<p align="center"><font face="serif" size="2">F-19</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="pf20"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font face="serif" size="2"></font><font face="serif" size="2"><b>MEDECISION, INC. AND SUBSIDIARIES</b><br>&nbsp;<br>
</font><font face="serif" size="2"><b>Notes to Consolidated Financial Statements</b><br>
<b>(in thousands, except share and per share data)</b></font></p>
<p align="left"><font face="serif" size="2">&nbsp;</font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">provisions of EITF Issue 00-19. The EITF discussed (i)&nbsp;whether a registration rights penalty meets the definition of a derivative and (ii)&nbsp;whether the registration rights agreement
and the financial instrument to which it pertains should be considered as a combined instrument or as separate freestanding instruments. At the September&nbsp;15, 2005 EITF meeting,
the EITF postponed further deliberations on EITF 05-04, and the FASB staff requested that the FASB consider a separate Derivatives Issue Guide, or DIG, issue that addresses
whether a registration rights agreement is a derivative in accordance with FASB Statement No.&nbsp;133, <i>Accounting for Derivative Instruments and Hedging.</i> Following the resolution of
that DIG issue, the FASB staff will request that the EITF reconvene deliberations on EITF 05-04. While EITF 05-04 remains unresolved, the Company has determined that the
liquidated damage clauses contained in its convertible note agreements have been properly considered and accounted for in accordance with the prevailing guidance.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">In June 2006, FASB issued FASB Interpretation No.&nbsp;48, <i>Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No.</i>&nbsp;<i>109 </i>(FIN&nbsp;48), which clarifies the accounting for uncertainty in tax positions. This interpretation requires the financial
statement recognition of a tax position taken or expected to be taken in a tax return, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The provisions of FIN&nbsp;48 are effective for fiscal years beginning after
December&nbsp;15, 2006. The Company is currently evaluating the impact the adoption of FIN&nbsp;48 will have on its financial condition and results of operations.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2"><b>(4)</b></font></td>
    <td><div align="left"><font face="serif" size="2"><b>Financing Arrangements</b></font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">As of March 31, 2006 and December 31, 2005, the Company had a revolving line of credit for a maximum borrowing limit of $4,000. As of March 31, 2006 (unaudited) and December 31, 2005, the revolving line of credit bore interest at the bank&#146;s prime rate (7.75%
and 7.25% as of March 31, 2006 (unaudited) and December 31, 2005, respectively) plus 1.25%. As of March 31, 2006 (unaudited) and December 31, 2005 and 2004, there were no outstanding borrowings under the agreement, and the maximum amount outstanding in
each period was $0, $3,211 and $2,161, respectively. The credit agreement required the Company to maintain compliance with certain financial covenants. The line of credit facility expired on June 30, 2006. On July 3, 2006, the Company executed a term sheet to
extend the revolving line of credit arrangement. Pursuant to the executed term sheet, our borrowings under this facility will be limited to the lesser of $8,000 or 80% of qualified accounts receivable. Borrowings under the credit facility will be collateralized by
substantially all of the assets of the Company.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">As of March 31, 2006 and December 31, 2005, the Company also had an equipment line of credit for a maximum borrowing limit of $500. As of March 31, 2006 (unaudited) and December 31, 2005 and 2004, the outstanding balances in each period were $150, $175
and $0, respectively. The line expired on June 30, 2006, at which time the outstanding balance converted to a term note. As of December 31, 2005, $250 had been converted to a 30-month term note bearing interest at a floating rate of prime plus 1.75%. On July 3,
2006, the Company executed a term sheet to extend the equipment line of credit arrangement. Under the terms of the executed term sheet, the line will bear interest at the bank&#146;s prime rate plus 1.5%. </font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">The Company incurred interest expense of $97, $41, $274, $175 and $249, respectively, for the three months ended March&nbsp;31, 2006 and 2005 (unaudited) and the years ended December&nbsp;31, 2005, 2004 and 2003.</font></div></td>
  </tr>
</table>
<p align="center"><font face="serif" size="2">F-20</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="pf21"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font face="serif" size="2"></font><font face="serif" size="2"><b>MEDECISION, INC. AND SUBSIDIARIES</b><br>&nbsp;<br>
</font><font face="serif" size="2"><b>Notes to Consolidated Financial Statements</b><br>
<b>(in thousands, except share and per share data)</b></font></p>
<p align="left"><font face="serif" size="2">&nbsp;</font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2"><b>(5)</b></font></td>
    <td><div align="left"><font face="serif" size="2"><b>Leases</b></font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">The Company is obligated under capital leases covering office furniture and computer hardware and software that expire at various dates through November 2009. At March&nbsp;31, 2006 (unaudited), December&nbsp;31, 2005 and 2004, the gross amount of property and
equipment and related accumulated amortization recorded under capital leases were as follows:</font></div></td>
  </tr>
 <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>March</b>&nbsp;<b>31,</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="5" align="center" valign="bottom"><font face="serif" size="1"><b>December</b>&nbsp;<b>31,</b><br>
<hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2006</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2005</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2004</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td width="6%">&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Computer equipment and software</font></div></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom" width="1%"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">4,670</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom" width="1%"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">4,369</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom" width="1%"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">2,235</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Leasehold improvements</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">15</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">15</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Office equipment and furniture</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">980</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">856</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">456</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><font size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">5,665</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">5,240</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2,691</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Less: accumulated amortization</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(1,945</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(1,623</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(864</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><font size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">3,720</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">3,617</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,827</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">Amortization of assets held under capital leases is included with depreciation and amortization expense.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">The Company leases office space, equipment and a vehicle under various cancelable and noncancelable operating lease agreements that expire on various dates through August 2016. The Company&#146;s operating lease for office space allows the Company to terminate the
lease after seven years, provided 12 months&#146; written notice is provided. Upon such termination, the Company must pay a penalty of $1.764&nbsp;million, reduced by $30 each month subsequent to the 84<sup>th</sup> month of the lease. Rental expense for operating leases was
approximately $267, 226, $970, $688 and $654 for the three months ended March&nbsp;31, 2006 and 2005 (unaudited) and for the years ended December&nbsp;31, 2005, 2004 and 2003, respectively.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">Future minimum lease payments under noncancelable operating leases and future minimum capital lease payments as of December&nbsp;31, 2005 are:</font></div></td>
  </tr>
 <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td width="6%">&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1"><b>Year ending December</b>&nbsp;<b>31,</b></font></div></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Capital Leases</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Operating Leases</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td><font face="serif" size="1"><hr align="left" width="110" size="1" noshade></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">2006</font></div></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom" width="1%"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">1,428</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom" width="1%"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">1,136</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">2007</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,343</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,130</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">2008</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">988</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,009</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">2009</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">299</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,038</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">2010</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">79</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,076</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Thereafter through 2016</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">6,874</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><font size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Total minimum lease payments</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">4,137</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">12,263</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><font size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Less: amount representing interest (at rates ranging from 2.0% to 25.6%)</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(535</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><font size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Present value of net minimum capital lease payments</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">3,602</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Less: current installments of obligations under capital leases</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,162</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><font size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Obligations under capital leases, excluding current installments</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2,440</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><font size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
</table>
<p align="center"><font face="serif" size="2">F-21</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="pf22"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font face="serif" size="2"></font><font face="serif" size="2"><b>MEDECISION, INC. AND SUBSIDIARIES</b><br>&nbsp;<br>
</font><font face="serif" size="2"><b>Notes to Consolidated Financial Statements</b><br>
<b>(in thousands, except share and per share data)</b></font></p>
<p align="left"><font face="serif" size="2">&nbsp;</font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">Future minimum lease payments
          under noncancelable operating leases and future minimum capital lease
          payments as of March&nbsp;31, 2006 (unaudited) are:</font></div>
    </td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td width="6%">&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"></div>
    </td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Capital
          Leases</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Operating
          Leases</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">2006</font></div>
    </td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom" width="1%"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">1,231</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom" width="1%"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">905</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">2007</font></div>
    </td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,537</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,130</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">2008</font></div>
    </td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,154</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,009</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">2009</font></div>
    </td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">304</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,038</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">2010</font></div>
    </td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">83</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,076</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Thereafter
          through 2016</font></div>
    </td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">6,874</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><font size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="2">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="2">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Total
          minimum lease payments</font></div>
    </td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">4,310</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">12,032</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><font size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><hr noshade size="2">
    </td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Less:
          amount representing interest (at rates ranging from 2.0% to 25.6%)</font></div>
    </td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(544</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><font size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="2">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Present
          value of net minimum capital lease payments</font></div>
    </td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">3,766</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Less:
          current installments of obligations under capital leases</font></div>
    </td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,337</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><font size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="2">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Obligations
          under capital leases, excluding current installments</font></div>
    </td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2,429</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><font size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><hr noshade size="2">
    </td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2"><b>(6)</b></font></td>
    <td><div align="left"><font face="serif" size="2"><b>Income Taxes</b></font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">The income tax benefit for the years ended December&nbsp;31, 2005, 2004 and 2003 consisted of the following:</font></div></td>
  </tr>
 <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td width="6%">&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="8" align="center" valign="bottom"><font face="serif" size="1"><b>Year Ended December</b>&nbsp;<b>31,</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="8" valign="bottom"><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2005</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2004</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2003</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Current:</font></div></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Federal</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">958</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">State and local</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">139</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Total current</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,097</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Deferred:</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">Federal</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(6,627</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:6%; text-indent:-3%"><font face="serif" size="2">State and local</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(961</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Total deferred</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(7,588</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Total
          income tax benefit</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(6,491</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">A reconciliation of the Company&#146;s effective income tax rate to the statutory federal income tax rate of 34% for the years ended December&nbsp;31, 2005, 2004 and 2003 is as follows:</font></div></td>
  </tr>
 <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="8" align="center" valign="bottom"><font face="serif" size="1"><b>Year Ended December</b>&nbsp;<b>31,</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="6%">&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="8" valign="bottom"><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2005</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2004</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2003</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Statutory federal tax rate</font></div></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">34.0</font></td>
    <td valign="bottom" width="2%"><font face="serif" size="2">%</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">&#151;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">&#151;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">State income taxes</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">4.8</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Permanent differences</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1.3</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Tax
          credits</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(6.7</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Adjustments to book income</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">3.6</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Valuation allowance</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(268.0</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Total income tax provision</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(231.0</font></td>
    <td valign="bottom"><font face="serif" size="2">)%</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
</table>
<p align="center"><font face="serif" size="2">F-22</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="pf23"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font face="serif" size="2"></font><font face="serif" size="2"><b>MEDECISION, INC. AND SUBSIDIARIES</b><br>&nbsp;<br>
</font><font face="serif" size="2"><b>Notes to Consolidated Financial Statements</b><br>
<b>(in thousands, except share and per share data)</b></font></p>
<p align="left"><font face="serif" size="2">&nbsp;</font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">The tax effect of significant temporary differences by component as of December&nbsp;31, 2005 and 2004 are as follows:</font></div></td>
  </tr>
 <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="5" align="center" valign="bottom"><font face="serif" size="1"><b>December</b>&nbsp;<b>31,</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="6%">&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="5" valign="bottom"><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2005</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>2004</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Deferred
          tax assets, current:</font></div></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Net operating loss carryforwards</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,013</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Deferred revenue</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">3,983</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2,603</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Other accruals</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">306</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">341</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Total gross deferred tax asset, current</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">5,302</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2,944</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Less: valuation allowance</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(2,526</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(2,876</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Net
          deferred tax asset, current</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2,776</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">68</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Deferred
    tax assets, long-term:</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Net
    operating loss carryforwards</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">9,120</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">11,732</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Goodwill
    amortization</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">51</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">59</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Tax
    credits</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,696</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,372</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Total
    gross deferred tax asset, long-term</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">10,867</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">13,163</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Less: valuation allowance</font></div></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td align="right"><font face="serif" size="2">(5,178</font></td>
    <td><font face="serif" size="2">)</font></td>
    <td>&nbsp;</td>
    <td align="right"><font face="serif" size="2">(12,858</font></td>
    <td><font face="serif" size="2">)</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Net
    deferred tax asset, long-term</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom">&nbsp;</td>
    <td align="right" valign="bottom"><font face="serif" size="2">5,689</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom">&nbsp;</td>
    <td align="right" valign="bottom"><font face="serif" size="2">305</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Deferred
    tax liabilities, long-term:</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Plant
          and equipment, principally due to depreciation</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">498</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">202</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Deferred
          rent</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">84</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">9</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Capitalized
          software</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,138</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">162</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Total
          gross deferred tax liability, long-term</font></div></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td align="right"><font face="serif" size="2">1,720</font></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td align="right"><font face="serif" size="2">373</font></td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Net
    deferred tax asset</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">6,745</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">At March 31, 2006 (unaudited)
          and December 31, 2005,
          the Company had net operating loss carryforwards for federal and state
          income tax purposes of approximately $39,344 that begin to expire in
          2010 and 2006 for federal and state income taxes,
          respectively.
          Pursuant
          to income tax regulations,  the annual utilization of this carryforward,
          as well as a portion of the carryforward may be limited or impaired
          in certain circumstances.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">In assessing the realizability
          of deferred tax assets, management considers whether it is more likely
          than not that some portion or all of the deferred tax assets will not
          be realized. The ultimate realization of deferred tax assets is dependent
          upon the generation of future  taxable income during the periods in
          which those temporary differences become deductible. Management considers
          the scheduled reversal of deferred tax liabilities, projected future
          taxable income and tax planning strategies in making this assessment.
          Accordingly, management&#146;s assessment was that it was more likely than
          not that at December 31, 2005, net operating loss carryforwards relating
          to two years of projected taxable income would be realized.</font></div></td>
  </tr>
</table>
<p align="center"><font face="serif" size="2">F-23</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="pf24"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font face="serif" size="2"></font><font face="serif" size="2"><b>MEDECISION, INC. AND SUBSIDIARIES</b><br>&nbsp;<br>
</font><font face="serif" size="2"><b>Notes to Consolidated Financial Statements</b><br>
<b>(in thousands, except share and per share data)</b></font></p>
<p align="left"><font face="serif" size="2">&nbsp;</font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2"><b>(7)</b></font></td>
    <td><div align="left"><font face="serif" size="2"><b>Convertible Preferred Stock and Redeemable Convertible Preferred Stock</b></font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">Preferred stock information as of March&nbsp;31, 2006 (unaudited), December&nbsp;31, 2005, 2004 and 2003 is as follows:</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">Rollforward of shares:</font></div></td>
  </tr>
 <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Series A</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Series B</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Series C</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="6%">&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Balance, December&nbsp;31, 2002</font></div></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">2,333,333</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">4,022,252</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">4,537,949</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Issuance of Series C redeemable convertible preferred stock as compensation</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">138,600</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Issuance of Series C redeemable convertible preferred stock for acquisition</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&#151;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">175,000</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Balance, December&nbsp;31, 2003</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2,333,333</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">4,022,252</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">4,851,549</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Balance, December&nbsp;31, 2004</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2,333,333</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">4,022,252</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">4,851,549</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Balance, December&nbsp;31, 2005</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2,333,333</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">4,022,252</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">4,851,549</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Balance, March&nbsp;31, 2006 (unaudited)</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2,333,333</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">4,022,252</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">4,851,549</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">The terms of the Series&nbsp;B
          and C redeemable convertible preferred stock include certain conversion
          options that represent derivative financial instruments under the provisions
          of SFAS No. 133. Thus the conversion options were separated from the
          Series&nbsp;B and C redeemable convertible preferred stock and valued
          using the Black-Scholes option pricing model. The Series&nbsp;C redeemable
          convertible preferred stock and Series&nbsp;B redeemable convertible
          preferred stock contain redemption features that would result in the
          holder receiving cash that is based on the value of the common stock.
          The Series&nbsp;C redeemable convertible preferred stock and Series&nbsp;B
          redeemable convertible preferred stock redemption features also include
          a clause that the holder can put the shares back at the greater of
          accreted value or fair value (including the value of the conversion
          option). Consistent with the model in EITF Issue No.&nbsp;00-19, this
          feature meets the definition of net cash settlement associated with
          the conversion option. Therefore, the Company separated the conversion
          option from the preferred instrument and determined the fair value.
          The Company accounts for the conversion options using the fair value
          method at the end of
          each
          quarter
          with
          the change in fair value being recorded against earnings. Actual period
          close common stock prices, applicable volatility rates, and the period
          close risk-free interest rate for the instrument&#146;s expected remaining
          life, are the key assumptions used in the valuation calculation. The
          change in fair value for the three months ended March&nbsp;31, 2006
          and 2005 (unaudited) and for the years-ended December&nbsp;31, 2005,
          2004 and 2003 were $158, $118, ($4,334), ($1,850) and $42, respectively.</font></div></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font face="serif" size="2">In accordance with the provisions of EITF
        Issue No. 98-5 and EITF Issue No. 00-27, the Company reviewed the value
        of the conversion option for the Series&nbsp;C redeemable convertible
        preferred stock and Series&nbsp;A convertible preferred stock at the
        date of the commitment and determined that they were &#147;in-the-money&#148; for
        the quarters ended March&nbsp;31, 2006 (unaudited) and December&nbsp;31,
        2005 (unaudited). The Company accounts for the beneficial conversion
        options using the intrinsic value method at the end of each quarter,
        with the resultant gain or loss recognition recorded against accumulated
        deficit in accordance with EITF Issue No. 00-27.</font></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">Information about the significant provisions, conversion and redemption features and liquidation preferences of each series of convertible preferred stock follows:</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2"><i>Series C</i></font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">The holders of Series C
          redeemable convertible preferred stock are entitled to dividends at
          a rate of 10% per year. Dividends are due and payable semiannually
          and accumulate if not paid. Dividends are payable in cash, or, under
          certain conditions, may be payable in  cash or additional shares of
          Series C preferred stock, or a combination of both. As of March&nbsp;31,
          2006 (unaudited) and December&nbsp;31, 2005 and 2004 undeclared unpaid
          dividends of $2,362, $2,225 and $1,676, respectively, have accumulated.</font></div></td>
  </tr>
</table>
<p>&nbsp;</p>
<p align="center"><font face="serif" size="2">F-24</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="pf25"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font face="serif" size="2"></font><font face="serif" size="2"><b>MEDECISION, INC. AND SUBSIDIARIES</b><br>&nbsp;<br>
</font><font face="serif" size="2"><b>Notes to Consolidated Financial Statements</b><br>
<b>(in thousands, except share and per share data)</b></font></p>
<p align="left"><font face="serif" size="2">&nbsp;</font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">Each share of Series C preferred stock is convertible into one share of common stock, subject to adjustment in certain circumstances, and has a liquidation preference equal to three times its stated value, as defined, plus all accrued and unpaid dividends thereon.
Conversion is at the option of the shareholders (although each holder of Series C preferred stock has agreed not to elect to convert its shares of Series C preferred stock until the earlier of: (i) March&nbsp;30, 2007 or (ii) the date of the Company&#146;s request to the Securities
and Exchange Commission to withdraw the Company&#146;s registration statement on Form&nbsp;S-1 covering the initial public offering of its common stock), and is mandatory with the approval of 81% of the shareholders or upon such time, if ever, that the Company
consummates a public offering of at least $150&nbsp;million and from which the Company receives proceeds of at least $30&nbsp;million (a qualified public offering, or QIPO), at which time such conversion becomes mandatory. The Series C preferred shareholders may request
redemption beginning on the earlier of (i) March&nbsp;30, 2007, or (ii) the date that the Company applies to the Securities and Exchange Commission to withdraw the registration statement on Form&nbsp;S-1 covering the initial public offering of its common stock, through
June&nbsp;20, 2007 (or a later date that is the number of days after June&nbsp;30, 2007 equal to the number of days between July&nbsp;17, 2006 and the earlier of: (a) March&nbsp;30, 2007 or (b) the date of the Company&#146;s request to the United States Securities and Exchange Commission
to withdraw the Company&#146;s registration statement on Form&nbsp;S-1 covering the initial public offering of its common stock) at the greater of the liquidation value, as defined, plus all accrued and unpaid dividends thereon or fair value as determined by the Company&#146;s
board of directors or an independent appraiser, however, the Company is not obligated to redeem shares if doing so would cause it to become insolvent. In the event of sale or merger of the company, the Series C preferred shareholders would be entitled to liquidation
value of their shares. The Series C shareholders have voting rights equal to common shareholders. Series C preferred stock is senior to Series A and B preferred stock and common stock.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">The liquidation value of
          Series C preferred stock at March&nbsp;31, 2006 (unaudited) and December&nbsp;31,
          2005 and 2004 is $19,181, $19,044 and $18,496, respectively.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">The Company has a Series
          C Preferred Stock Equity Incentive Plan whereby the Company may issue
          nonqualified stock options to purchase shares of the Company&#146;s
          Series C preferred stock or restricted shares of the Company&#146;s
          Series C preferred stock. The
Company&#146;s board of directors has not approved the use of this plan for incentive
stock options. The Company has authorized 500,000 shares to be issued under the
plan. At March&nbsp;31, 2006 (unaudited) and December&nbsp;31, 2005 and 2004,
there are 110,000 options to  purchase Series C preferred stock outstanding.
These options were issued to certain officers during 2002 and 2003 and vested
immediately. In the event of liquidation, the holders of these options would
be entitled to the liquidation preference equal to three times the
stated value, as defined.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2"><i>Series B</i></font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">The holders of Series B
          redeemable convertible preferred stock are entitled to dividends at
          a rate of 9% per year. Series B dividends are due and payable semiannually
          after Series C dividends have been declared and paid and accumulate
          if not paid. Dividends are  payable in cash or, under certain conditions,
          may be payable in cash or additional shares of Series B preferred stock,
          or a combination of both. As of March&nbsp;31, 2006 (unaudited) and
          December&nbsp;31, 2005 and 2004, $9,888, $9,460 and $7,747, respectively,
          of
undeclared, unpaid dividends have accumulated.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">Each share of Series B preferred stock is convertible into one share of common stock, subject to adjustment in certain circumstances, and has a liquidation preference equal to its stated value, as defined, plus all accrued and unpaid dividends thereon. Conversion is at
the option of the shareholders (although each holder of Series B preferred stock has agreed not to elect to convert </font></div></td>
  </tr>
</table>
<p align="center"><font face="serif" size="2">F-25</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="pf26"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font face="serif" size="2"></font><font face="serif" size="2"><b>MEDECISION, INC. AND SUBSIDIARIES</b><br>&nbsp;<br>
</font><font face="serif" size="2"><b>Notes to Consolidated Financial Statements</b><br>
<b>(in thousands, except share and per share data)</b></font></p>
<p align="left"><font face="serif" size="2">&nbsp;</font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">its shares of Series B preferred stock until the earlier of: (i) March&nbsp;30, 2007 or (ii) the date of the Company&#146;s request to the Securities and Exchange Commission to withdraw the
Company&#146;s registration statement on Form&nbsp;S-1 covering the initial public offering of its common stock), and is mandatory with the approval of 81% of the shareholders or upon such
time, if ever, that the Company consummates a QIPO, at which time such conversion becomes mandatory. The Series B preferred shareholders may request redemption beginning on
the earlier of (i) March&nbsp;30, 2007, or (ii) the date that the Company applies to the Securities and Exchange Commission to withdraw the registration statement on Form&nbsp;S-1 covering
the initial public offering of its common stock, through June&nbsp;20, 2007 (or a later date that is the number of days after June&nbsp;30, 2007 equal to the number of days between July&nbsp;17,
2006 and the earlier of: (a) March&nbsp;30, 2007 or (b) the date of the Company&#146;s request to the United States Securities and Exchange Commission to withdraw the Company&#146;s
registration statement on Form&nbsp;S-1 covering the initial public offering of its common stock) at the greater of the liquidation value, as defined, plus all accrued and unpaid dividends
thereon or fair value as determined by the Company&#146;s board of directors or an independent appraiser, after the Series C preferred stock has been redeemed, however, the Company is
not obligated to redeem shares if doing so would cause it to become insolvent. In the event of sale or merger of the company, the Series B preferred shareholders would be entitled
to liquidation value of their shares. The Series B shareholders have voting rights equal to common shareholders. Series B preferred stock is senior to Series A preferred stock and
common stock.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">The liquidation value of
          Series B preferred stock at March&nbsp;31, 2006 (unaudited) and December&nbsp;31,
          2005 and 2004 is $28,913, $28,485 and $26,773, respectively.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2"><i>Series A</i></font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">The holders of Series A
          convertible preferred stock are entitled to dividends at a rate of
          9% per year. Series A accumulated dividends are due and payable after
          Series C and B dividends are paid. Dividends are payable in cash unless
          the Series A shareholder exercises  the option to receive the dividend
          in shares of common stock based on the &#147;dividend conversion price,&#148; as
          defined, which is determined annually. As of March&nbsp;31, 2006 (unaudited),
          December&nbsp;31, 2005 and 2004, $2,875, $2,796, and $2,481, respectively,
          of
undeclared, unpaid dividends have accumulated.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">Each share of Series A preferred stock is convertible into one share of common stock, subject to adjustment in certain circumstances, and has a liquidation preference equal to its stated value, as defined, plus all accrued and unpaid dividends thereon. Conversion is at
the option of the shareholders until such time, if ever, that the Company completes a QIPO, at which time such conversion becomes mandatory. The Series A preferred shareholders&#146; redemption rights expired in 2005. Series A shareholders have voting rights equal to
common shareholders. Series A preferred stock is senior to common stock.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">The liquidation value of
          Series A preferred stock at March&nbsp;31, 2006 (unaudited) and December&nbsp;31,
          2005 and 2004 is $6,375, $6,296 and $5,981, respectively. As of December&nbsp;31,
          2005, the 2,333,333 shares of Series A preferred would be convertible
          into 4,497,364  shares of common stock in the event of a QIPO, if the
          holders of Series A preferred shares elected to receive all accumulated
          undeclared, unpaid dividends in shares of common stock.</font></div></td>
  </tr>
</table>
<p align="center"><font face="serif" size="2">F-26</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="pf27"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font face="serif" size="2"></font><font face="serif" size="2"><b>MEDECISION, INC. AND SUBSIDIARIES</b><br>&nbsp;<br>
</font><font face="serif" size="2"><b>Notes to Consolidated Financial Statements</b><br>
<b>(in thousands, except share and per share data)</b></font></p>
<p align="left"><font face="serif" size="2">&nbsp;</font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2"><b>(8)</b></font></td>
    <td><div align="left"><font face="serif" size="2"><b>Common Stock, Warrants and Options</b></font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2"><i>(a)</i></font></td>
    <td><div align="left"><font face="serif" size="2"><i>Common Stock</i></font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">No dividends can be paid to holders of the common stock while any accrued dividends on the Series A, Series B and Series C preferred shares remain unpaid.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2"><i>(b)</i></font></td>
    <td><div align="left"><font face="serif" size="2"><i>Warrants</i></font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">In connection with various financing activities, the Company issued warrants to purchase common stock. As of March&nbsp;31, 2006 (unaudited) and December&nbsp;31, 2005, warrants to purchase the Company&#146;s common stock are as follows:</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr align="center" valign="top">
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1"><b>Date Issued</b></font></div></td>
    <td align="left" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="1"><b>Warrants</b></font></td>
    <td align="left" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="1"><b>Exercise</b><br>
<b>Price</b></font></td>
    <td align="left" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="1"><b>Expiration</b><br>
<b>Date</b></font></td>
    <td align="left"><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr align="center" valign="top">
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom"><hr noshade size="1"></td>
    <td align="left" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td align="left"><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="6%" valign="bottom">&nbsp;</td>
    <td valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="2" valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="2" valign="bottom">&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">February&nbsp;12, 1997</font></div></td>
    <td width="2%" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">200,000</font></td>
    <td width="4%" valign="bottom">&nbsp;</td>
    <td valign="bottom" width="1%"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">2.00</font></td>
    <td width="2%" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom" width="20%"><font face="serif" size="2">February&nbsp;11, 2007</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">June&nbsp;1, 1999</font></div></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">100,000</font></td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2.00</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">May&nbsp;31, 2009</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">September&nbsp;15, 1999</font></div></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">150,000</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">0.90</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">September&nbsp;15, 2006(1)</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">September&nbsp;30, 1999</font></div></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">37,500</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">0.90</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">September&nbsp;30, 2006(1)</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">October&nbsp;28, 1999</font></div></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">60,000</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">0.90</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">October&nbsp;28, 2006(1)</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">December&nbsp;17, 1999</font></div></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">52,500</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">0.90</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">December&nbsp;17, 2006(1)</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">March&nbsp;10, 2000</font></div></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">45,000</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">0.90</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">March&nbsp;10, 2007(1)</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">April&nbsp;13, 2000</font></div></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">30,000</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">0.90</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">April&nbsp;13, 2007(1)</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">May&nbsp;25, 2000</font></div></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">60,000</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">3.88</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">May&nbsp;24, 2007(1)</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">June&nbsp;15, 2001</font></div></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">283,185</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1.13</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">May&nbsp;31, 2008</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">July&nbsp;2, 2002</font></div></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">165,929</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">0.90</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">July&nbsp;2, 2009</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">September&nbsp;26, 2002</font></div></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">70,000</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">0.90</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">September&nbsp;26, 2009</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom"><font size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom"><font size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,254,114</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom"><font size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><hr noshade size="2"></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
</table>
<p align="left"><font face="serif" size="2">&nbsp;</font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">(1)</font></td>
    <td><div align="left"><font face="serif" size="2">These warrants expire upon the earlier of the stated expiration date or a qualified public offering, which is defined as the closing of the first public sale of the common stock of the Company pursuant to an effective registration statement under the Securities Act
of 1933, as amended, for the account of the Company resulting in proceeds to the Company of not less than $30&nbsp;million and as to which the public offering price per share of our common stock multiplied by the number of fully diluted shares of common stock
outstanding immediately prior to closing of the offering shall equal not less than $150&nbsp;million.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2"><i>(c)</i></font></td>
    <td><div align="left"><font face="serif" size="2"><i>Stock Options</i></font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">The Company has a stock option plan, the Amended and Restated Stock Option Plan, whereby the Company may grant either incentive or nonqualified stock options to purchase shares of the Company&#146;s common stock. All options vest ratably over four years. The
Company has authorized 8,000,000 shares to be issued under the plan. Stock options may be granted at no less than the fair market value of the shares at the date of the grant, as determined by the Company. Although the Company&#146;s board of directors used its best
estimate of the fair value of the Company&#146;s stock price and made grants of stock options in 2003, 2004 and 2005 with exercise prices equal to those estimates of fair value, a subsequent independent appraisal of the common stock&#146;s value on the grant dates resulted in
recognizing stock-based compensation expense in the Consolidated Statement of Operations for the years ended December&nbsp;31, 2005, 2004 and 2003 in the amounts of $256, $21 and $0, respectively for the difference between the fair market value of the underlying
common stock on the date of grant and the option exercise price for options granted under the Company&#146;s stock option plan.</font></div></td>
  </tr>
</table>
<p>&nbsp;</p>
<p align="center"><font face="serif" size="2">F-27</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="pf28"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font face="serif" size="2"></font><font face="serif" size="2"><b>MEDECISION, INC. AND SUBSIDIARIES</b><br>&nbsp;<br>
</font><font face="serif" size="2"><b>Notes to Consolidated Financial Statements</b><br>
<b>(in thousands, except share and per share data)</b></font></p>
<p align="left"><font face="serif" size="2">&nbsp;</font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">At March&nbsp;31, 2006
          (unaudited) and December&nbsp;31, 2005, there were 2,985,564 and 3,027,814
          additional shares available for grant under the plan.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">The following table summarizes
          information about stock options outstanding as of March&nbsp;31,
          2006 (unaudited):</font></div>
    </td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="5" align="center" valign="bottom"><font face="serif" size="1"><b>Options
          Outstanding</b></font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="5" align="center" valign="bottom"><font face="serif" size="1"><b>Options
          Exercisable</b></font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="5" valign="bottom"><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="5" valign="bottom"><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="6%" valign="bottom">&nbsp;</td>
    <td valign="bottom"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1"><b>Per
            share prices</b></font></div>
    </td>
    <td valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Number
          of</b><br>
          <b>Shares</b></font></td>
    <td width="2%" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Weighted</b><br>
          <b>Average per</b><br>
          <b>Share Price</b></font></td>
    <td valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Weighted</b><br>
          <b>Average</b><br>
          <b>Remaining</b><br>
          <b>Contractual Life</b><br>
          <b>(Years)</b></font></td>
    <td valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Number
          of</b><br>
          <b>Shares</b></font></td>
    <td width="2%" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Weighted</b><br>
          <b>Average per</b><br>
          <b>Share Price</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td width="8%"><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td width="8%"><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td width="8%"><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td width="8%"><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td width="8%"><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">$0.05 &#150; $0.60</font></div>
    </td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">4,307,563</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">0.22</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">6.81</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2,374,776</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">0.23</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">$1.00 &#150; $1.13</font></div>
    </td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">586,500</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1.05</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2.21</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">529,000</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1.03</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">$2.00 &#150; $3.75</font></div>
    </td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">178,100</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2.76</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">3.68</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">178,100</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2.76</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="2">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="2">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="2">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="2">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="2">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><font size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">5,072,163</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">0.41</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">6.16</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">3,081,876</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">0.52</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2">
    </td>
    <td><hr noshade size="2">
    </td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2">
    </td>
    <td><hr noshade size="2">
    </td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2">
    </td>
    <td><hr noshade size="2">
    </td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2">
    </td>
    <td><hr noshade size="2">
    </td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2">
    </td>
    <td><hr noshade size="2">
    </td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">The following table summarizes information about stock options outstanding as of December&nbsp;31, 2005:</font></div></td>
  </tr>
 <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="5" align="center" valign="bottom"><font face="serif" size="1"><b>Options Outstanding</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="5" align="center" valign="bottom"><font face="serif" size="1"><b>Options Exercisable</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="5" valign="bottom"><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="5" valign="bottom"><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="6%" valign="bottom">&nbsp;</td>
    <td valign="bottom"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1"><b>Per share prices</b></font></div></td>
    <td valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Number of</b><br>
<b>Shares</b></font></td>
    <td valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Weighted</b><br>
<b>Average per</b><br>
<b>Share Price</b></font></td>
    <td valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Weighted</b><br>
<b>Average</b><br>
<b>Remaining</b><br>
<b>Contractual Life</b><br>
<b>(Years)</b></font></td>
    <td valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Number of</b><br>
<b>Shares</b></font></td>
    <td valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Weighted</b><br>
<b>Average per</b><br>
<b>Share Price</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">$0.05 &#150; $0.60</font></div></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">4,323,313</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom" width="1%"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">0.22</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">7.06</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">2,319,952</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom" width="1%"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">0.23</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">$1.00 &#150; $1.13</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">529,000</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1.03</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1.64</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">529,000</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1.03</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">$2.00 &#150; $3.75</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">178,100</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2.76</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">3.93</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">178,100</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2.76</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><font size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">5,030,413</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">0.40</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">6.38</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">3,027,052</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">0.52</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">The following table summarizes information about stock options outstanding as of December&nbsp;31, 2004:</font></div></td>
  </tr>
 <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="5" align="center" valign="bottom"><font face="serif" size="1"><b>Options Outstanding</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="5" align="center" valign="bottom"><font face="serif" size="1"><b>Options Exercisable</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="5" valign="bottom"><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="5" valign="bottom"><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="6%" valign="bottom">&nbsp;</td>
    <td valign="bottom"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1"><b>Per share prices</b></font></div></td>
    <td valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Number of</b><br>
<b>Shares</b></font></td>
    <td valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Weighted</b><br>
<b>Average per</b><br>
<b>Share Price</b></font></td>
    <td valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Weighted</b><br>
<b>Average</b><br>
<b>Remaining</b><br>
<b>Contractual Life</b><br>
<b>(Years)</b></font></td>
    <td valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Number of</b><br>
<b>Shares</b></font></td>
    <td valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Weighted</b><br>
<b>Average per</b><br>
<b>Share Price</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">$0.03 &#150; $0.60</font></div></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">3,408,115</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom" width="1%"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">0.22</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">7.30</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">1,622,908</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom" width="1%"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">0.23</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">$1.00 &#150; $1.13</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">843,125</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1.02</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2.36</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">843,125</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1.02</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">$2.00 &#150; $3.75</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">196,025</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2.74</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">4.92</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">194,275</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2.73</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><font size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">4,447,265</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">0.48</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">6.26</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2,660,308</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">0.66</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">The following table summarizes
          information about stock options outstanding as of December&nbsp;31,
          2003:</font></div>
    </td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="5" align="center" valign="bottom"><font face="serif" size="1"><b>Options
          Outstanding</b></font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="5" align="center" valign="bottom"><font face="serif" size="1"><b>Options
          Exercisable</b></font></td>
    <td width="2%"><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="5" valign="bottom"><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="5" valign="bottom"><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="6%" valign="bottom">&nbsp;</td>
    <td valign="bottom"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1"><b>Per
            share prices</b></font></div>
    </td>
    <td valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Number
          of</b><br>
                <b>Shares</b></font></td>
    <td width="2%" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Weighted</b><br>
          <b>Average per</b><br>
          <b>Share Price</b></font></td>
    <td valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Weighted</b><br>
          <b>Average</b><br>
          <b>Remaining</b><br>
          <b>Contractual Life</b><br>
          <b>(Years)</b></font></td>
    <td valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Number
          of</b><br>
                <b>Shares</b></font></td>
    <td width="2%" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Weighted</b><br>
          <b>Average per</b><br>
          <b>Share Price</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td width="8%"><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td width="8%"><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td width="8%"><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td width="8%"><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td width="8%"><font face="serif" size="1">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">$0.05 &#150; $0.60</font></div>
    </td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">3,648,927</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">0.20</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">5.51</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2,209,014</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">0.18</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">$1.00 &#150; $1.13</font></div>
    </td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">853,125</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1.02</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">3.42</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">853,125</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1.02</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">$2.00 &#150; $3.75</font></div>
    </td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">225,525</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2.67</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">5.89</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">201,326</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">2.55</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="2">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="2">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="2">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="2">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="2">
      <hr noshade size="1">
    </font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><font size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">4,727,577</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">0.47</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">5.15</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">3,263,465</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">0.54</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2">
    </td>
    <td><hr noshade size="2">
    </td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2">
    </td>
    <td><hr noshade size="2">
    </td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2">
    </td>
    <td><hr noshade size="2">
    </td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2">
    </td>
    <td><hr noshade size="2">
    </td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2">
    </td>
    <td><hr noshade size="2">
    </td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
</table>
<p align="center"><font face="serif" size="2">F-28</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="pf29"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font face="serif" size="2"></font><font face="serif" size="2"><b>MEDECISION, INC. AND SUBSIDIARIES</b><br>&nbsp;<br>
</font><font face="serif" size="2"><b>Notes to Consolidated Financial Statements</b><br>
<b>(in thousands, except share and per share data)</b></font></p>
<p align="left"><font face="serif" size="2">&nbsp;</font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">For the three months ended March&nbsp;31, 2006 (unaudited), 57,500 options were granted at a price of $1.25, with an contract life of 10 years.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">Stock option activity for the three months ended March&nbsp;31, 2006 (unaudited) and the three years ended December&nbsp;31, 2005 is as follows:</font></div></td>
  </tr>
 <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td width="6%">&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Number of</b><br>
<b>Shares</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Weighted</b><br>
<b>Average</b><br>
<b>Exercise Price</b></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1"><hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Balance at December&nbsp;31, 2002</font></div></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">4,800,890</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom" width="1%"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">0.51</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Granted</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">356,000</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">0.35</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Exercised</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(14,000</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">0.81</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Canceled</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(415,313</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">0.82</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><font size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Balance at December&nbsp;31, 2003</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">4,727,577</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">0.47</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Granted</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,032,250</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">0.26</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Exercised</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(216,561</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">0.07</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Canceled</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(1,096,001</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">0.22</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><font size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Balance at December&nbsp;31, 2004</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">4,447,265</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">0.48</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Granted</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1,097,000</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">0.25</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Exercised</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(111,212</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">0.09</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Canceled</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(402,640</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">0.94</font></td>
    <td valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><font size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Balance at December&nbsp;31, 2005</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">5,030,413</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">0.40</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Granted (unaudited)</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">57,500</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">1.25</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Exercised (unaudited)</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(500</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">0.25</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Canceled (unaudited)</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">(15,250</font></td>
    <td valign="bottom"><font face="serif" size="2">)</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">0.25</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><font size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td>&nbsp;</td>
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Balance at March&nbsp;31, 2006 (unaudited)</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">5,072,163</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">0.41</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td>&nbsp;</td>
    <td><font size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">At March&nbsp;31, 2006 (unaudited) and December&nbsp;31, 2005, the range of exercise prices and weighted average remaining contractual life of outstanding options was $0.05 to $3.75 and 6.16 years and $0.05 to $3.75 and 6.38 years, respectively and the number of options
exercisable was 3,081,876 and 3,027,052, respectively, and the weighted average exercise price of these options was $0.52 and $0.52, respectively.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">The Company also has a Series C preferred stock option plan (Note 7).</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2"><b>(9)</b></font></td>
    <td><div align="left"><font face="serif" size="2"><b>Postretirement Benefits</b></font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">The Company maintains a 401(k) defined contribution retirement plan that covers substantially all employees. Under this plan, participants may contribute up to 15% of their pretax compensation, subject to current limitations under the Internal Revenue Code. The
Company may elect to make matching contributions at the discretion of the board of directors. The Company currently matches 30% of the participant&#146;s deferral, limited to 4% of each participant&#146;s pretax compensation. Total employer contributions to the plan were
approximately $37, $128, $110 and $97 for the three months ended March&nbsp;31, 2006 (unaudited) and for the years ended December&nbsp;31, 2005, 2004 and 2003.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td width="4%"><font face="serif" size="2"><b>(10)</b></font></td>
    <td width="0" align="right"><div align="left"><font face="serif" size="2"><b>Commitments and Contingencies</b></font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">The Company has entered
          into employment agreements with two officers of the Company, each of
          which was amended on July 18, 2006. The agreements expire in September
          2007 and January 2007 and include an annual base salary and other discretionary
          cash and  stock option bonuses. Scheduled future base compensation
          for the years ending December&nbsp;31,
2006 and 2007 is approximately $575 and $184.</font></div></td>
  </tr>
</table>
<p>&nbsp;</p>
<p align="center"><font face="serif" size="2">F-29</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="pf30"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font face="serif" size="2"></font><font face="serif" size="2"><b>MEDECISION, INC. AND SUBSIDIARIES</b><br>&nbsp;<br>
</font><font face="serif" size="2"><b>Notes to Consolidated Financial Statements</b><br>
<b>(in thousands, except share and per share data)</b></font></p>
<p align="left"><font face="serif" size="2">&nbsp;</font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">The Company is party to a contract to purchase third-party licenses from a software vendor. The agreement expired on December&nbsp;31, 2005; however, the agreement automatically renews on an annual basis, unless terminated by either party. $451 and $451 of expense
was incurred under this agreement in 2005 and 2004 and is included in cost of revenue in the accompanying financial statements. Scheduled future minimum payments as of December&nbsp;31, 2005 under this contract are $493 in 2006.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">The Company is party to
          a contract whereby they are obligated to make minimum royalty payments
          on an annual basis. Total minimum royalty payments under this agreement
          aggregate $500 and are recorded ratably over the four year term of
          the agreement. The  Company recorded $125 and $63 of expense under
          this agreement for the years ended December&nbsp;31, 2005 and 2004,
          respectively. Scheduled future minimum payments under this contract
          are $445 as of December&nbsp;31, 2005.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">The Company&#146;s contracts with its customers provide that customers are responsible for payment of sales and use taxes on the company&#146;s licensing and maintenance fees, and, where applicable, professional services. The Company does not customarily collect sales
taxes. In the event that a customer has not paid use tax where and when due, or is otherwise unable to pay, the Company may have a contingent liability for unpaid taxes, interest and penalties. A liability of $644, $644 and $413 has been accrued at March&nbsp;31, 2006
(unaudited), December&nbsp;31, 2005, and 2004, respectively against such contingencies.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td width="4%"><font face="serif" size="2"><b>(11)</b></font></td>
    <td><div align="left"><font face="serif" size="2"><b>Related Parties</b></font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">An executive of the Company
          is the owner of a consulting firm that, during the years ended December&nbsp;31,
          2005, 2004 and 2003 provided certain professional services to the Company.
          During the three months ended March&nbsp;31,2005 (unaudited) and the
          years ended
December&nbsp;31, 2005, 2004 and 2003, $25, $35 and $40, respectively, was paid
to this firm for services rendered. There were no services provided after 2005.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">A member of the board of directors is the owner of a consulting company that, during the year ended December&nbsp;31, 2004, provided web design services to the company. During the year ended December&nbsp;31, 2004, approximately $33 was paid to the firm for services
rendered. No services were received by the Company from this consulting company after 2004.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td width="4%"><font face="serif" size="2"><b>(12)</b></font></td>
    <td><div align="left"><font face="serif" size="2"><b>Industry and Geographic Segment Information</b></font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">The Company derived all of its revenue from the healthcare industry in the three months ended March&nbsp;31, 2006 and 2005 (unaudited) and the years ended December&nbsp;31, 2005, 2004 and 2003. All of the Company&#146;s revenue in those periods was derived from United
States customers and all of its assets during these periods were in the United States.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td width="4%"><font face="serif" size="2"><b>(13)</b></font></td>
    <td><div align="left"><font face="serif" size="2"><b>Subsequent Events</b></font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">On May&nbsp;31, 2006, the
          Company entered an operating lease for additional premises. The lease
          runs to August&nbsp;31, 2016, at an average annual rent of $897, and
          includes a Tenant Improvement Allowance of $901. The Company&#146;s
          operating lease for this additional office  space allows the Company
          to terminate the lease after seven years, provided 12 months written
          notice is provided. Upon such termination, the Company must pay a one-time
          penalty of $553. The amount of the penalty is reduced by $17 each month
          subsequent to the
84<sup>th</sup> month of the lease.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">On July&nbsp;3, 2006, the
          Company executed a term sheet to extend its revolving line of credit
          arrangement. Pursuant to the executed term sheet, our borrowings under
          this facility
          will
          be
          limited
          to the
          lesser of $8,000 or 80% of qualified accounts receivable. Borrowings
          under the credit
facility will be </font></div></td>
  </tr>
</table>
<p align="center"><font face="serif" size="2">F-30</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="pf31"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font face="serif" size="2"></font><font face="serif" size="2"><b>MEDECISION, INC. AND SUBSIDIARIES</b><br>&nbsp;<br>
</font><font face="serif" size="2"><b>Notes to Consolidated Financial Statements</b><br>
<b>(in thousands, except share and per share data)</b></font></p>
<p align="left"><font face="serif" size="2">&nbsp;</font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">collateralized by 80% of
          eligible accounts receivable, and will be secured by a first priority
          security interest in all personal property of the Company. Pursuant
          to the executed
          term sheet, the Company is required to meet or exceed a specified quarterly
          net income. The Company also executed a term sheet to extend an equipment
          loan facility of up to $1,000 at an
interest rate of prime plus 1.5%. Borrowings under this facility will convert
          to a 30-month term note as of the first day of the subsequent calendar
          quarter.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">On July&nbsp;6, 2006, the
          Company reached an agreement with the holders of its Series B and Series
          C redeemable convertible preferred stock in which the holders agreed
          to convert 31.5% of their preferred shares to common stock at the date
          a registration statement is filed, and the Company agreed to, at the
          same time, convert 31.5% of the accrued unpaid dividends on Series
          B and C preferred stock to common stock.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td><div align="left"><font face="serif" size="2">On August&nbsp;1, 2006, the Company reached an agreement with the holder of 344,606 warrants to amend the warrants to permit a cashless exercise of the warrants in exchange for the holder giving up its registration rights for the common shares received.</font></div></td>
  </tr>
</table>
<p align="center"><font face="serif" size="2">F-31</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="p?"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td height="4" valign="bottom" bgcolor="#000000"></td>
  </tr>
  <tr>
    <td height="2" valign="top"></td>
  </tr>
    <tr>
    <td height="1" valign="top" bgcolor="#000000"></td>
  </tr>
</table><p align="left"><font face="serif" size="2">&nbsp;</font></p>
<p align="center"><font face="serif" size="3"><b>Shares</b></font></p>
<p align="center"><font face="serif" size="2"><img src="medecisionstackedpms314.jpg"></font></p>
<p align="center"><font face="serif" size="3"><b>Common Stock</b></font></p>
<p align="left"><font face="serif" size="2"><hr noshade size="1"></font><p></p>
<p align="center"><font face="serif" size="2">PROSPECTUS</font></p>
<p align="left"><font face="serif" size="2"><hr noshade size="1"></font><p></p>
<p align="center">
<div align="center"><font face="serif" size="4"><b>Cowen and Company</b><br>
      <b>Wachovia Securities</b><br>
</font></div>
<font face="serif" size="4"><hr align="center" width="100" size="1" noshade>
<div align="center"><br>
    <b>CIBC World Markets</b><br>
    <b>Pacific Growth Equities, LLC</b></div>
</font>
<p></p>
<p align="center"><font face="serif" size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>, 2006</b></font></p>
<p align="left"><font face="serif" size="1">Until &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2006, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealers&#146; obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.</font></p>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
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    <td height="1" valign="top" bgcolor="#000000"></td>
  </tr>
    <tr>
    <td height="2" valign="top" bgcolor="#FFFFFF"></td>
  </tr>
 <tr>
    <td height="4" valign="bottom" bgcolor="#000000"></td>
  </tr>
</table><hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="pii1"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font face="serif" size="2"></font><font face="serif" size="2"><b>PART II</b></font></p>
<p align="center"><font face="serif" size="2"><b>Information Not Required In Prospectus</b></font></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Item 13. Other Expenses of Issuance and Distribution.</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by us in connection with the sale of our common stock being registered hereby. All amounts are estimates except the SEC registration fee, the NASD
filing fee and the NASDAQ Global Market listing fee.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font face="serif" size="1"><b>Amount</b><br>
<b>to be Paid</b><br>
<hr noshade size="1"></font></td>
    <td><font face="serif" size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">SEC registration fee</font></div></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom" width="1%"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom" width="8%"><font face="serif" size="2">10,152</font></td>
    <td width="2%"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">NASD filing fee</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">11,411</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">The NASDAQ Global Market listing fee</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">100,000</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Blue sky fees and expenses</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">*</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Printing and engraving expenses</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">*</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Legal fees and expenses</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">*</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Accounting fees and expenses</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">*</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Transfer agent and registrar fees</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">*</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">Miscellaneous</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">*</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2"><hr noshade size="1"></font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td><div style="margin-left:6%"><font face="serif" size="2">Total</font></div></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td valign="bottom"><font face="serif" size="2">$</font></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><hr noshade size="2"></td>
    <td><hr noshade size="2"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
 <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="100"><hr noshade size="1" align="left" width="100%"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="1">*To be filed by amendment</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><div align="left"><font face="serif" size="2"><b>Item 14. Indemnification of Directors and Officers.</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The Pennsylvania Business Corporation Law of 1988, as amended, and our second amended and restated bylaws, which will be effective upon the consummation of this offering, limit the monetary and personal liability of our directors to us and to our shareholders and
provide for indemnification of our officers and directors for liabilities and expenses that they may incur in such capacities.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Our second amended and restated bylaws provide that no director or officer is to be personally liable for any monetary damages for any action taken, unless:</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">such director has breached or failed to perform the duties of his or her office, and</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">the breach or failure to perform constitutes self-dealing, willful misconduct or recklessness.</font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">In addition, our second amended and restated bylaws provide that we shall indemnify our directors and officers for expenses, attorneys&#146; fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action,
suit or proceeding if he or she has acted in good faith and in a manner he or she believed to be in our best interest or, in the case of a criminal proceeding, that he or she had no reasonable cause to believe that his or her conduct was unlawful. Such indemnification as to
expenses is mandatory to the extent the individual is successful on the merits or otherwise in defense of the matter or in defense of any claim, issue or matter therein. Our second amended and restated bylaws provide, however, that in the case of an action or suit by or in the
right of the Company, we will not indemnify a director or officer with respect to a matter in which such person has been adjudged to be liable in the performance of his or her duties to us unless a court of common pleas determines that such person is fairly and reasonably
entitled to indemnification. Our second amended and restated bylaws also provide that we may advance expenses to any director or officer upon our receipt of an undertaking by the director or officer to repay those amounts if it is finally determined that he or she is not entitled
to indemnification. Our indemnification obligations set forth in the second amended and restated bylaws extend not only to current directors and officers but to former directors and officers to the extent such persons were directors or officers from and after the time that such
obligations were in force.</font></p>
</div>
<p>&nbsp;</p>
<p align="center"><font face="serif" size="2">II-1</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="pii2"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We maintain directors and officers liability insurance to provide directors and officers with insurance coverage for losses arising from claims based on breaches of duty, negligence, error and other wrongful acts. Prior to the consummation of this offering, we will amend
our policy to include coverage against liabilities with respect to the Securities Act.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">The underwriting agreement filed as Exhibit 1.1 to this registration statement provides for indemnification by the underwriters of the registrant and its officers and directors severally, but not jointly, for certain liabilities, including liabilities arising under the Securities
Act and affords certain rights of contribution with respect thereto.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Item 15. Recent Sales of Unregistered Securities.</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">During the three year period preceding the date of filing of this registration statement, we have issued securities in the transactions described below without registration under the Securities Act. These securities were offered and sold by us in reliance upon exemptions
from the registration requirements provided by Section&nbsp;4(2) of the Securities Act and Regulation D under the Securities Act relating to sales not involving any public offering and/or Rule 701 under the Securities Act relating to transactions occurring under compensatory
benefit plans.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">No underwriters were involved in the sales and the certificates representing the securities sold and issued contain legends restricting the transfer of the securities without registration under the Securities Act or an applicable exemption from registration.</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">On August&nbsp;21, 2003, we granted options to six of our employees to purchase an aggregate of 15,500 shares of our common stock under our Amended and Restated Stock Option Plan at an exercise price of $0.25 per share.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">On October&nbsp;1, 2003, we issued 750 shares of our common stock upon the exercise of options granted under our Amended and Restated Stock Option Plan at an exercise price of $0.25 per share.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">On October&nbsp;9, 2003, we issued 5,000 shares of our common stock upon the exercise of options granted under our Amended and Restated Stock Option Plan at an exercise price of $0.60 per share.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">On October&nbsp;28, 2003, we granted options to ten of our employees to purchase an aggregate of 35,000 shares of our common stock under our Amended and Restated Stock Option Plan at an exercise price of $0.25 per share.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">On December&nbsp;4, 2003, we issued 1,000 shares of our common stock upon the exercise of options granted under our Amended and Restated Stock Option Plan at an exercise price of $0.60 per share.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">On December&nbsp;19, 2003, we granted options to ten of our employees to purchase an aggregate of 51,500 shares of our common stock under our Amended and Restated Stock Option Plan at an exercise price of $0.25 per share.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">On January&nbsp;26, 2004, we issued 562 shares of our common stock upon the exercise of options granted under our Amended and Restated Stock Option Plan at an exercise price of $0.25 per share.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">On April&nbsp;27, 2004, we granted options to fourteen of our employees to purchase an aggregate of 509,300 shares of our common stock under our Amended and Restated Stock Option Plan at an exercise price of $0.25 per share.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">On April&nbsp;30, 2004, we issued 200,000 shares of our common stock upon the exercise of options granted under our Amended and Restated Stock Option Plan at an exercise price of $0.03 per share.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">On August&nbsp;5, 2004, we granted options to seven of our employees to purchase an aggregate of 137,000 shares of our common stock under our Amended and Restated Stock Option Plan at an exercise price of $0.25 per share.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">On August&nbsp;16, 2004, we issued 3,000 shares, 3,124 shares and 5,000 shares of our common stock upon the exercise of options granted under our Amended and Restated Stock Option Plan at an exercise price of $0.60 per share, $0.25 per share and $1.00 per share,
respectively.</font></div></td>
  </tr>
</table>
<p>&nbsp;</p>
<p align="center"><font face="serif" size="2">II-2</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="pii3"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">On September&nbsp;29, 2004, we issued 875 shares of our common stock upon the exercise of options granted under our Amended and Restated Stock Option Plan at an exercise price of $0.25 per share.</font></div></td>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">On October&nbsp;26, 2004, we granted options to 12 of our employees to purchase an aggregate of 325,750 shares of our common stock under our Amended and Restated Stock Option Plan at an exercise price of $0.25 per share.</font></div></td>
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    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">On December&nbsp;1, 2004, we issued 3,000 shares of our common stock upon the exercise of options granted under our Amended and Restated Stock Option Plan at an exercise price of $0.60 per share.</font></div></td>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">On December&nbsp;6, 2004, we issued 1,000 shares of our common stock upon the exercise of options granted under our Amended and Restated Stock Option Plan at an exercise price of $0.25 per share.</font></div></td>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">On December&nbsp;17, 2004, we granted options to twelve of our employees to purchase an aggregate of 60,200 shares of our common stock under our Amended and Restated Stock Option Plan at an exercise price of $0.25 per share.</font></div></td>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">On January&nbsp;19, 2005, we issued 3,000 shares of our common stock upon the exercise of options granted under our Amended and Restated Stock Option Plan at an exercise price of $0.25 per share.</font></div></td>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">On March&nbsp;8, 2005, we issued 1,500 shares and 2,000 shares of our common stock upon the exercise of options granted under our Amended and Restated Stock Option Plan at an exercise price of $0.25 per share and $1.00 per share, respectively.</font></div></td>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">On April&nbsp;13, 2005, we issued 400 shares of our common stock upon the exercise of options granted under our Amended and Restated Stock Option Plan at an exercise price of $0.25 per share.</font></div></td>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">On May&nbsp;3, 2005, we granted options to 36 of our employees to purchase an aggregate of 597,500 shares of our common stock under our Amended and Restated Stock Option Plan at an exercise price of $0.25 per share.</font></div></td>
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    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">On August&nbsp;23, 2005, we granted options to twenty-three of our employees to purchase an aggregate of 466,500 shares of our common stock under our Amended and Restated Stock Option Plan at an exercise price of $0.25 per share.</font></div></td>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">On October&nbsp;18, 2005, we issued 2,000 shares of our common stock upon the exercise of options granted under our Amended and Restated Stock Option Plan at an exercise price of $0.25 per share.</font></div></td>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">On October&nbsp;26, 2005, we granted options to eight of our employees to purchase an aggregate of 31,500 shares of our common stock under our Amended and Restated Stock Option Plan at an exercise price of $0.25 per share.</font></div></td>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">On December&nbsp;14, 2005, we issued 187 shares of our common stock upon the exercise of options granted under our Amended and Restated Stock Option Plan at an exercise price of $0.25 per share.</font></div></td>
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    <td><font face="serif" size="2">&nbsp;</font></td>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">On December&nbsp;23, 2005, we issued 100,000 shares of our common stock upon the exercise of options granted under our Amended and Restated Stock Option Plan at an exercise price of $0.03 per share.</font></div></td>
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    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">On December&nbsp;30, 2005, we issued 1,000 shares and 625 shares of our common stock upon the exercise of options granted under our Amended and Restated Stock Option Plan at an exercise price of $0.60 per share and $3.75 per share, respectively.</font></div></td>
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    <td><font face="serif" size="2">&nbsp;</font></td>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">On January&nbsp;3, 2006, we granted options to fifteen of our employees to purchase an aggregate of 57,500 shares of our common stock under our Amended and Restated Stock Option Plan at an exercise price of $1.25 per share.</font></div></td>
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    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">On March&nbsp;7, 2006, we issued 500 shares of our common stock upon the exercise of options granted under our Amended and Restated Stock Option Plan at an exercise price of $0.25 per share.</font></div></td>
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    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">On April&nbsp;10, 2006, we issued 2,000 shares of our common stock upon the exercise of options granted under our Amended and Restated Stock Option Plan at an exercise price of $1.00 per share.</font></div></td>
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    <td><font face="serif" size="2">&nbsp;</font></td>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">On April&nbsp;26, 2006,
          we granted options to 38 of our employees to purchase an aggregate
          of 706,750 shares of our common stock under our Amended and Restated
          Stock Option Plan at an exercise price of $11.00 per share.</font></div></td>
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<p>&nbsp;</p>
<p align="center"><font face="serif" size="2">II-3</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="pii4"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">On May&nbsp;24, 2006, we issued 1,250 shares of our common stock upon the exercise of options granted under our Amended and Restated Stock Option Plan at an exercise price of $0.25 per share.</font></div></td>
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    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">On June&nbsp;9, 2006, we issued 1,000 shares of our common stock upon the exercise of options granted under our Amended and Restated Stock Option Plan at an exercise price of $0.25 per share.</font></div></td>
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    <td><font face="serif" size="2">&nbsp;</font></td>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">On July 13, 2006, we issued 3,000 shares of our common stock upon the exercise of options granted under our Amended and Restated Stock Option Plan at an exercise price of $1.00 per share.</font></div></td>
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    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">On July 18, 2006, we granted options to two of our employees to purchase an aggregate of 252,000 shares of our common stock under our Amended and Restated Stock Option Plan at an exercise price of $11.00 per share.</font></div></td>
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    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">On August 10, 2006, we
          issued 2,480,476 shares of our common stock upon the conversion of 1,266,991
          shares of Series B preferred stock pursuant to the terms of certain
conversion agreements that we entered into with certain of the holders of our
outstanding Series B preferred stock.</font></div></td>
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</table>
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    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
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    <td width="3%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="3%"><font face="serif" size="2">&#149;</font></td>
    <td><div align="left"><font face="serif" size="2">On August 10, 2006, we
          issued 2,243,861 shares of our common stock upon the conversion of 1,528,199
          shares of Series C preferred stock pursuant to the terms of certain
conversion agreements that we entered into with certain of the holders of our
outstanding Series C preferred stock.</font></div></td>
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</table>
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    <td><font face="serif" size="2">&nbsp;</font></td>
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    <td><div align="left"><font face="serif" size="2"><b>Item 16. Exhibits and Financial Statement Schedules.</b></font></div></td>
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</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">(a) Exhibits</font></p>
</div>
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    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1"><b>Exhibit Number</b></font></div></td>
    <td width="9%" align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td width="0%" align="left" valign="bottom"><font face="serif" size="1"><b>Description of Document</b></font></td>
  </tr>
  <tr align="center" valign="top">
    <td><hr noshade size="1"></td>
    <td width="9%" align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td width="0%" align="left" valign="bottom"><hr noshade size="1"></td>
  </tr>
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    <td><font face="serif" size="2">&nbsp;</font></td>
    <td width="9%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="0%"><font face="serif" size="2">&nbsp;</font></td>
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    <td width="15%" align="right"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">1.1</font></div></td>
    <td width="9%" align="center"><font face="serif" size="2">*</font></td>
    <td width="0%"><font face="serif" size="2">Form&nbsp;of Underwriting
        Agreement</font></td>
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  <tr valign="top" bgcolor="#ffffff">
    <td align="right"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">3.1</font></div></td>
    <td width="9%" align="center"><font face="serif" size="2">&nbsp;</font></td>
    <td width="0%"><font face="serif" size="2">Articles of Incorporation
        of MEDecision, Inc.</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td align="right"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">3.2</font></div></td>
    <td width="9%" align="center"><font face="serif" size="2">&nbsp;</font></td>
    <td width="0%"><font face="serif" size="2">Amended and Restated Bylaws
        of MEDecision, Inc.</font></td>
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  <tr valign="top" bgcolor="#ffffff">
    <td align="right"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">3.3</font></div></td>
    <td width="9%" align="center"><font face="serif" size="2">*</font></td>
    <td width="0%"><font face="serif" size="2">Form&nbsp;of Amended and
        Restated Articles of Incorporation of MEDecision, Inc., to be in effect
        upon the consummation of this offering</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td align="right"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">3.4</font></div></td>
    <td width="9%" align="center"><font face="serif" size="2">*</font></td>
    <td width="0%"><font face="serif" size="2">Form&nbsp;of Second Amended
        and Restated Bylaws of MEDecision, Inc., to be in effect upon the consummation
        of this offering</font></td>
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  <tr valign="top" bgcolor="#ffffff">
    <td align="right"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">4.1</font></div></td>
    <td width="9%" align="center"><font face="serif" size="2">*</font></td>
    <td width="0%"><font face="serif" size="2">Specimen Common Stock certificate</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td align="right"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">4.2(i)</font></div></td>
    <td width="9%" align="right"><font face="serif" size="2">&nbsp;</font></td>
    <td width="0%"><font face="serif" size="2">Warrant for the Purchase
        of Common Stock issued to Commerce Bank, N.A. on February&nbsp;12, 1997</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td align="right"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">4.2(ii)</font></div></td>
    <td width="9%" align="right"><font face="serif" size="2">&nbsp;</font></td>
    <td width="0%"><font face="serif" size="2">Amendment to Warrant for the Purchase of Common Stock dated August 1, 2006</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td align="right"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">4.3(i)</font></div></td>
    <td width="9%" align="right"><font face="serif" size="2">&nbsp;</font></td>
    <td width="0%" align="left"><font face="serif" size="2">Warrant for the Purchase of
    Common Stock issued to Commerce Bank, N.A. on June&nbsp;1, 1999&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td align="right"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">4.3(ii)</font></div></td>
    <td width="9%" align="right"><font face="serif" size="2">&nbsp;</font></td>
    <td width="0%"><font face="serif" size="2">Amendment to Warrant for the Purchase of Common Stock dated August 1, 2006</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td align="right"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">4.4</font></div></td>
    <td width="9%" align="right"><font face="serif" size="2">&nbsp;</font></td>
    <td width="0%"><font face="serif" size="2">Warrant Purchase Agreement
        dated June&nbsp;15, 2001 in favor of PNC Bank, National Association</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td align="right"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">4.5</font></div></td>
    <td width="9%" align="right"><font face="serif" size="2">&nbsp;</font></td>
    <td width="0%"><font face="serif" size="2">Warrant to Purchase Stock
        dated July 2, 2002 in favor of Silicon Valley Bank</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td align="right"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">4.6</font></div></td>
    <td width="9%" align="right"><font face="serif" size="2">&nbsp;</font></td>
    <td width="0%"><font face="serif" size="2">Warrant to Purchase Stock
        dated September 26, 2002 in favor of Silicon Valley Bank</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td align="right"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">5.1</font></div></td>
    <td width="9%" align="center"><font face="serif" size="2">*</font></td>
    <td width="0%"><font face="serif" size="2">Opinion of Pepper Hamilton
        LLP</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td align="right"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">10.1</font></div></td>
    <td width="9%" align="center"><font face="serif" size="2">&nbsp;</font></td>
    <td width="0%"><font face="serif" size="2">MEDecision, Inc. Amended
        and Restated Stock Option Plan</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td align="right"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">10.2</font></div></td>
    <td width="9%" align="center">&nbsp;</td>
    <td width="0%"><font face="serif" size="2">Form&nbsp;of Notice of Grant
        of Incentive Stock Options under the Amended and Restated Stock Option
        Plan</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td align="right"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">10.3</font></div></td>
    <td width="9%" align="center">&nbsp;</td>
    <td width="0%"><font face="serif" size="2">Form&nbsp;of Notice of Grant
        of Non-Qualified Stock Options under the Amended and Restated Stock Option
        Plan</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td align="right"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">10.4(i)</font></div></td>
    <td width="9%" align="center">&nbsp;</td>
    <td width="0%"><font face="serif" size="2">Employment Agreement dated
        January&nbsp;1, 2003 between MEDecision, Inc. and David St. Clair</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td align="right"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">10.4(ii)</font></div></td>
    <td width="9%" align="center">&nbsp;</td>
    <td width="0%"><font face="serif" size="2">Amendment to Employment Agreement
        dated July&nbsp;18, 2006 between MEDecision, Inc. and David St. Clair</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td align="right"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">10.5(i)</font></div></td>
    <td width="9%" align="right"><font face="serif" size="2">&nbsp;</font></td>
    <td width="0%"><font face="serif" size="2">Employment Agreement dated
        September&nbsp;4, 2002 between MEDecision, Inc. and John H. Capobianco</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td align="right"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">10.5(ii)</font></div></td>
    <td width="9%" align="right"><font face="serif" size="2">&nbsp;</font></td>
    <td width="0%"><font face="serif" size="2">Amendment to Employment Agreement
        dated July&nbsp;18, 2006 between MEDecision, Inc. and John H. Capobianco</font></td>
  </tr>
</table>
<p align="center"><font face="serif" size="2">II-4</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="pii5"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr align="center" valign="top">
    <td width="15%"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1"><b>Exhibit Number</b></font></div></td>
    <td width="9%" align="left" valign="bottom">&nbsp;</td>
     <td width="0%" align="left" valign="bottom"><font face="serif" size="1"><b>Description
           of Document</b></font></td>
  </tr>
  <tr align="center" valign="top">
    <td width="15%"><hr noshade size="1"></td>
    <td width="9%" align="left" valign="bottom">&nbsp;</td>
    <td width="0%" align="left" valign="bottom"><hr noshade size="1">
    </td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td width="15%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="9%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="0%"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td width="15%" align="right" valign="top"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">10.6</font></div></td>
    <td width="9%" align="center" valign="top"><font face="serif" size="2">+</font></td>
    <td width="0%" valign="top"><font face="serif" size="2">Agreement of Lease, made March&nbsp;5, 2004 by and between FV Office Partners, L.P. and MEDecision, Inc.</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td width="15%" align="right" valign="top"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">10.7</font></div></td>
    <td width="9%" align="center" valign="top"><font face="serif" size="2">+</font></td>
    <td width="0%" valign="top"><font face="serif" size="2">Agreement of Lease, made April&nbsp;19, 2005 by and between FV Office Partners, L.P. and MEDecision, Inc.</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td width="15%" align="right" valign="top"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">10.8</font></div></td>
    <td width="9%" align="center" valign="top"><font face="serif" size="2">+</font></td>
    <td width="0%" valign="top"><font face="serif" size="2">Agreement of Lease, made May&nbsp;31, 2006 by and between Chesterbrook Partners, LP and MEDecision, Inc.</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td width="15%" align="right" valign="top"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">10.9(i)</font></div></td>
    <td width="9%" align="center" valign="top"><font face="serif" size="2">&nbsp;</font></td>
    <td width="0%" valign="top"><font face="serif" size="2">Second Amended and Restated Registration Rights Agreement dated as of September 25, 2001 by and among MEDecision, Inc. and the
Holders party thereto (as such term is defined therein)</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td width="15%" align="right" valign="top"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">10.9(ii)</font></div></td>
    <td width="9%" align="center" valign="top"><font face="serif" size="2">&nbsp;</font></td>
    <td width="0%" valign="top"><font face="serif" size="2">Amendment to Second Amended and Restated Registration Rights Agreement dated as of July 6, 2006</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td width="15%" align="right" valign="top"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">10.9(iii)</font></div></td>
    <td width="9%" valign="top">&nbsp;</td>
    <td width="0%" valign="top"><font face="serif" size="2">Second Amendment to Second
        Amended and Restated Registration Rights Agreement dated as of August
    2, 2006</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td width="15%" align="right" valign="top"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">10.10(i)</font></div></td>
    <td width="9%" align="center" valign="top"><font face="serif" size="2">&nbsp;</font></td>
    <td width="0%" valign="top"><font face="serif" size="2">Third Amended and Restated Shareholders Agreement dated January 11, 2002 among MEDecision, Inc. and the Shareholders party thereto (as
such term is defined therein)</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td width="15%" align="right" valign="top"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">10.10(ii)</font></div></td>
    <td width="9%" align="center" valign="top"><font face="serif" size="2">&nbsp;</font></td>
    <td width="0%" valign="top"><font face="serif" size="2">Amendment to Third Amended and Restated Shareholders Agreement dated as of July 6, 2006</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td width="15%" align="right" valign="top"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">16.1</font></div></td>
    <td width="9%" align="center" valign="top"><font face="serif" size="2">&nbsp;</font></td>
    <td width="0%" valign="top"><font face="serif" size="2">Letter of Goldenberg Rosenthal, LLP</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td width="15%" align="right" valign="top"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">16.2</font></div></td>
    <td width="9%" align="center" valign="top"><font face="serif" size="2">&nbsp;</font></td>
    <td width="0%" valign="top"><font face="serif" size="2">Letter of KPMG LLP</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td width="15%" align="right" valign="top"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">23.1</font></div></td>
    <td width="9%" align="center" valign="top">&nbsp;</td>
    <td width="0%" valign="top"><font face="serif" size="2">Consent of Grant Thornton LLP</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td width="15%" align="right" valign="top"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">23.2</font></div></td>
    <td width="9%" align="center" valign="top"><font face="serif" size="2">*</font></td>
    <td width="0%" valign="top"><font face="serif" size="2">Consent of Pepper Hamilton LLP (included in Exhibit 5.1)</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td width="15%" align="right" valign="top"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">23.3</font></div></td>
    <td width="9%" align="center" valign="top"><font face="serif" size="2">&nbsp;</font></td>
    <td width="0%" valign="top"><font face="serif" size="2">Consent of HealthCore, Inc.</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td width="15%" align="right" valign="top"><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="2">24.1</font></div></td>
    <td width="9%" align="center" valign="top"><font face="serif" size="2">&nbsp;</font></td>
    <td width="0%" valign="top"><font face="serif" size="2">Powers of Attorney (included in the signature page to the registration statement)</font></td>
  </tr>
 <tr>
    <td width="15%" align="right" valign="top">&nbsp;</td>
    <td width="9%" valign="top">&nbsp;</td>
    <td width="0%" valign="top">&nbsp;</td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="100"><hr noshade size="1" align="left" width="100%"></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="1">*</font></td>
    <td><div align="left"><font face="serif" size="1">To be filed by amendment.</font></div></td>
  </tr>
</table>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%"><font face="serif" size="1">+</font></td>
    <td><div align="left"><font face="serif" size="1">Exhibits and schedules have been omitted and will be provided to the Commission upon request.</font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">(b) Financial Statement Schedules</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">All schedules have been omitted because
    they are not applicable, not required or the required information is included
  in the consolidated financial statements or the notes thereto.</font></p>
</div>
<p align="center"><font face="serif" size="2">II-5</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="pii6"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr valign="bottom">
    <td><div align="left"><font face="serif" size="2"><b>Item 17. Undertakings.</b></font></div></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We hereby undertake to provide to the underwriters at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by a director, officer, or
controlling person of us in the successful defense of any action, suit, or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, we will, unless in the opinion of counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">We hereby undertake that:</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">(i) for purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">(ii) for purposes of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.</font></p>
</div>
<p align="center"><font face="serif" size="2">II-6</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="pii7"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font face="serif" size="2"><b>SIGNATURES</b></font></p>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Pursuant to the requirements of the
    Securities Act of 1933, the Registrant has duly caused this registration
    statement to be signed on its behalf by the undersigned, thereunto duly authorized,
  in Wayne, Pennsylvania, on the 11<sup>th</sup> day of August 2006.</font></p>
</div>
<div style="margin-left:51%">
<p align="left"><font face="serif" size="2">
By: <u>/s/ David St. Clair</u><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Chairman of the Board and<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Chief Executive Officer</font></p>
</div>
<p align="center"><font face="serif" size="2"><b>POWER OF ATTORNEY</b></font></p>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Pursuant to the requirements of the Securities Act, this registration statement has been signed below by the following persons in the capacities and on the dates indicated. Each person whose signature appears below hereby constitutes and appoints David St. Clair, John
H. Capobianco and Carl E. Smith, his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution for him or her in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration
statement, or any registration statement for the same offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act, and to file the same, with exhibits thereto and other documents in connection therewith or in connection with the registration of our
common stock offered hereby under the Exchange Act, with the Securities and Exchange Commission, granting unto such attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary in connection with such
matters and hereby ratifying and confirming all that such attorney-in-fact and agent or his substitutes may do or cause to be done by virtue hereof.</font></p>
</div>
<div style="text-indent:3%">
<p align="left"><font face="serif" size="2">Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated on August&nbsp;11<sup>th</sup>, 2006:</font></p>
</div>
<table width="100%" align="center" border="0" cellpadding="0" cellspacing="0">
  <tr align="center" valign="top">
    <td><div style="margin-left:3%; text-indent:-3%"><font face="serif" size="1"><b>Signature</b></font></div></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><font face="serif" size="1">Title</font></td>
  </tr>
  <tr align="center" valign="top">
    <td><hr noshade size="1"></td>
    <td align="right" valign="bottom"><font face="serif" size="1">&nbsp;</font></td>
    <td><hr noshade size="1"></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td width="1%"><font face="serif" size="2">&nbsp;</font></td>
    <td width="8%"><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:0%; text-indent:-0%"><font face="serif" size="2">/s/ D<font size="1">AVID</font> S<font size="1">T.</font> C<font size="1">LAIR</font><br>
<hr noshade size="1"></font></div></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td width="55%"><font face="serif" size="2">Chairman of the Board and Chief Executive Officer and Director (Principal Executive
Officer)</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:0%; text-indent:-0%"><font face="serif" size="2">/s/ C<font size="1">ARL</font> E. S<font size="1">MITH</font><br>
<hr noshade size="1"></font></div></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">Chief Financial Officer (Principal Financial and Accounting Officer)</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:0%; text-indent:-0%"><font face="serif" size="2">/s/ F<font size="1">RANK</font> A. A<font size="1">DAMS</font><br>
<hr noshade size="1"></font></div></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">Director</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:0%; text-indent:-0%"><font face="serif" size="2">/s/ J<font size="1">OHN</font> H. C<font size="1">APOBIANCO</font><br>
<hr noshade size="1"></font></div></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">Director</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:0%; text-indent:-0%"><font face="serif" size="2">/s/ C<font size="1">HARLES</font> P. C<font size="1">ULLEN</font><br>
<hr noshade size="1"></font></div></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">Director</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:0%; text-indent:-0%"><font face="serif" size="2">/s/ T<font size="1">HOMAS</font> R. M<font size="1">ORSE</font><br>
<hr noshade size="1"></font></div></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">Director</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td><div style="margin-left:%; text-indent:-0%"><font face="serif" size="2">/s/ T<font size="1">IMOTHY</font> W. W<font size="1">ALLACE</font><br>
<hr noshade size="1"></font></div></td>
    <td align="right" valign="bottom"><font face="serif" size="2">&nbsp;</font></td>
    <td><font face="serif" size="2">Director</font></td>
  </tr>
</table>
<p align="center"><font face="serif" size="2">II-7</font></p>
<hr noshade align="center" width="100%" size="2">
</body>
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Prepared and filed by St Ives Burrups
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As filed with the Securities and Exchange Commission on August 11, 2006
Registration No.
333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
MEDECISION, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania
7371
23-2530889
(State or other jurisdiction of
incorporation or organization)
(Primary standard industrial
classification code number)
(I.R.S. employer
identification number)
601 Lee Road
Chesterbrook Corporate Center
Wayne, Pennsylvania 19087
(610) 540-0202
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices)
David St. Clair
Chief Executive Officer and Chairman of the Board of Directors
MEDecision, Inc.
601 Lee Road
Chesterbrook Corporate Center
Wayne, Pennsylvania 19087
(610) 540-0202
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)
Copies to:
Brian M. Katz, Esq.
Selim Day, Esq.
Pepper Hamilton LLP
Wilson Sonsini Goodrich & Rosati
3000 Two Logan Square
Professional Corporation
18
th
& Arch Streets
1301 Avenue of the Americas, 40th Floor
Philadelphia, PA 19103
New York, NY 10019
(215) 981-4000
(212) 999-5800
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
CALCULATION OF REGISTRATION FEE
Title of Each Class
of
Securities To Be Registered
Proposed Maximum
Aggregate Offering Price
(1)(2)
Amount of Registration
Fee
Common Stock, par value $0.01 per share
$ 94,875,000
$ 10,152
(1)
Estimated solely for purpose of calculating the registration fee for this offering in accordance with Rule 457(o) under the Securities Act of 1933, as amended.
(2)
Includes offering price of shares that the underwriters have the option to purchase to cover overallotments, if any.
The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
PROSPECTUS (Subject to Completion) Dated August 11, 2006
Shares
Common Stock
This is an initial public offering of            shares of our common stock. We are offering            shares and the selling shareholders are offering            shares of our common stock. We will not receive any proceeds from the sale of shares by the selling shareholders. Prior to this
offering, there has been no public market for our common stock. We have applied to have our common stock approved for quotation on the NASDAQ Global Market under the symbol "MEDE." We expect that the initial public offering price will be between $           and $          
per share.
Our business and an investment in our common stock involve significant risks. These risks are described under the caption "Risk Factors" beginning on page 9 of this prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Per Share
Total
Public offering price
$
$
Underwriting discounts
$
$
Proceeds, before expenses, to us
$
$
Proceeds, before expenses, to selling shareholders
$
$
The underwriters may also purchase up to an additional            shares of our common stock from the selling shareholders at the initial public offering price, less the underwriting discounts, within 30 days from the date of this prospectus to cover overallotments.
The underwriters expect to deliver the shares against payment in New York, New York on      , 2006.
Sole Bookrunning Manager
Co-Lead
    Manager
Cowen and Company
Wachovia Securities
CIBC World Markets
Pacific
    Growth Equities, LLC
___, 2006
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Improving the relationship between patients, payers
and providers since 1988
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TABLE OF CONTENTS
Page
Prospectus Summary
1
Risk Factors
9
Cautionary Note Regarding Forward-Looking Statements
25
Use of Proceeds
26
Dividend Policy
26
Conversion and Exercise Transactions
27
Capitalization
29
Dilution
31
Selected Consolidated Financial Data
33
Management's
      Discussion and Analysis of Financial Condition and Results of Operations
34
Business
55
Page
Management
68
Certain Relationships and Related Party Transactions
83
Principal and Selling Shareholders
87
Description of Capital Stock
91
Shares Eligible for Future Sale
97
Certain Material U.S. Federal Income Tax Considerations for Non-U.S. Holders
100
Underwriting
103
Legal Matters
106
Experts
106
Where You Can Find More Information
106
Index to Consolidated Financial
Statements
F-1
You should rely only on the information contained in this prospectus. We have not, and the selling shareholders and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different
or inconsistent information, you should not rely on it. We are not, and the selling shareholders and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the
information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.
Information contained on our website is not part of this prospectus.
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PROSPECTUS SUMMARY
This summary provides an overview of selected information contained elsewhere in this prospectus and does not contain all of the information you should consider before investing in our common stock. You should carefully read the prospectus and the registration
statement, of which this prospectus is a part, in their entirety before investing in our common stock, including the information discussed under "Risk Factors" beginning on page
9 and our financial statements and notes thereto that appear elsewhere in this prospectus. As
used in this prospectus, the terms "we," "our," "us," "the Company" or "our Company" refer to MEDecision, Inc. and its subsidiaries, taken as a whole, unless the context otherwise indicates. Unless otherwise stated, all the information in this prospectus assumes that the
underwriters will not exercise their overallotment option.
Company Overview
We are a leading provider of software, services and clinical content to healthcare payers that allow them to improve the quality and affordability of healthcare provided to their members and increase their administrative efficiency. Our Collaborative Care Management
solution analyzes data, automates payer workflow processes and electronically connects payers, providers and patients, providing them with a common view of the patient's health that helps to foster better clinical decision making. Our solution is built around a suite of modular
and easily configurable software applications and utilizes the Internet to link our payer customers to their members and their members' chosen healthcare providers.
Our Collaborative Care Management solution is comprised of two related suites of products – Integrated Medical Management and Collaborative Data Exchange. Our Integrated Medical Management suite allows our healthcare payer customers to identify active care
management opportunities among their members and automate an intervention process based on clinical best practices. Our Integrated Medical Management suite also helps our customers reduce internal administrative costs by automating traditionally manual processes. Our
Collaborative Data Exchange suite allows our customers to securely transmit health records containing critical patient information in an easily understood format to patients and providers at the time they are making treatment decisions. We refer to these health records as
Patient Clinical Summaries. In the future, we expect our Patient Clinical Summaries to integrate additional information provided by patients and a broad range of providers, thereby increasing their value to all constituents.
As of March 31, 2006, our customers included approximately 56 regional and national managed care organizations, including the largest organizations in more than 27 regional markets. In the aggregate, our customers insure or manage care for approximately one out of
every six insured persons in the United States. Depending on the application, we provide our solutions on an annual subscription basis, under limited term licenses or on a per-transaction basis, all of which provide us with recurring revenue. We primarily license our solutions
through direct sales to customers in the United States. Our revenue has increased at a compound annual growth rate of 32.8% since 2001, from $12.4 million for the year ended December 31, 2001 to $38.6 million for the year ended December 31, 2005.
Industry Overview
According to the Centers for Medicare & Medicaid Services, or CMS, healthcare spending will grow to $4.0 trillion by 2015, or 20% of the United States Gross Domestic Product, representing 7.2% annual growth since 2004. Rising healthcare costs negatively impact a
wide range of constituencies; however, we believe that the broad array of healthcare payers is the most directly impacted. We also believe that payers have two options if they are to maintain their viability. First, payers can proactively manage the delivery of healthcare
services and products to their members to improve the quality and cost of care. Second, they can offset rising healthcare costs by reducing their internal administrative costs through efficiency gains. Accordingly, payers are consistently seeking new strategies to more effectively
manage the care delivery process for their members and reduce their internal operating costs. We believe, based on our research, the market for care management solutions that accomplish these objectives is currently in excess of $1 billion per year and is growing at a
compound annual growth rate in excess of 15.8%.
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We believe that one of the material contributors to rising healthcare costs is overuse, underuse and misuse of medical services and treatments, which we refer to as poor-quality care. We believe that there are two significant causes of this poor-quality care that payers can
positively influence. First, providers often do not have the tools to universally apply clinical best practices, which negatively impacts the quality and cost effectiveness of the treatment. Second, providers frequently lack critical patient information needed to provide optimal care.
Consequently, they often misdiagnose medical conditions, prescribe medications that negatively interact with each other and order duplicative or medically unnecessary tests and procedures.
As the financial intermediary between the provider and patient, payers are uniquely positioned to monitor the care provided to their members and identify poor-quality care. They also have a vested interest in improving outcomes for their members to reduce the cost of
care. However, we believe that payers generally lack the information technology systems to play these roles effectively and efficiently. Based on our experience, we believe that payers generally rely on a combination of manual processes, third-party point solutions and
proprietary systems for many components of the care management process. As a result, we believe that these processes generally suffer from a variety of weaknesses. First, payers fail to effectively and efficiently identify high-risk patients that warrant active care management.
Second, payers lack information systems to optimally manage their care management programs. As a result, care managers fail to consistently identify poor-quality care and apply the most recent clinical best practices and often make manual errors. Furthermore, payers fail to
capture and analyze valuable historical data and only apply care management to the most obvious, highest cost members. Perhaps most importantly, payers lack systems necessary to share the large volume of patient information in electronic format contained in their legacy
claims processing and care management systems internally and with providers.
Benefits of Our Solutions
We believe our solutions allow our payer customers to improve the quality of care and reduce costs by enabling payers to:
•
Identify high-risk members.
Our solutions automatically organize the data contained in our customers' legacy claims processing and care management systems and apply proprietary algorithms to that data to classify their members based on their risk of incurring
material medical costs. We believe that these solutions increase the effectiveness of our customers' care management programs by more accurately and efficiently identifying members that would benefit from active disease or case management, thereby helping to improve
the quality and to reduce the cost of care.
•
Promote consistency and reduce manual errors and administrative costs through automation.
Our solutions automate the workflow process for utilization management, case management and disease management. With respect to utilization management, our solutions allow our customers to adjudicate healthcare authorization requests from providers without
manual intervention, thereby handling more cases, focusing on more complex value-added tasks and reducing administrative costs. With respect to case management and disease management, our solutions guide care management specialists through a systematic
intervention process. By doing so, we believe our solutions promote consistent utilization and consistent care management processes that are less prone to manual error.
•
Promote the consistent application of clinical best practices.
Our solutions enable care management professionals to apply clinical best practices and best processes when adjudicating the medical appropriateness of requested services, evaluating treatment plans and
creating intervention plans. Accordingly, adjudications are more accurate and care management intervention plans are consistently based on clinical best practices helping to improve the quality and to reduce the cost of care.
•
Utilize analytics to improve processes.
The reporting tools contained in our solutions allow our customers to analyze historical results to determine which care management interventions were generally the most effective in improving the quality of care and cost
efficiency. These tools allow our customers to continually refine and improve their internal care management rules and guidelines.
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•
Enable enhanced information
            access.
Our solutions establish
            a single source of clinical information that supports integration
            with our customers' other
          operational systems to ensure that care managers have access to the
          most current information. Our solutions also allow patients and providers
          to obtain a Patient Clinical Summary, which includes patient demographic
          information, medical conditions, medications, providers and treatment
          opportunities in an on-demand, easy to use format. By providing this
          critical patient information
to patients and providers in an easily understood format in real time, we believe
          that we improve the quality and reduce the cost of care. For example,
          in a recently completed study that we commissioned concerning our Patient
            Clinical Summaries conducted by HealthCore, Inc., in cases where
            Patient Clinical
            Summaries
          were utilized in the emergency room, the overall costs paid by the
          payers and the patient dropped by an average of approximately $545
          per emergency department visit, or 19.7% of the average cost of the
          control visits that did not
utilize this information.
Our Strategy
Our goal is to be the leading provider of care management solutions and to encourage market-wide adoption of our Patient Clinical Summaries. Key elements of our strategy include:
•
Continue to expand our relationships with customers.
We have developed strong customer relationships, which we believe provide us with both recurring revenue streams from those customers and cross-selling opportunities. We intend to continue to strengthen
relationships with our existing customers to ensure a consistent renewal rate in the future. We also intend to develop innovative cross-selling programs to continue to increase our revenue per customer.
•
Innovate new solutions and lead the next generation of Collaborative Care Management.
We intend to further develop innovative solutions, both internally and through acquisitions, that improve the quality and cost of care and increase administrative efficiency. In
particular, we intend to lead the market in the development of the next generation of Collaborative Care Management solutions. To that end, we are currently developing new solutions to complement our Patient Clinical Summaries and serve as the foundation for
electronic health records by aggregating payer, provider and patient-contributed information.
•
Apply resources to ensure
            provider adoption of Patient Clinical Summaries.
We
            released our Collaborative Data Exchange suite in 2005 and currently
            are deploying it for eight managed care organizations. We generate
            a transaction fee for each Patient Clinical  Summary delivered to
            a provider. Accordingly, the growth in revenue for our Collaborative
            Data Exchange suite is contingent upon adoption of Patient Clinical
            Summaries by providers. We intend to continue to creatively apply
            resources in order to encourage provider
adoption of Patient Clinical Summaries.
•
Expand our customer base.
We have grown our annual revenue to $38.6 million in 2005 by licensing our solutions to approximately 56 customers. We estimate that there are at least 300 additional managed care organizations in the United States that could benefit
from our solutions. In addition, we expect that smaller payers, self-insured companies, Medicare and Medicaid organizations and emerging Regional Health Information Organizations will provide us with expanded market opportunities. We intend to continue to invest in
sales and marketing to increase awareness of our solutions within the payer market and obtain additional customers.
•
Continue to build recurring and predictable revenue streams.
Historically, we derived most of our revenue from our Advanced Medical Management module, for which our customers purchase five-year term licenses. Although this module provides us with a
recurring revenue stream, the size of the license fee and the fact that we recognize the license fee at the time we enter into the contract has caused this revenue stream to fluctuate, sometimes significantly, from quarter to quarter. In 1999, we began offering our customers
additional solutions and clinical content for which they pay annual subscription licenses or transaction fees. These revenue streams provide us with greater quarterly revenue visibility. We intend to continue to develop new solutions for which our customers will pay
annual subscription licenses or transaction fees.
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Company Information
We began operations in 1988 by licensing an automated medical management solution to large regional healthcare insurance companies. This solution was the predecessor to our current Advanced Medical Management module. In 1999, we acquired the assets of an
analytical software company that became the basis of our current Analytics and Disease Management module. In 2000, we expended a significant amount of capital to begin the development of our Transactions and Information Exchange module, completing the initial
development of the module in the third quarter of 2001. In December 2002, we acquired assets that were the foundation for clinical decision support content, which enabled us to create our Clinical Rules and Processes module. In 2005, we began to offer our customers the
ability to electronically transmit Patient Clinical Summaries to providers at the point of care.
About Us
We are a Pennsylvania corporation. Our principal executive offices are located at 601 Lee Road, Chesterbrook Corporate Center, Wayne, Pennsylvania 19087. Our telephone number is (610) 540-0202. We maintain a website at http://www.medecision.com (which is not
intended to be an active hyperlink in this prospectus). The information contained on, connected to or that can be accessed via our website is not part of this prospectus.
This prospectus contains references to a number of trademarks that are our registered trademarks or trademarks for which we have pending registration applications or common law rights. These include OptiCareCert™ and OptiCarePath™. All other registered
trademarks and trade names referred to in this prospectus are the property of their respective owners.
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The Offering
Common stock offered by us
shares
Common stock offered by the selling shareholders
shares (plus                            shares if the underwriters exercise their overallotment option in full)
Common stock to be outstanding after this offering
shares
Directed share program
The underwriters have reserved for sale, at the initial public offering price, up to                            shares of our common stock being offered for sale to our business associates, employees and friends and
family members of our employees. The number of shares available for sale to the general public in this offering will be reduced to the extent these persons purchased reserved shares. Any reserved
shares not purchased will be offered by the underwriters to the general public on the same terms as the other shares.
Estimated initial public offering price
$                to $
Use of proceeds
We intend to use approximately $9.3 million of the net proceeds from this offering to pay accrued and unpaid dividends to the former holders of our Series B and Series C preferred stock upon the
automatic conversion of such shares to common stock upon the consummation of this offering.
We intend to use the remaining net proceeds for general corporate purposes, including working capital needs, potential strategic acquisitions and investments. You should read the discussion in the
"Use of Proceeds" section of this prospectus for more information.
Risk factors
See "Risk Factors" beginning on page 9 and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in shares of our common
stock.
Proposed NASDAQ Global Market symbol
MEDE
The number of shares of our common stock to be outstanding after this offering is based on 23,201,425 shares of our common stock outstanding as of August 10, 2006 and excludes:
•
5,900,163 shares of our common stock issuable upon exercise of outstanding options to purchase shares of our common stock subject to the terms of our Amended and Restated Stock Option Plan as of August 10, 2006 at a weighted average exercise price of $2.14 per
share;
•
110,000 shares of our common stock issuable upon exercise of outstanding options to purchase shares of our common stock subject to the terms of our Series C Stock Equity Incentive Plan as of August 10, 2006 at a weighted average exercise price of $1.13 per share
(such awards were originally exercisable for Series C preferred stock but will be replaced by options to purchase common stock on a one-for-one basis upon the consummation of this offering);
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•
shares of our common stock reserved for future grants under our 2006 Equity Incentive Plan, which will become effective immediately prior to when we become subject to the reporting requirements of the Securities Exchange Act of 1934; and
•
863,720 shares of our common stock issuable upon exercise of warrants to purchase shares of our common stock outstanding as of August 10, 2006 at a weighted average exercise price of $1.41 per share.
Unless otherwise indicated, all information in this prospectus assumes:
•
an initial public offering price of $                           per share, the mid-point of the estimated offering price range shown on the front cover page of this prospectus;
•
the conversion of all outstanding shares of our Series A preferred stock, including the estimated accrued and unpaid dividends thereon immediately prior to the consummation of this offering, into 4,686,247 shares of our common stock, which will automatically occur
immediately prior to the consummation of this offering;
•
the conversion, upon the filing of the Registration Statement on Form S-1 of which this prospectus is a part, of 1,266,991 shares and 1,528,199 shares of Series B and Series C preferred stock (including accrued and unpaid dividends thereon) into 2,480,476 and 2,243,861
shares of common stock pursuant to the conversion agreements discussed in "Conversion and Exercise Transactions" elsewhere in this prospectus;
•
the conversion of all of the then outstanding shares of our Series B preferred stock and Series C preferred stock into 6,798,640 shares of our common stock, which will automatically occur immediately prior to the consummation of this offering;
•
the issuance of 435,000 shares of our common stock at a weighted average exercise price of $1.31 per share upon the exercise of outstanding warrants that would otherwise terminate upon the consummation of this offering;
•
the conversion of all outstanding options to purchase shares of Series C preferred stock into options to purchase common stock at the then applicable conversion rate of the Series C preferred stock in effect upon the consummation of this offering;
•
the effectiveness of our amended and restated articles of incorporation and second amended and restated bylaws upon the completion of this offering; and
•
no exercise by the underwriters of their overallotment option to purchase                             additional shares of common stock in this offering.
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Summary Consolidated Financial Data
The following table summarizes our consolidated financial data for the periods indicated. The data for each of the three month periods ended March 31, 2006 and 2005 have been derived from our unaudited consolidated financial statements, which, in the opinion of
management, contain all adjustments necessary to fairly present the information set forth below. The data for each of the three years ended December 31, 2005, 2004 and 2003 have been derived from our audited consolidated financial statements. You should read this
information in conjunction with the "Selected Consolidated Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of this prospectus and our consolidated financial statements and the related notes elsewhere in
this prospectus. Our historical results are not necessarily indicative of results for any future period.
Three Months Ended
March
31,
Year Ended December
31,
2006
2005
2005
2004
2003
(unaudited)
(in thousands, except share and per share data)
Consolidated Statement of Operations Data:
Revenue
Term license revenue
$
415
$
652
$
9,729
$
6,260
$
2,439
Subscription, maintenance and
transaction fees
5,308
3,542
17,187
14,666
12,600
Professional services
3,103
1,786
11,680
7,102
5,488
Total revenue
8,826
5,980
38,596
28,028
20,527
Cost of revenue
3,555
3,268
15,315
13,072
9,331
Gross margin
5,271
2,712
23,281
14,956
11,196
Operating expenses
Sales and marketing
2,205
1,250
7,778
4,668
3,211
Research and development
1,561
600
2,627
3,243
3,903
General and administrative
2,475
1,804
9,707
6,320
4,343
Total operating expenses
6,241
3,654
20,112
14,231
11,457
(Loss) income from operations
(970
)
(942
)
3,169
725
(261
)
(Gain)
          loss on change
          in fair value of redeemable convertible preferred stock conversion
          options
(158
)
(118
)
4,334
1,850
(42
)
Interest
          expense, net
60
41
274
175
249
Loss before benefit for income taxes
(872
)
(865
)
(1,439
)
(1,300
)
(468
)
Benefit for income taxes
416
386
6,491
—
—
Net (loss) income
(456
)
(479
)
5,052
(1,300
)
(468
)
Accretion of convertible preferred shares and redeemable convertible preferred shares
(821
)
(644
)
(6,226
)
(2,983
)
(3,275
)
Loss available to common shareholders
$
(1,277
)
$
(1,123
)
$
(1,174
)
$
(4,283
)
$
(3,743
)
Loss per share available to common shareholders, basic and diluted
$
(0.19
)
$
(0.17
)
$
(0.18
)
$
(0.67
)
$
(0.60
)
Weighted average shares used to compute loss available to common shareholders per common share, basic and diluted
6,549,699
6,441,869
6,458,129
6,378,732
6,215,840
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The following table presents a summary of our unaudited balance sheet data as of March 31, 2006:
•
On an actual basis;
•
On a pro forma basis to give effect to:
•
the restoration of our Treasury shares to our authorized but unissued common stock;
•
the issuance of 2,480,476 shares and 2,243,861 shares of our common stock upon the conversion of 1,266,991 and 1,528,199 shares of our Series B and Series C preferred stock, respectively, (including the accrued and unpaid dividends thereon), pursuant to
conversion agreements with the holders of such shares;
•
the issuance of 435,000 shares of our common stock at a weighted average exercise price of $1.31 per share upon the exercise of outstanding warrants that would otherwise terminate upon the consummation of this offering;
•
the conversion of all outstanding shares of our Series A preferred stock, including the estimated accrued and unpaid dividends thereon immediately prior to the consummation of this offering, into 4,686,247 shares of our common stock, which will automatically
occur immediately prior to the consummation of this offering;
•
the conversion of all of the then outstanding shares of our Series B preferred stock and Series C preferred stock into 6,798,640 shares of our common stock, which will automatically occur immediately prior to the consummation of this offering;
•
the incurrence of an approximately $1.5 million charge due to the accretion on the Series A preferred stock, Series B preferred stock and Series C preferred stock after March 31, 2006; and
•
the use of approximately $9.3 million of the net proceeds of this offering to pay the accrued and unpaid dividends to the former holders of our Series B and Series C preferred stock upon the automatic conversion of such shares to common stock upon the
consummation of this offering.
•
On a pro forma as adjusted basis to give effect to the sale by us of                 shares of our common stock in this offering at an assumed initial public offering price of $        per share, the midpoint of the range set forth on the cover page of this prospectus, after deducting the
estimated underwriting discounts and commissions and our estimated offering expenses.
March
31, 2006
Actual
Pro Forma
Pro Forma
As Adjusted
(unaudited)
(in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents
$
4,612
$
(4,687
)
Total assets
33,025
33,025
Short-term
          debt
1,437
1,437
Deferred revenue
11,227
11,227
Total current liabilities
23,897
23,897
Long-term
          debt
2,479
2,479
Preferred stock
36,665
—
Total stockholders' (deficiency) equity
$
(33,240
)
$
951
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RISK FACTORS
Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below and all of the other information set forth in this prospectus before deciding to invest in shares of our common stock. If any of the events or
developments described below actually occur, our business, financial condition or results of operations could be negatively affected. In that case, the trading price of our common stock could decline, and you could lose all or part of your investment in our common stock.
Risks Related to our Business
Our business may not continue to grow if the size of the market for care management solutions and market acceptance of our solutions does not continue to grow.
Our growth is dependent upon the overall growth of the market for care management solutions, which is in the early stages of development and is rapidly evolving. In addition, our growth is dependent on the continued adoption of new software and technologies,
including electronic health records, by managed care organizations. In new and rapidly evolving industries such as ours, there is significant uncertainty and risk as to the demand for, and market acceptance of, recently introduced solutions and services. Achieving and
maintaining market acceptance for new or updated solutions and services is likely to require substantial marketing efforts and the expenditure of significant funds to create awareness and demand by potential customers. There can be no assurance that the revenue opportunities
from new or updated solutions and services will allow us to recover amounts we spend for their development, marketing and roll-out. If the market refuses to adopt our solutions or if a competitor develops a solution or service that is preferred by the market, the demand for
our solutions will decrease, and we may not be able to sustain or increase our levels of revenue or profitability in the future.
Consolidation in the healthcare industry could adversely affect our business, financial condition and results of operations.
Many healthcare industry participants are combining or considering combining with other participants to create fewer and larger customers and potential customers, each of which would likely have greater market power and leverage in negotiating contracts for our
solutions and services. Moreover, as provider networks and managed care organizations consolidate and the number of market participants decreases, competition to provide solutions and services such as ours will become more intense, and the importance of establishing
relationships with key industry participants will increase. These industry participants may try to use their market power to negotiate price reductions for our solutions and services. If we are forced to reduce our prices, our revenue would decrease and our profitability would
decline.
The reliance and adoption of electronic Patient Clinical Summaries by healthcare providers may not be widespread and there is no assurance that other competing solutions will not prove more attractive to healthcare providers.
Although our success in marketing our Patient Clinical Summaries will be measured by sales to healthcare payers, the growth of our revenue is reliant on the adoption of electronic Patient Clinical Summaries by doctors and other healthcare providers. In the future, there
may be more effective alternatives to our Patient Clinical Summaries for patient records, including solutions marketed by our competitors, physician sponsored electronic health records and other more traditional means of medical record storage. The future success of our
business model is, in large part, linked to the adoption by healthcare professionals of our Patient Clinical Summaries. If these professionals ultimately prefer a different method by which to gain medical information about their patients, then our results of operations and
financial condition could be adversely affected.
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If Regional Health Information Organizations do not gain widespread acceptance, our future growth and revenue may suffer.
Our growth prospects are dependent, in part, on the implementation of Regional Health Information Organizations as a facility for the retrieval of patient data and delivery of Patient Clinical Summaries. If federal, state and other regional legislative and regulatory
authorities delay or oppose implementing these clinical data exchanges, it will be more difficult for us to incorporate data from healthcare providers into our Patient Clinical Summaries. This limitation could negatively affect the usefulness of our products and could
significantly limit the growth of our market. In addition, this limitation could lead to greater competition for what would become a smaller market in which to license our current solutions, resulting in additional expenses in marketing our solutions and adverse effects on our
results from operations and our ability to provide Patient Clinical Summary based products. Furthermore, our solutions may not be well suited for the type of organization, if any, that ultimately gains widespread acceptance for the dissemination of patient health information.
This situation could cause us to incur additional expenses to customize our solutions to be acceptable to these new market participants without any short-term revenue, or future prospect of revenue, to cover these costs. As a result, we may not achieve our expected growth or
sustain or increase our revenue or profitability in the future.
Some of our customers compete with us, and some provide solutions that are similar to those we offer.
Some of our customers sell or license care management solutions that compete with ours or have current intentions to develop them. For example, some payer customers currently offer electronic data transmission services to healthcare providers that allow them to
download patient health information in a format similar to the format offered by our solutions through affiliated clearinghouses, Internet portals and other means of communications. In addition, some of our customers have extensive internal development resources and provide
their organizations with solutions similar to ours. For example, some of our customers internally develop functions such as patient analytics and data warehousing. The ability of payers to implement competing technology or to provide services similar to ours may adversely
affect our ability to sell our solutions to these entities or the terms and conditions we are able to negotiate in our agreements with them, which may lower the revenue and profits that we currently realize from these transactions.
If we fail to comply with broad patient privacy and medical information security laws and regulations, our business and financial condition will be adversely affected.
As part of the operation of our business, our customers provide us, or our solutions interface, with patient-identifiable medical information. Government legislation and industry rulemaking, particularly the Health Insurance Portability and Accountability Act of 1996, or
HIPAA, and standards and requirements published by industry groups such as the Joint Commission on Accreditation of Healthcare Organizations, require the use and implementation of security, privacy and other standards and requirements for the receipt, creation,
maintenance and transmission of certain electronic protected health information. Generally, HIPAA regulations directly affect what are referred to as Covered Entities. Most of our customers are Covered Entities, and we function in many of our relationships as a business
associate, under business associate agreements with those customers. The federal agencies charged with enforcement authority under HIPAA have taken the position that a Covered Entity can be subject to HIPAA penalties and sanctions for certain material breaches of a
business associate agreement. The penalties for a violation of HIPAA by a Covered Entity can be significant and include both civil and criminal penalties and fines and could have an adverse impact on our business, financial condition and results of operations, if such penalties
ever were imposed on customers of ours due to a defect in one of our solutions or the unauthorized release of patient-identifiable medical information. We have policies and procedures that we believe assure material compliance with all federal and state confidentiality
requirements for the handling of protected health information that we receive from Covered Entities and with our obligations under business associate agreements. If, however, we do not follow those policies and procedures, or if they are not sufficient to prevent the
unauthorized disclosure of protected health information, we could be subject to liability and lawsuits, termination of our customer contracts or our operations could be shut down.
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Moreover, because all HIPAA regulations are subject to change or interpretation and because certain other HIPAA standards are not yet published, we cannot predict the full future impact of HIPAA on our business and operations. In the event that the HIPAA
regulations and compliance requirements materially change or are interpreted in a way that requires any material change to the way in which we do business, our business, financial condition and results of operations could be adversely affected.
Furthermore, states may pass legislation regulating how a patient's medical information may be shared among payers and providers that are more stringent than the equivalent federal laws. The passage of state laws that affect information sharing may affect the ability of
our customers to use our solutions, therefore reducing demand for our solutions, which would negatively impact our revenue and financial condition. We may need to incur significant costs to monitor active state legislation and to lobby legislators to prevent the passage of state
legislation that would adversely affect our ability to sell our solutions.
If HIPAA regulations are changed to require patients to provide written consent to the sharing of their information for treatment and health care operations, our future growth and revenue may suffer.
Currently under HIPAA, written consent from patients is not required when sharing patient health information among Covered Entities and business associates for "treatment" purposes and "healthcare operations." Patients may choose to "opt out" of an information
sharing process, if desired, to protect their privacy. However, if federal or state legislation modifies existing privacy regulations to require a patient to provide written consent prior to any provider's or payer's retrieval of a patient's health care information from certain sources
for treatment or healthcare operations, it may significantly decrease the amount of information that we could gather in our Patient Clinical Summaries. This situation would decrease the usefulness of our Patient Clinical Summaries and the demand for such products. Any
decreased demand would reduce our future revenue and negatively impact our business and future growth.
Initiatives encouraging increased use of information technology in the healthcare sector may result in increased competition.
There are currently numerous federal, state and private initiatives and studies seeking ways to increase the use of information technology in healthcare to improve care while reducing costs. These and other initiatives may encourage more competitors to develop, sell or
license solutions and services to our current and potential customers. In addition, competition from information technology solutions and services made available to healthcare payers on a not-for-profit or other low-cost basis by or on behalf of governmental entities could have
an adverse impact on sales of our solutions and services. The effect that these initiatives may have on our business is difficult to predict, and we can provide no assurances that we will adequately respond to the increased competition resulting from these initiatives or that we
will be able to take advantage of any resulting opportunities.
Increased government involvement in the healthcare sector may limit the ability of potential customers to purchase and use our solutions.
Healthcare system reform in the United States under the Medicare Prescription Drug, Improvement and Modernization Act of 2003 and other federal and state initiatives, such as a national healthcare system, could increase government involvement in healthcare, lower
reimbursement rates and otherwise change the business environment of our customers and the other entities with which we have a business relationship and may limit their ability to purchase and use our solutions and services. We cannot predict whether or when future
healthcare reform initiatives at the federal or state level or other initiatives affecting our business will be proposed, enacted or implemented or the impact those initiatives may have on our business, financial condition or results of operations. Our customers and the other entities
with which we have a business relationship could react to these initiatives by curtailing or deferring purchases of our solutions and/or services. Additionally, government regulation could alter the manner in which physicians and other healthcare providers, hospitals, healthcare
payers and other healthcare participants provide care to patients, maintain patient medical information and interact with one another, thereby limiting the utility of our solutions and services to existing and potential customers and curtailing broad acceptance of our solutions and
services.
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Increased governmental regulation of the Internet could materially affect our business.
The Internet and its associated technologies are subject to significant government regulation. Given our use of the Internet to deliver our solutions and services, our failure, or the failure of our payer customers and business partners, to accurately anticipate the application
of laws and regulations affecting how we deliver our solutions and services, or any other failure to comply with such applicable laws and regulations, could create legal liability for us. This situation could result in adverse publicity or decreased revenue, each of which could
materially and adversely affect our business. In addition, new laws and regulations, or new interpretations of existing laws and regulations, may be adopted or implemented with respect to the Internet or other online services that may materially affect the way we and our
customers handle user privacy, patient confidentiality, consumer protection and other similar issues. Such adoption or implementation could cause our current solutions or services to fail to comply with then applicable laws or regulations, and would require the revision of our
current solutions or services or the development of new solutions or services in compliance with such laws or regulations. Such revision or new development could be costly and take a significant amount of time which could reduce our revenue and profitability and otherwise
materially adversely affect our financial condition.
New laws and regulations or new interpretations of existing laws and regulations could impact the rates charged by Internet service providers to companies such as ours. Such laws and regulations could result in increased costs to provide our solutions to our customers,
which could reduce our profitability and otherwise materially adversely affect our financial condition.
We may be liable for the misdiagnoses, mistreatment, injury or other harm to patients resulting from the use of data that we provide to healthcare providers.
We provide, and facilitate providing, information for use by healthcare providers in treating patients. Our healthcare payer customers' data is the primary source of a majority of this information. If this data is incorrect or incomplete, the patient could be misdiagnosed or
mistreated resulting in adverse consequences, including death, giving rise to claims against us. In addition, certain of our solutions relate to patient health information, and a court or government agency may take the position that our delivery of this information, including
through licensed physicians or other healthcare providers, exposes us to personal injury liability or other liability for wrongful delivery or handling of healthcare services or erroneous health information. While we maintain liability insurance coverage in an amount that we
believe is sufficient for the risks associated with our business, we cannot assure you that this coverage will prove to be adequate or will continue to be available on acceptable terms, if at all. A claim brought against us that is uninsured or under-insured could harm our
business, financial condition and results of operations. Even unsuccessful claims could result in substantial costs and diversion of management resources and could cause the trading price of our common stock to decline.
We derive a significant portion of our revenue from a limited number of customers, and if we are unable to maintain these customer relationships or attract additional customers, our revenue will be adversely affected.
Our sales to Health Care Service Corporation and its affiliates, on an aggregate basis, accounted for approximately 25% of our revenue for fiscal year 2005. Collectively, our top five customers accounted for approximately 50% of our revenue for the fiscal year 2005.
Although we are seeking to broaden our customer base, we anticipate that a small number of customers will continue to account for a large percentage of our revenue. The loss of one or more of our key customers, or fewer or smaller orders from them, would adversely affect
our revenue.
In addition, the number of potential customers in the electronic healthcare information market is limited, and therefore our total customer base is limited. As of March 31, 2006, we had contracts with 45 entities that represented approximately 56 regional and national
managed care organizations. If we lose one contract, we may lose more than one entity as a customer. Our contracts with our customers are typically five-year agreements. We do, however, enter into contracts with our customers that do not require long-term commitments,
such as annual maintenance contracts or contracts for our transactional solutions. If we are not
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able to attract additional customers, license new solutions to our existing customers or obtain contract renewals from our customers, our revenue could decline.
We derive a significant portion of our revenue from recurring revenue streams, and if we are unable to maintain these customer relationships, our revenue will be adversely affected.
Each of our license agreements with third-party customers provides us with a revenue stream that generally recurs. Historically, a substantial portion of our customers have renewed their licenses at the end of each license term, which is typically five years. During the
year ended December 31, 2005, our customers renewed approximately 100% of the aggregate contract value up for renewal during that period. The combination of recurring revenue and high renewal rates has provided us with a substantial annual revenue base. However, our
customers may not continue to renew at this rate, and if they do renew, the value of the contracts may be less. Thus, there is no assurance we will be able to sustain these renewal rates, and if we are unable to sustain them, our revenue and profits could be adversely affected.
We have grown rapidly, and if we fail to manage our growth, our business may suffer.
Although we commenced operations 17 years ago, recently we have experienced, and continue to experience, significant growth in our operations. This growth has entailed hiring key personnel, developing and introducing several new products into the market and
establishing new customer and licensing relationships. We anticipate further expansion of our operations to address our potential growth as we continue to address market opportunities. This expansion has placed, and we expect will continue to place, a substantial strain on our
management, operational and financial resources. In order to manage future growth, we will be required to improve existing, and to implement new, operating and management systems, procedures and controls. We also need to hire, train and manage additional qualified
personnel. A significant factor in our growth has been a substantial increase in consumer demand for our products. If we do not effectively manage our growth, we may not adequately satisfy this demand. In addition, the quality of our offerings or our ability to develop and
bring our offerings to market on a timely or cost effective basis could suffer. This could negatively impact our reputation, revenue and results of operations.
We have a history of losses and cannot assure you that we will remain profitable, and as a result, we may have to cease operations and liquidate our business.
Our expenses have exceeded our revenue
    in three of the last five years, and no net income has been available to
    common shareholders in any of the last five years. Our stockholders' deficiency
    on March 31, 2006 was $33.2 million. Our future profitability depends
    on  revenue continuing to exceed expenses, but we cannot ensure that this
    will continue. If it does not continue, we could be forced to curtail operations
    and sell or liquidate our business, and you could lose some or all of your
    investment.
We have a history of quarterly fluctuations in our revenue and operating results and expect these fluctuations to continue, which may result in volatility in our stock price.
As a result of fluctuations in our revenue and operating expenses, our quarterly operating results may vary significantly. We may not be able to curtail our spending quickly enough if our revenue falls short of our expectations. We expect that our operating expenses will
increase substantially in the future as we expand our selling and marketing activities, increase our new product development efforts and hire additional personnel. Our operating results may fluctuate in the future as a result of the factors described below and elsewhere in this
prospectus:
•
customers' budgetary constraints and the procedures that they must follow in order to purchase solutions and services;
•
the existence and growth of markets for our solutions and services;
•
potential reductions in the funds available to pay for our solutions;
•
the size and timing of orders from customers;
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•
the specific mix of software and services in customer orders;
•
the period of time necessary for a customer to select and purchase our solutions;
•
changes in pricing policies by us or our competitors;
•
the timing of new solution announcements and solution introductions by us or our competitors;
•
changes in revenue recognition or other accounting guidelines employed by us and/or established by the Financial Accounting Standards Board or other rule making bodies;
•
the financial stability of our customers;
•
our ability to develop, introduce and market new solutions, applications and solution enhancements;
•
market acceptance of new solutions, applications and solution enhancements;
•
our success in expanding our sales and marketing programs;
•
deferrals of customer orders in anticipation of new solutions;
•
execution of, or changes to, our strategy; and
•
general market and economic conditions affecting businesses generally.
Lengthy sales cycles for some of our solutions and the adoption of transaction-based solutions may result in unanticipated fluctuations in the revenue that we receive from such solutions.
The duration of the sales cycle for our solutions and services is difficult to predict and depends on a number of factors, including the nature and size of the potential customer and the size of the purchase contemplated by the potential customer. Our sales and marketing
efforts with respect to healthcare payers generally involve a lengthy sales cycle due to these organizations' complex decision-making processes. Additionally, in light of increased governmental involvement in the healthcare industry and related changes in the operating
environment for healthcare organizations, our current and potential customers may react to these changes by curtailing or deferring investments, including those for our products and services. If potential customers take longer than we expect to decide whether to purchase our
solutions or to adopt our transaction-based solution, the expenses we incur in attempting to market our solutions could increase and our revenue could decrease, which could harm our business, financial condition and results of operations and the trading price of our common
stock could decline.
If our information systems or the Internet experience security breaches or are otherwise perceived to be insecure, our business could suffer.
The difficulty of securely transmitting confidential information and patient-related personal health information over the Internet has been a significant barrier to existing or potential customers' willingness to engage in communications over the Internet. Our business
model relies on our customers' ability and willingness to use the Internet to transmit confidential patient health information. Any compromise of Internet security may deter customers from using the Internet for these purposes and from using our solutions or services.
We may be required to expend significant capital and other resources to protect against security breaches and hackers or to alleviate problems caused by breaches. Despite the implementation of security measures, it also is possible that third-parties could penetrate the
network security of our solutions or otherwise misappropriate confidential patient health information and other data that may be stored on or transmitted using our solutions. In that event, our operations could be interrupted, and we could be subject to allegations of liability and
the effects of regulatory action. We may need to devote significant financial and other resources to defend ourselves from such allegations, to protect against security breaches and to alleviate problems caused by such breaches, whether or not such breaches were a result of a
deficiency in our solutions or services.
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Consumer groups with concerns about privacy issues relating to the use and storage of personally-identifiable data, such as patient medical information, may influence healthcare professionals to refrain from adopting our solutions.
Consumer sentiment regarding healthcare privacy issues is constantly evolving. Such consumer sentiment may affect our customers' interest in our current or future products. In some cases, consumer groups and individual consumers have already begun to express
concern over the storage and/or use of personally-identifiable patient information. Accordingly, privacy concerns of consumers may influence healthcare professionals to refrain from adopting our solutions, which could in turn harm our prospects. Moreover, strong consumer
attitudes may precipitate significant adverse opinions, which may lead to new regulations. If we fail to successfully monitor and address the privacy concerns of consumers, our business and prospects would be harmed.
We must develop and implement new or updated solutions and services in order to generate revenue from existing and new customers and compete effectively against our competitors.
We must introduce and license new solutions and improve the functionality of our existing core solutions and services in a timely manner in order to retain existing customers and attract new customers. The pace of change in the markets we serve is rapid, and there are
frequent new solution and service introductions by our competitors and by vendors whose solutions and services we use in providing our own solutions and services. If we do not successfully identify and respond to technological and regulatory changes and evolving industry
standards in a timely manner, our core solutions and services may become obsolete or unattractive to potential or existing customers. Technological changes also may result in the offering of competitive solutions and services at prices lower than we are charging for ours,
which could result in our losing sales unless we lower our prices. Furthermore, our development and implementation of proposed solutions and services may take longer and cost more than originally expected, requiring more testing than anticipated and the addition of
personnel and other resources. Any such failure or delay could adversely affect our competitive position and our profitability or could make our current solutions obsolete or unattractive to potential or existing customers.
Competition for our employees is intense, and we may not be able to attract and retain the highly skilled employees that we need to support our business.
The industry in which we operate is characterized by a high level of employee mobility and aggressive recruiting of skilled personnel. There can be no assurance that our current employees will continue to work for us. Our ability to provide high-quality solutions to our
customers depends in large part upon our employees' experience and expertise. We must attract and retain highly qualified personnel, including doctors and nurses, with a deep understanding of the healthcare and healthcare information technology industries. We compete with
a number of companies for experienced personnel and many of these companies, including customers and competitors, have greater resources than we have and may be able to offer more attractive terms of employment. In addition, we invest significant time and expense in
training our employees, which increases their value to customers and competitors who may seek to recruit them and increases the costs of replacing them. If we fail to retain our employees, the quality of our products and services and our ability to provide such products and
services could diminish and this could have a material adverse effect on our business, financial condition and results of operations and as a result, the trading price of our common stock may decline.
If we lose the services of our key personnel, we may be unable to replace them, and our business, financial condition and results of operations could be adversely affected.
Our success largely depends on the continued skills, experience, efforts and policies of our management and other key personnel and our ability to continue to attract, motivate and retain highly qualified employees. In particular, the services of David St. Clair, our
Chairman of the Board of Directors and Chief Executive Officer; John H. Capobianco, our President and Chief Operating Officer; and Carl Smith, our Executive Vice President and Chief Financial Officer are integral to the execution of our business strategy. If one or more of
our key employees leaves our employment, we will have to find a replacement with the combination of skills
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and attributes necessary to execute our strategy. Because competition for skilled employees is intense, and the process of finding qualified individuals can be lengthy and expensive, we believe
that the loss of the services of key personnel could adversely affect our business, financial condition and results of operations. We cannot assure you that we will continue to retain such
personnel.
Our failure to compete successfully could cause our revenue or market share to decline.
The market for our solutions and services is intensely competitive and is characterized by rapidly evolving industry standards, technology and user needs and the frequent introduction of new solutions and services. Some of our competitors may be more established,
benefit from greater name recognition and have substantially greater financial, technical and marketing resources than we do. In addition, a number of companies new to our market have introduced or developed solutions and services that are competitive with one or more
components of the solutions that we offer. We expect that additional competitors will continue to enter this market. Moreover, we expect that competition will continue to increase as a result of consolidation in both the information technology and healthcare technology
industries. If one or more of our competitors or potential competitors were to merge or partner with one of our competitors, the change in the competitive landscape could adversely affect our ability to compete effectively. Furthermore, our potential customer base is composed
of a limited number of healthcare insurance payers. This limited number of potential customers, and the fact that many of our competitors already may have an existing relationship with many of them, is likely to further increase the level of competition within our industry and
may lead to increased price competition. We compete on the basis of several factors, including:
•
solution depth and functionality;
•
ease of deployment, integration and configuration;
•
domain expertise;
•
depth of clinical content;
•
service support;
•
solution price;
•
breadth of sales infrastructure; and
•
breadth of customer support.
There can be no assurance that we will be able to compete successfully against current and future competitors or that the competitive pressures that we face will not materially adversely affect our business, financial condition and results of operations.
Acquisitions, business combinations and other transactions may be difficult to complete and, if completed, may have negative consequences for our business and our shareholders.
We may pursue acquisitions of existing companies in order to grow our business and to diversify our solutions and services if we determine that such acquisitions are likely to serve our strategic goals. We cannot assure you that we will be able to locate any suitable
acquisition opportunities. Further, even if we find such opportunities, we cannot assure you that we will be able to integrate successfully any future acquisitions, that these acquired companies will operate profitably or that we will realize the potential benefits from these
acquisitions. To date, our Company and its management has had limited experience with the integration of acquired businesses. If we do not successfully integrate acquired companies, the attention of our management may be diverted and our business, financial condition and
results of operations could be adversely affected.
Complex software such as ours often contains undetected defects or errors, which could lead to an increase in our costs or a reduction in our revenue.
It is possible that errors may be found in our solutions after the introduction of new software or enhancements to existing software have been made. We continually introduce new solutions and
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enhancements to our solutions, and, despite testing by us, it is possible that errors might occur in our software. If we detect any errors before we introduce a solution, we might have to delay
deployment for an extended period of time while we address the problem. If we do not discover software errors that affect our new or current solutions or enhancements until after they are
deployed, we would need to provide enhancements to correct such errors. Errors in our software could result in:
•
harm to our reputation;
•
lost sales;
•
delays in commercial release;
•
solution liability claims;
•
delays in or loss of market acceptance of our solutions;
•
license terminations or renegotiations; and
•
expenses and diversion of resources to remedy errors.
Furthermore, our customers might use our software solutions together with solutions from other companies. As a result, when problems occur, it might be difficult to identify the software solution that is the source of the problem. Even when our software solutions do not
cause these problems, the existence of these errors might cause us to incur significant costs, divert the attention of our technical personnel from our solution development efforts, impact our reputation and cause significant customer relations problems.
If we are deemed to infringe on the proprietary rights of third-parties, we could incur unanticipated expenses and be prevented from providing our solutions and services.
Many participants in our industry have an increasing number of patents and patent applications, as well as copyrights and trade secrets, and have frequently demonstrated a readiness to take legal action based on allegations of patent and other intellectual property
infringement. We could face an adverse claim and litigation alleging infringement by us of the intellectual property rights of others.
We could be subject to intellectual property infringement claims for our current or future solutions and services if our solutions' functionality overlaps with competitive solutions. While we do not believe that we have infringed or are infringing on any proprietary rights
of third-parties, we cannot assure you that infringement claims will not be asserted against us or that those claims will be unsuccessful.
If infringement claims are brought against us, we would likely incur substantial costs and suffer the diversion of management resources defending any infringement claims. We cannot be certain that we will have the financial resources to defend ourselves against any
patent or other intellectual property litigation. If we were found to infringe on the intellectual property rights of others, we might be forced to pay significant license fees or royalties or damages for infringement, including, if the claimant successfully claims willful
infringement, potential treble damages. Moreover, we cannot assure you that a license for any intellectual property of third-parties that might be required for the operation of our solutions or services will be available on commercially reasonable terms, or at all. In addition, we
could be forced to stop providing certain solutions and services or using certain technology or trademarks if we are enjoined or face an injunction from a court, or our use of such items could be restricted on terms that we find unacceptable. Even the mere announcement of
intellectual property litigation against us could cause our stock price to drop, regardless of the ultimate outcome of the dispute. We would likely incur substantial costs and suffer the diversion of management resources defending any infringement claims. Furthermore, a party
making a claim against us could secure a judgment awarding substantial damages, as well as injunctive or other equitable relief that could effectively block our ability to provide solutions or services. In addition, we cannot assure you that licenses for any intellectual property
of third-parties that might be required for the operation of our solutions or services will be available on commercially reasonable terms, or at all.
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Our failure to license and effectively integrate third-party technologies could harm our business.
For some of the technology that is used in our solutions and in providing our services, we depend upon licenses from third-party vendors. We must continue licensing those technologies to operate and license our solutions and to service our customers. These
technologies might not continue to be available to us on commercially reasonable terms, if at all. Most of these licenses are for a limited duration and can be renewed only by mutual consent. In addition, most of these licenses may be terminated if we breach the terms of the
license and fail to cure the breach within a specified period of time. Our inability to obtain any of these licenses could delay development of new solutions and services or cause us to cease operating one or more solutions or services until equivalent replacement technology can
be identified, licensed and integrated. There is no assurance that we would be able to find an equivalent replacement technology, and, if we did, the resources required to obtain and implement an equivalent replacement technology could be significant and could harm our
business, financial condition and results of operations.
Most of the technology that we license from third-parties is licensed pursuant to agreements that are non-exclusive. Therefore, our competitors may obtain the right to use the technology covered by such licenses and use the technology to compete directly with us. Our
use of third-party technologies exposes us to increased risks, including, but not limited to, risks associated with the integration of such technology into our solutions and services, the diversion of our resources from the development of our own proprietary technology and our
inability to generate revenue from such licensed third-party technology sufficient to offset associated acquisition and maintenance costs. In addition, if our vendors choose to cease providing any of our licensed third-party technology or discontinue support of the licensed third-
party technology in the future, we might not be able to offer our related modules and services. Furthermore, if these third-parties are unsuccessful in their continued research and development efforts or we are unsuccessful in our internal technology development efforts, we
might not be able to modify or adapt our own solutions to effectively compete in our industry.
We have limited intellectual property protection and may be unable to adequately protect or enforce our intellectual property rights. This could substantially impair our ability to compete and achieve our business goals.
Our success and business plan are predicated on our proprietary systems and technology. Accordingly, protecting our intellectual property rights related to our systems and technology is critical to our continued success and our ability to maintain our competitive position.
We protect our proprietary systems through a combination of trademark, trade secret and copyright law, confidentiality agreements and technical measures. We currently have one pending patent application and we also filed an application under the Patent Cooperation Treaty,
which preserves our rights to seek a corresponding patent in certain foreign countries should we determine that foreign patent protection is desirable. However, we can give no assurance that such patents will ever be issued or, if such patents are issued, that their claims will
have sufficient scope to ensure protection of any of our solutions or services or to offer a competitive advantage. We cannot be sure that the steps we have taken will prevent misappropriation of our technology or infringement of our intellectual property rights. We cannot
ensure that others will not independently develop similar or alternative technologies or duplicate any of our or our licensors' technologies, or that we will develop additional proprietary technologies that are patentable or protectable intellectual property. In addition, the process
of completing patents could divert our resources away from designing new solutions or otherwise developing our solutions.
To protect our intellectual property rights, we may in the future need to assert claims of infringement or misappropriation of such rights against third-parties. The outcome of litigation to enforce our intellectual property rights is highly unpredictable, could result in
substantial costs and diversion of resources and could have a material adverse effect on our financial condition and results of operations regardless of the final outcome of such litigation. Such infringement or misappropriation of our intellectual property would have an adverse
effect on our competitive position. We may also have to engage in litigation in the future to enforce or protect our intellectual property rights or to defend against claims of invalidity, and we may likely incur substantial out of pocket costs and the diversion of management's
time and attention in so doing.
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Despite our efforts to protect our unpatented and unregistered intellectual property rights, we may not be successful or the safeguards may not be adequate to detect or deter misappropriation of our technology or to prevent an unauthorized third-party from copying or
otherwise obtaining and using our products, technology or other information that we regard as proprietary. Policing unauthorized use of our solutions, services and proprietary technology is very difficult, and nearly impossible on a worldwide basis. If we are not able to protect
our intellectual property rights or if our intellectual property is otherwise impaired, it could result in significant harm to our future growth plans and the success of our business could be materially and adversely affected.
Factors beyond our control could cause interruptions in our operations, which would adversely affect our reputation in the marketplace and our business, financial condition and results of operations.
To succeed, we must be able to operate our systems without interruption. Certain of our communications and information services are provided through our third-party service providers, which we do not control. Our operations are vulnerable to interruption by damage
from a variety of sources, many of which are not within our control, including without limitation:
•
power loss and telecommunications failures;
•
software and hardware errors, failures or crashes;
•
loss or interruption of Internet access;
•
computer viruses and similar disruptive problems; and
•
fire, flood and other natural disasters.
Any significant interruptions in our services or operations would damage our reputation in the marketplace, may result in liability to our customers and have a negative impact on our business, financial condition and results of operations.
Performance problems with our solutions or services or our customers' system failures, whether caused by hardware, software or other problems, could cause us to lose business or incur liabilities.
Our customer satisfaction and our business could be harmed if our customers experience transmission delays or failures or loss of data in their systems as a result of our solutions or services. These systems, and the software used in these systems, are complex and,
despite testing and quality control, we cannot be certain that problems will not occur or that they will be detected and corrected promptly and permanently when they do occur.
We have developed contingency plans for handling customer system failures and other customer emergencies; however, we have limited backup facilities if these systems are not functioning. The occurrence of a major catastrophic event or other system failure at any of
our facilities or at one of our third-party facilities could interrupt our services or result in the loss of stored data, which could have a material adverse impact on our business or cause us to incur material liabilities. If we are unable to deliver our solutions to our customers as a
result of the failure of a customer's system, our inability to deliver will negatively impact our financial condition. Although we maintain insurance for our business, we cannot assure that our insurance will be adequate to compensate us for all losses that may occur or that this
coverage will continue to be available on acceptable terms or in sufficient amounts.
We may not generate sufficient future taxable income to allow us to realize our deferred tax assets.
We have a significant amount of tax loss carryforwards that will be available to reduce the taxes we would otherwise owe in the future. We have recognized the value of a portion of these future tax deductions in our consolidated balance sheet at December 31, 2005.
The realization of our deferred tax assets is dependent upon our generation of future taxable income during the periods in which we are permitted, by law, to use those assets. We exercise judgment in evaluating our ability to realize the recorded value of these assets, and
consider a variety of factors, including the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Our evaluation of the
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realizability of deferred tax assets must consider both positive and negative evidence, and the weight given to the potential effects of positive and negative evidence is based on the extent to
which the evidence can be verified objectively. While we believe that sufficient positive evidence exists to support our determination that the realization of a portion of our deferred tax assets is
more likely than not, we cannot assure you that we will have profitable operations in the future that will allow us to fully realize those assets.
Our auditors reported to us that there was a material weakness in our internal controls over financial reporting.
Our independent auditors identified and informed us that we had a material weakness (as defined under the standards established by the Public Company Accounting Oversight Board – U.S.) with respect to our accounting and reporting of certain complex transactions.
As a result of this material weakness, we restated our financial statements as of and for the years ended December 31, 2004 and 2003. Our selected financial data as of and for the years ended December 31, 2002 and 2001 were derived from financial statements which we
restated as a result of this material weakness and which were audited by Grant Thornton, LLP, our independent auditors.
To address this material weakness and those weaknesses identified by our former independent registered public accounting firm discussed elsewhere in this prospectus, we have expanded our accounting staff with additional skills and experience and have begun to engage
outside professionals to provide support and guidance in areas where we cannot economically maintain the required skills and experience internally. Although these measures are designed to address the issues raised by our independent auditors, and we intend to continue the
expansion of our accounting staff and engagements of outside professionals if and as we believe necessary, these and any future measures may not enable us to remedy this material weakness or avoid other deficiencies in the future. In addition, this material weakness and any
other deficiencies will need to be addressed as part of the evaluation of our internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 and may impair our ability to comply with Section 404. See the immediately following risk factor
in this prospectus regarding our reporting obligations and internal controls over financial reporting.
If we fail to comply with the reporting obligations of the Securities Exchange Act of 1934 and Section 404 of the Sarbanes-Oxley Act of 2002, or if we fail to achieve and maintain adequate internal controls over financial reporting, our business results of operations and financial
condition, and investors' confidence in us, could be materially adversely affected.
As a public company, we will be required to comply with the periodic reporting obligations of the Securities Exchange Act of 1934, including preparing annual reports, quarterly reports and current reports. Our failure to prepare and disclose this information in a timely
manner could subject us to penalties under federal securities laws, expose us to lawsuits and restrict our ability to access financing. In addition, we will be required under applicable law and regulations to integrate our systems of internal controls over financial reporting. We
plan to evaluate our existing internal controls with respect to the standards adopted by the Public Company Accounting Oversight Board. During the course of our evaluation, we may identify areas requiring improvement and may be required to design enhanced processes and
controls to address issues identified through this review. This could result in significant delays and costs to us and require us to divert substantial resources, including management time from other activities.
We expect to dedicate significant management, financial and other resources in connection with our compliance with Section 404 of the Sarbanes-Oxley Act of 2002 in the second half of 2006 and in 2007. We expect these efforts to include a review of our existing
internal control structure. As a result of this review, we may either hire or outsource additional personnel to expand and strengthen our finance function. We cannot be certain at this time that we will be able to comply with all of our reporting obligations and successfully
complete the procedures, certification and attestation requirements of the Section 404 of the Sarbanes-Oxley Act of 2002 by the time that we are required to file our annual report on Form 10-K for the year ended December 31, 2007. If we fail to achieve and maintain the
adequacy of our internal controls and do not address the deficiencies identified by our auditors, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with the
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Sarbanes-Oxley Act of 2002. Moreover, effective internal controls are necessary for us to produce reliable financial reports and are important to help prevent fraud. As a result, our failure to
satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 on a timely basis could result in the loss of investor confidence in the reliability of our financial statements, which in
turn could harm our business and negatively impact the trading price of our common stock.
Risks Related to our Offering
We will incur significant increased costs as a result of operating as a public company, and our management and key employees will be required to devote substantial time to new compliance initiatives.
We have never operated as a public company. As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002, as well as new rules and regulations
implemented by the Securities and Exchange Commission and the NASDAQ Global Market, impose various new requirements on public companies, including requiring changes in corporate governance practices. Our management and other personnel will devote substantial
amounts of time to these new compliance initiatives. These rules and regulations will significantly increase our legal and financial compliance costs and will make some activities more time-consuming and costly. We will also incur additional costs associated with our public
company reporting requirements and the remediation of any material weaknesses we identify through these efforts. We expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be
required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. We currently are evaluating and monitoring developments with respect to these rules and regulations, and we cannot predict or estimate the amount
of additional costs we may incur or the timing of such costs. If our profitability is adversely affected because of these additional costs, it could have a negative effect on the trading price of our common stock.
We cannot assure you that a market will develop for our common stock or what the market price of our common stock will be.
Before this offering, there was no public trading market for our common stock, and we cannot assure you that one will develop or be sustained after this offering. If a market for our common stock does not develop or is not sustained, it may be difficult for you to sell
your shares of common stock at an attractive price, if at all. We cannot predict the prices at which our common stock will trade. The initial public offering price for our common stock will be determined through our negotiations with the underwriters and may not bear any
relationship to the market price at which our common stock will trade after this offering or to any other established criteria of the value of our business. It is possible that, in future quarters, our operating results may be below the expectations of securities analysts and
investors. As a result of these and other factors, the price of our common stock may materially decline.
Anti-takeover provisions of Pennsylvania law and our articles of incorporation and bylaws could delay and discourage takeover attempts that shareholders may consider to be favorable.
Certain provisions of our amended and restated articles of incorporation and second amended and restated bylaws that will be in effect upon completion of this offering and applicable provisions of the Pennsylvania Business Corporation Law may make it more difficult
for a third-party to, or prevent a third-party from, acquiring control of us or effecting a change in our board of directors and management. These provisions include:
•
the classification of our board of directors into three classes, with one class elected each year;
•
a prohibition on cumulative voting in the election of directors;
•
the ability of our board of directors to issue preferred stock without shareholder approval;
•
the ability of our shareholders to take action only at a meeting of our shareholders and not by written consent;
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•
the prohibition on shareholders calling a special meeting of our shareholders;
•
the requirement that shareholders comply with advance notice procedures in order to nominate candidates for election to our board of directors or to provide shareholder proposals for consideration at any meeting of our shareholders; and
•
the prohibition of our entering into certain business combinations with holders of 20% or more of our voting securities without prior approval of our board of directors, unless a majority of our disinterested shareholders approves the transaction.
The Pennsylvania Business Corporation Law further provides that because our amended and restated articles of incorporation and second amended and restated bylaws provide for a classified board of directors, shareholders may remove directors only for cause. These
and other provisions of the Pennsylvania Business Corporation Law and our amended and restated articles of incorporation and second amended and restated bylaws could delay, defer or prevent us from experiencing a change of control or changes in our board of directors and
management and may adversely affect our shareholders' voting and other rights. Any delay or prevention of a change of control transaction or changes in our board of directors and management could deter potential acquirers or prevent the completion of a transaction in which
our shareholders could receive a substantial premium over the then current market price for their shares of our common stock.
The price of our common stock may be highly volatile.
In the past several years, technology stocks have experienced high levels of volatility and significant declines in value from their historic highs. The trading price of our common stock following this offering may fluctuate substantially. The price of our common stock
that will prevail in the market after this offering may be higher or lower than the price you pay to purchase shares of our common stock. The prevailing price depends on many factors, some of which are beyond our control and may not be related to our operating performance.
These fluctuations could cause you to lose all or part of your investment in our common stock. Factors that could cause fluctuations in the trading price of our common stock include the following:
•
price and volume fluctuations in the overall stock market from time to time;
•
significant volatility in the market price and trading volume of software companies in general, and healthcare information software companies in particular;
•
actual or anticipated changes in our earnings or fluctuations in our operating results;
•
actual or anticipated changes in the expectations of securities analysts;
•
general economic conditions and trends affecting the United States and/or the world economy generally;
•
the success of our competitors and fluctuations in their stock prices;
•
major catastrophic events;
•
sales of large blocks of our stock; and
•
departures of key personnel.
In the past, following periods of volatility in the market price of a company's securities, securities class action litigation has often been brought against that company. If our stock price is volatile, we may become the target of securities litigation. Securities litigation
could result in substantial costs and divert our management's attention and resources from our business, which could cause the trading price of our common stock to decline.
Sales of outstanding shares of our common stock into the market in the future could cause the market price of our common stock to drop significantly, even if our business is doing well.
If our existing shareholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market after the 180-day contractual lock-up and other legal restrictions on resale
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discussed in this prospectus lapse, the trading price of our common stock could decline below the initial public offering price. After this offering, approximately                             shares of our common
stock will be outstanding, assuming no exercise of the underwriters' overallotment option. Of these shares,         shares of our common stock (including the shares of our common stock sold in
this offering) will be freely tradable, without restriction, in the public market. Cowen and Company, LLC may, in its sole discretion, permit our directors, officers, employees and current
shareholders who are subject to the 180-day contractual lock-up to sell shares prior to the expiration of the lock-up agreements. The lock-up is subject to extension under certain circumstances.
See "Shares Eligible for Future Sales—Lock-Up Agreements" elsewhere in this prospectus.
After the lock-up agreements pertaining
    to this offering expire 180 days from the date of this prospectus, up to
    an additional 29,539,057 shares will be eligible for sale in the public market,
    17,545,206 of which are held by directors, executive officers and other affiliates
    and
    will be subject to volume limitations under Rule 144 under the Securities
    Act of 1933 as amended, or the Securities Act, and various vesting agreements.
    In addition, the shares subject to outstanding warrants and the shares underlying
    options that are either subject to the
terms of our Amended and Restated Stock Option Plan or our Series C Stock Equity
    Incentive Plan or reserved for future issuance under our 2006 Equity Incentive
    Plan will become eligible for sale in the public market to the extent permitted
    by the provisions of various option agreements and warrants, the lock-up
    agreements and Rules 144 and 701 under the Securities Act. If these additional
    shares are sold, or if it is perceived that they will be sold, in the public
    market, the trading price of our common stock could decline. For additional
  information, see "Shares Eligible for Future Sale."
If you purchase shares of our common stock in this offering, you will experience substantial and immediate dilution.
If you purchase shares of our common stock in this offering, you will experience substantial and immediate dilution of $        per share, because the price that you pay will be substantially greater than the net tangible book value per share of our common stock that you
acquire. This dilution is due in large part to the fact that our earlier investors paid substantially less than the initial public offering price when they purchased their shares of our capital stock. You will experience additional dilution upon the exercise of options to purchase
common stock under our equity incentive plans, if we issue restricted stock or other equity-based incentives to our employees under these plans or if we otherwise issue additional shares of our common stock.
If research analysts fail to research or publish reports about our business or if they issue unfavorable commentary or fail to recommend the purchase of our common stock, the price of our common stock could decline.
The trading market for our common stock will depend in part on the research performed by, and the reports published by, research analysts concerning our business. These research analysts are independent and are outside of our and our underwriters' control. The
trading price of our common stock could decline if research analysts fail to research and publish, cease publishing or publish negative reports on our business or otherwise fail to recommend the purchase of our common stock.
We do not intend to pay dividends to our common shareholders for the foreseeable future.
We have never declared or paid any dividends on our common stock and do not intend to do so for the foreseeable future. We intend to retain all of our earnings for the foreseeable future to finance the operation and expansion of our business. As a result, you may only
receive a return on your investment in our common stock if the market price of our common stock increases. See "Dividend Policy" elsewhere in this prospectus.
We have broad discretion in the use of the net proceeds of this offering.
We intend to use approximately $9.3 million of the net proceeds from this offering to pay accrued and unpaid dividends to the former holders of our Series B and Series C preferred stock upon the automatic conversion of such shares to common stock upon the
consummation of this offering. We intend to use the remaining net proceeds from this offering, as determined by our management in its sole discretion, for
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general corporate purposes, including working capital needs and potential strategic acquisitions and investments. We have not determined the specific allocation of the net proceeds of this
offering among these additional uses. Our management will have broad discretion over the use and investment of the net proceeds of this offering, and, accordingly, investors in this offering will
need to rely upon the judgment of our management with respect to the use of proceeds, with only limited information concerning management's specific intentions.
Insiders will continue to have substantial control over us after this offering, which could limit your ability to influence the outcome of key transactions, including a change of control.
Our directors, executive officers and each of our shareholders who own greater than 5% of our outstanding common stock and their affiliates, in the aggregate, will beneficially own approximately        % of the outstanding shares of our common stock after this offering.
As a result, these shareholders, if acting together, would be able to influence or control matters requiring approval by our shareholders, including the election of directors and the approval of mergers, acquisitions or other extraordinary transactions. They may also have interests
that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests. This concentration of ownership may have the effect of delaying, preventing or deterring a change of control of our company, could deprive our shareholders of
an opportunity to receive a premium for their common stock as part of a sale of our company and might ultimately affect the market price of our common stock.
We may issue additional securities in the future, including shares, debt or equity-linked debt, which may depress our stock price.
Our issuance of additional securities could:
•
cause substantial dilution of the percentage ownership of our shareholders at the time of the issuance;
•
cause substantial dilution of our earnings per share;
•
subject us to the risks associated with increased leverage, including a reduction in our ability to obtain financing or an increase in the cost of any financing we obtain;
•
subject us to restrictive covenants that could limit our flexibility in conducting future business activities; and
•
adversely affect the prevailing market price for our outstanding securities.
We do not intend to seek security holder approval for any such acquisition or security issuance unless required by applicable law or regulation or the terms of existing securities. If these securities are issued, such issuances may cause the trading price of our stock to
decline.
We may not be able to raise additional funds on terms that are acceptable to us when such funds are needed for our business or to exploit opportunities.
Our future liquidity and capital requirements will depend upon numerous factors, including the success of our businesses, our existing and new solutions and service offerings, competing technologies and market developments, potential future acquisitions and additional
repurchases of our common stock. We may need to raise additional funds to support expansion, develop new or enhanced solutions and services, respond to competitive pressures, acquire complementary businesses or technologies or take advantage of unanticipated
opportunities. If required, we may raise such additional funds through public or private debt or equity financing, strategic relationships or other arrangements. There can be no assurance that such financing will be available on acceptable terms, if at all, or that such financing
will not be dilutive to our shareholders.
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CAUTIONARY NOTE
REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and uncertainties. These forward-looking statements, which are usually accompanied by words such as "may," "might," "will," "should," "could," "would," "intends," "estimates," "predicts,"
"potential," "continue," "believes," "anticipates," "plans," "expects" and similar expressions, relate to, without limitation, statements about our market opportunities, our strategy, our competition, our projected revenue and expense levels and the adequacy of our available
cash resources. This prospectus also contains forward-looking statements attributed to third-parties relating to their estimates regarding our industry. You should not place undue reliance on any of the forward-looking statements contained in this prospectus.
The cautionary statements contained in "Risk Factors" and other similar statements contained elsewhere in this prospectus identify important factors with respect to such forward-looking statements, including certain risks and uncertainties that could cause our actual
results, performance or achievements to differ materially from those expressed or forecasted in, or implied by, such forward-looking statements.
Although we believe that the expectations reflected in these forward-looking statements are based upon reasonable assumptions, no assurance can be given that such expectations will be attained or that any deviations will not be material. In light of these risks,
uncertainties and assumptions, the forward-looking events and circumstances discussed in this prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. We disclaim any obligation or
undertaking to disseminate any updates or revision to any forward-looking statement contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.
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USE OF PROCEEDS
We estimate that we will receive net proceeds from the sale of the shares of our common stock in this offering of approximately $        million, assuming an initial public offering price of $        per share and after deducting estimated underwriting discounts and
commissions and estimated offering expenses. A $1.00 increase (decrease) in the assumed public offering price of $        per share would increase (decrease) the net proceeds to us from this offering by $        (assuming the number of shares set forth on the cover page of this
preliminary prospectus remains the same). We will not receive any of the proceeds from the sale of shares of common stock sold by the selling shareholders, including any shares of our common stock sold by the selling shareholders if the underwriters exercise their
overallotment option.
We will use approximately $9.3 million of the net proceeds of this offering to pay the accrued and unpaid dividends to the former holders of our Series B and Series C preferred stock upon the automatic conversion of such shares to common stock upon the
consummation of this offering.
We intend to use the remaining net proceeds of this offering for general corporate purposes, including working capital needs. We believe opportunities may exist to expand our current business through strategic acquisitions and investments in technology, and we may
use a portion of the proceeds for these purposes. We are not currently a party to any contracts or letters of intent, nor do we have any arrangements or understandings, with respect to any strategic acquisitions or investments.
Pending the uses described above, we intend to invest the net proceeds of this offering in short-term, interest-bearing, investment-grade securities. We cannot predict whether the proceeds invested will yield a favorable return.
DIVIDEND POLICY
We have never declared or paid any dividends on our common stock. We currently intend to retain any future earnings to finance our operations and the further expansion and development of our business, and, therefore, do not intend to declare or pay cash dividends on
our capital stock in the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors and will depend upon a number of factors, including our results of operations, financial condition, future prospects, contractual restrictions,
restrictions in any future loan covenants, restrictions imposed by applicable law and other factors our board of directors deems relevant.
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CONVERSION AND EXERCISE TRANSACTIONS
Current Capitalization
As of August 10, 2006, we had outstanding:
•
2,333,333 shares of Series A preferred stock;
•
4,022,252 shares of Series B preferred stock;
•
4,851,549 shares of Series C preferred stock; and
•
6,557,201 shares of common stock.
As of August 10, 2006, we had
    warrants outstanding for the purchase of an aggregate of 1,298,720 shares
    of our common stock. As of August 10, 2006, we also had outstanding
    options to purchase 6,010,163 shares of our common stock. These options include
    110,000  options issued pursuant to our Series C Stock Equity Incentive Plan,
    which awards will be replaced by options to purchase common stock on a one-for-one
    basis upon the consummation of this offering.
Our articles of incorporation provide that upon the consummation of the first public offering of our common stock resulting in net proceeds to us of at least $30 million and the satisfaction of other conditions:
•
all of the outstanding shares of our Series A preferred stock will automatically convert into shares of our common stock at a rate of 1.071 shares of our common stock for each share of our Series A preferred stock, subject to adjustment for certain future events;
•
all of the outstanding shares of our Series B preferred stock will automatically convert into shares of our common stock at a rate of 1.261 shares of our common stock for each share of our Series B preferred stock, subject to adjustment for certain future events; and
•
all of the outstanding shares of our Series C preferred stock will automatically convert into shares of our common stock at a rate of 1.000 shares of our common stock for each share of our Series C preferred stock, subject to adjustment for certain future events.
Outstanding shares of our Series A, Series B and Series C preferred stock are entitled to receive dividends in an amount equal to 9%, 9% and 10%, respectively, on the stated values of those shares, which are set forth in the rights and preferences of the preferred stock.
On August 10, 2006, the aggregate dividends payable to the holders of all of the outstanding shares of our Series A, Series B and Series C preferred stock was approximately $3.0 million, $10.5 million and $2.6 million, respectively. We plan to use part of the net proceeds of
this offering to pay the Series B and Series C preferred stock dividends. The holders of our Series A preferred stock have elected to convert the accrued dividends on their shares into shares of our common stock upon the consummation of this offering.
Upon the consummation of this offering,
    there will be no outstanding shares of our preferred stock. As discussed
    above, based on the number of such shares currently outstanding, assuming
    the effectiveness of the conversion agreements discussed below, these shares
    of our Series A, Series B and Series C preferred stock (including estimated
     accrued and unpaid dividends on the Series A preferred stock outstanding
    upon the consummation of this offering) would convert into 4,686,247 shares,
    3,475,290 shares and 3,323,350 shares of common stock, respectively, upon
    the consummation of this offering.
Conversion Agreements
We entered into conversion agreements with the holders of our outstanding Series B and Series C preferred stock. Eight of these holders, Britannia Holdings Limited, Carl E. Smith, David St. Clair, Grotech Partners V, L.P. (affiliated with Grotech Capital Partners),
Grotech V Maryland Fund, L.P. (affiliated with Grotech Capital Partners), Liberty Ventures I, L.P. (affiliated with Liberty Ventures Partners), Liberty Ventures II, L.P. (affiliated with Liberty Ventures Partners) and Stockwell Fund, L.P., are our affiliates by virtue of their
positions as employees of ours, membership on our board of directors and/or the beneficial ownership of our common stock and their affiliation with a member of our board of directors. See
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"Management," "Certain Relationships and Related Party Transactions" and "Principal and Selling Shareholders" elsewhere in this prospectus.
Under the terms of each conversion agreement, each holder was entitled to elect prior to July 12, 2006 to convert up to 31.5% of such holder's outstanding shares of Series B and Series C preferred stock into shares of our common stock. As part of this conversion, the
accrued but unpaid dividends on the converted shares were taken into account in calculating the number of shares of common stock issuable upon conversion of the shares of Series B and Series C preferred stock. The provisions of the conversion agreements became effective
upon the filing of the Registration Statement on Form S-1 of which this prospectus is a part and, therefore, the preferred stock and common stock presented above as outstanding as of August 10, 2006 do not take into account the conversion. Under such arrangements, an
aggregate of 1,266,991 shares and 1,528,199 shares of Series B and Series C preferred stock, respectively, were converted for 2,480,476 shares and 2,243,861 shares of our common stock, which included 882,396 shares and 715,662 shares of our common stock, respectively,
on account of accrued dividends.
Termination of Shareholders Agreement
Pursuant to the terms of the Third Amended and Restated Shareholders Agreement dated January 11, 2002 among us and the shareholders party thereto, all of the rights of the shareholders under the agreement will be terminated upon the consummation of this offering,
which is considered a qualified initial pubic offering. For purposes of the agreement, a qualified initial public offering is a first public offering of our common stock in which the net proceeds to us are at least $30 million and immediately after which our outstanding capital
stock will have an aggregate public market value of not less than $150 million.
Conversion of Options Issued Pursuant to the Series C Stock Equity Incentive Plan
Upon the consummation of this offering, we will substitute shares of common stock for shares of Series C preferred stock subject to previously granted options on a one-for-one basis. No options will be available for grant pursuant to the Series C Stock Equity Incentive
Plan thereafter.
Warrants
On August 1, 2006, we amended the outstanding warrants to purchase 344,606 shares of our common stock that we had previously issued to Commerce Bank to provide for the right to exercise such warrant on a "cashless" basis. In connection with such amendment,
Commerce Bank agreed to terminate its rights to register the shares of common stock issued upon the exercise of such warrants.
Outstanding warrants to purchase an aggregate of 435,000 shares of our common stock will terminate upon the consummation of this offering. Shares of common stock that may be purchased upon exercise of these warrants are included in the presentation of outstanding
shares of common stock in this prospectus. In addition, we have assumed the exercise of these warrants for the purpose of presenting our pro forma and our pro forma as adjusted balance sheet in the "Summary Consolidated Financial Information" and "Capitalization"
sections of this prospectus.
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CAPITALIZATION
The following table describes our capitalization as of March 31, 2006. Our capitalization is presented:
•
On an actual basis;
•
On a pro forma basis to give effect to:
•
the restoration of our Treasury shares to our authorized but unissued common stock; and
•
the issuance of 2,480,476 shares and 2,243,861 shares of our common stock upon the conversion of 1,266,991 shares and 1,528,199 shares of our Series B and Series C preferred stock (including the accrued and unpaid dividends thereon) pursuant to conversion
agreements with the holders of such shares and the issuance of shares of common stock on account of accrued dividends on such shares, respectively;
•
the issuance of 435,000 shares of our common stock at a weighted average exercise price of $1.31 per share upon the exercise of outstanding warrants that would otherwise terminate upon the consummation of this offering;
•
the conversion of all outstanding shares of our Series A preferred stock, including the accrued and unpaid dividends thereon, into 4,686,247 shares of our common stock, which will automatically occur immediately prior to the consummation of this offering;
•
the conversion of all of the then outstanding shares of our Series B preferred stock and Series C preferred stock into 6,798,640 shares of our common stock, which will automatically occur immediately prior to the consummation of this offering;
•
the incurrence of an approximately $1.5 million charge due to the accretion on the Series A preferred stock, Series B preferred stock and Series C preferred stock after March 31, 2006; and
•
the use of approximately $9.3 million of the net proceeds of this offering to pay the accrued and unpaid dividends to the former holders of our Series B and Series C preferred stock upon the automatic conversion of such shares to common stock upon the consummation of
this offering.
•
On a pro forma as adjusted basis to give effect to the sale by us of            shares of our common stock in this offering at an assumed initial public offering price of $           per share, the midpoint of the range set forth on the cover page of this prospectus, after deducting the
estimated underwriting discounts and commissions and our estimated offering expenses.
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The pro forma and pro forma as adjusted information below is illustrative only and our capitalization table following the completion of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing.
You should read this table together with the sections of this prospectus entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and the related notes included elsewhere in this prospectus.
March
31, 2006
Actual
Pro Forma
Pro Forma
As Adjusted
(unaudited)
(in thousands, except for share data)
Consolidated Balance Sheet Data:
Cash and cash equivalents
(1)
$
4,612
$
(4,687
)
Long-term debt, net of current portion
2,479
2,479
Series
          B convertible preferred stock, no par value; 7,500,000 shares authorized,
          4,022,252 shares issued and outstanding, actual; 7,500,000 shares authorized,
          no shares issued and outstanding, pro forma; 7,500,000 shares authorized,
          no shares issued and outstanding, pro forma as adjusted
28,973
—
Series
          C convertible preferred stock, no par value; 7,500,000 shares authorized,
          4,851,549 shares issued and outstanding, actual; 7,500,000 shares authorized,
          no shares issued and outstanding, pro forma; 7,500,000 shares authorized,
          no shares issued and outstanding, pro forma as adjusted
7,692
—
Stockholders' equity (deficiency):
Series
          A convertible preferred stock, no par value; 2,333,333 shares authorized,
          2,333,333 shares issued and outstanding, actual; 2,333,333 shares authorized,
          no shares issued and outstanding, pro forma; 2,333,333 shares authorized,
          no shares issued and outstanding, pro forma as adjusted
6,377
—
Common
          stock – no
          par value, 50,000,000 shares authorized - 6,552,774 shares issued and
          outstanding, actual; $0.01 par value, 100,000,000 shares authorized,
          25,498,286
          shares issued and outstanding, pro forma _____ shares authorized, _____
          shares issued and outstanding, pro forma as adjusted
13,739
53,321
Additional
          paid in capital
Beneficial conversion feature
3,827
—
Accumulated deficit
(57,183
)
(52,370
)
Total stockholders' (deficiency) equity
(1)
(33,240
)
951
Total capitalization
$
5,904
$
3,430
(1)
A $1.00 increase (decrease) in the assumed initial public offering price of $           per share would increase (decrease) each of cash and cash equivalents, total stockholders' (deficiency) equity and total capitalization by $           million assuming the number of shares offered by us,
as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
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DILUTION
If you invest in our common stock, your interest will be diluted to the extent of the difference between the public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock after this offering.
Our pro forma net tangible book value as of March 31, 2006 was approximately $           million, or approximately $           per share. Pro forma net tangible book value per share is determined by dividing the amount of our tangible net worth, or total tangible assets less
total liabilities, by the pro forma number of shares of our common stock outstanding after giving effect to the transactions described in "Conversion and Exercise Transactions" in this prospectus. Dilution to new investors represents the difference between the amount per share
paid by investors in this offering and the pro forma net tangible book value per share of our common stock immediately after the completion of this offering. After giving effect to our sale of the shares offered hereby at an assumed initial public offering price of $           per
share and after deducting estimated underwriting discounts and commissions and estimated offering expenses and the application of the estimated net proceeds therefrom, our pro forma net tangible book value as of March 31, 2006 would have been $           million, or $          
per share. This represents an immediate increase in pro forma net tangible book value of $           per share to existing shareholders and an immediate dilution in pro forma net tangible book value of $           per share to new investors. The following table illustrates this per share
dilution:
Assumed initial public offering price per share
$
Pro forma net tangible book value per share as of March 31, 2006
$
Increase per share attributable to new investors
Pro forma net tangible book value per share after this offering
Dilution per share to new investors
$
The following table sets forth, on a pro forma basis as of March 31, 2006, after giving effect to the transactions described in "Conversion and Exercise Transactions" elsewhere in this prospectus, the total number of shares of common stock purchased from us, the total
consideration paid to us and the average price per share paid to us by existing shareholders and by new investors who purchase shares of common stock in this offering, before deducting the estimated underwriting discounts and commissions and estimated offering expenses,
assuming an initial public offering price of $               per share:
Shares Purchased
Total Consideration
Average Price
Number
Percent
Amount
Percent
Per Share
Existing shareholders
%
$
%
$
New investors
Total
100.0
%
$
100.0
%
$
The foregoing tables and calculations assume no exercise of any options or warrants outstanding as of March 31, 2006. Specifically, these tables and calculations exclude:
•
5,900,163 shares of our common stock issuable upon exercise of outstanding options to purchase shares of our common stock subject to the terms of our Amended and Restated Stock Option Plan as of August 10, 2006 at a weighted average exercise price of $2.14 per
share;
•
110,000 shares of our common stock issuable upon exercise of outstanding options to purchase shares of our common stock subject to the terms of our Series C Stock Equity Incentive Plan as of August 10, 2006 at a weighted average exercise price of $1.13 per share
(such awards were originally exercisable for Series C preferred stock but will be replaced by options to purchase common stock options on a one-for-one basis upon the consummation of this offering);
•
shares of our common stock reserved for future grants under our 2006 Equity Incentive Plan, which will become effective immediately prior to when we become subject to the reporting requirements of the Securities Exchange Act of 1934; and
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•
863,720 shares of our common stock issuable upon exercise of warrants to purchase shares of our common stock outstanding as of August 10, 2006 at a weighted average exercise price of $1.41 per share.
Because the exercise price of the outstanding options and some of the warrants is significantly below the assumed offering price, investors purchasing common stock in this offering will suffer additional dilution when and if these options or warrants are exercised. See
"Management—Employee Benefit Plans" for further information regarding our equity incentive and stock option plans and "Description of Capital Stock—Warrants to Purchase Common Stock" for further information on warrants.
A $1.00 increase (decrease) in the assumed initial public offering prices of $           per share would increase (decrease) our pro forma as adjusted net tangible book value by $           million and the pro forma as adjusted net tangible book value per share after completion
of this offering by $           per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
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SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below are derived from our consolidated financial statements and should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this prospectus and the "Management's
Discussion and Analysis of Financial Condition and Results of Operations" section of this prospectus. The consolidated statement of operations data for each of the years ended December 31, 2005, 2004 and 2003 and the consolidated balance sheet data as of December 31,
2005, 2004 and 2003 are derived from, and qualified by reference to, our audited consolidated financial statements and related notes appearing elsewhere in this prospectus. The consolidated statement of operations data for each of the years ended December 31, 2002 and 2001
and the consolidated balance sheet data as of December 31, 2002 and 2001 are derived from our audited consolidated financial statements not included in this prospectus. Our historical results are not necessarily indicative of results for any future period.
Three Months Ended
March
31,
Year Ended December
31,
2006
2005
2005
2004
2003
2002
2001
(unaudited)
(in thousands, except share and per share data)
Consolidated Statement of Operations Data:
Revenue
Term license revenue
$
415
$
652
$
9,729
$
6,260
$
2,439
$
2,119
$
1,655
Subscription, maintenance and transaction fees
5,308
3,542
17,187
14,666
12,600
9,456
6,776
Professional services
3,103
1,786
11,680
7,102
5,488
4,844
3,973
Total revenue
8,826
5,980
38,596
28,028
20,527
16,419
12,404
Cost of revenue
3,555
3,268
15,315
13,072
9,331
8,159
9,155
Gross margin
5,271
2,712
23,281
14,956
11,196
8,260
3,249
Operating expenses
Sales and marketing
2,205
1,250
7,778
4,668
3,211
2,159
2,216
Research and development
1,561
600
2,627
3,243
3,903
4,787
7,911
General and administrative
2,475
1,831
9,707
6,320
4,343
4,626
5,088
Total operating expenses
6,241
3,681
20,112
14,231
11,457
11,572
15,215
(Loss) income from operations
(970
)
(969
)
3,169
725
(261
)
(3,312
)
(11,966
)
(Gain)
          loss on change in fair value of redeemable convertible preferred stock
          conversion options
(158
)
(118
)
4,334
1,850
(42
)
(147
)
(50
)
Interest expense (income)
60
41
274
175
249
209
(60
)
Loss before benefit for income taxes
(872
)
(892
)
(1,439
)
(1,300
)
(468
)
(3,374
)
(11,856
)
Benefit for income taxes
416
386
6,491
—
—
—
—
Net
    (loss) income
$
(456
)
$
(506
)
$
5,052
$
(1,300
)
$
(468
)
$
(3,374
)
$
(11,856
)
Accretion of convertible preferred shares and redeemable convertible preferred shares
(821
)
(644
)
(6,226
)
(2,983
)
(3,275
)
(3,098
)
(3,343
)
Loss available to common shareholders
$
(1,277
)
$
(1,150
)
$
(1,174
)
$
(4,283
)
$
(3,743
)
$
(6,472
)
$
(15,199
)
Net loss per share available to common shareholders, basic and diluted
$
(0.19
)
$
(0.18
)
$
(0.18
)
$
(0.67
)
$
(0.60
)
$
(1.05
)
$
(3.55
)
Weighted average shares used to compute loss available to common shareholders per common share, basic and diluted
6,549,699
6,441,869
6,458,129
6,378,732
6,215,840
6,180,387
4,275,635
March
31,
December
31,
2006
2005
2005
2004
2003
2002
2001
(unaudited)
(in thousands, except share and per share data)
Consolidated Balance Sheet Data:
Cash and cash equivalents
$    4,612
$    2,253
$    2,447
$        431
$        764
$
—
$
186
Total
          current assets
16,701
7,119
16,366
5,836
4,028
3,147
2,430
Total assets
33,025
13,484
32,283
12,219
7,150
7,402
7,080
Short-term
          debt
1,437
661
1,262
552
699
2,143
2,006
Deferred revenue
11,227
8,231
9,617
5,885
3,861
1,823
271
Total current liabilities
23,897
13,167
22,743
11,562
7,104
7,008
4,156
Long-term
    debt
2,479
1,296
2,515
1,180
174
309
466
Preferred stock
36,665
40,467
36,100
39,822
36,838
33,212
29,059
Total
    stockholders' deficiency
(33,240
)
(42,463
)
(32,327
)
(41,367
)
(37,121
)
(33,389
)
(26,922
)
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the "Selected Consolidated Financial Information" and our consolidated financial statements and the related notes included elsewhere in this
prospectus. In addition to historical information, the following discussion and analysis includes forward-looking information that involve risks, uncertainties and assumptions, Our actual results and the timing of events could differ materially from those anticipated by these
forward-looking statements as a result of many factors, including those discussed under "Risk Factors" and elsewhere in this prospectus. See "Cautionary Note
Regarding Forward-Looking Statements" included elsewhere in this prospectus.
Overview
We are a leading provider of software, services and clinical content to healthcare payers that allow them to improve the quality and affordability of healthcare provided to their members and increase their administrative efficiency. Our Collaborative Care Management
solution analyzes data, automates payer workflow processes and electronically connects payers, healthcare providers and patients, providing them with a common view of the patient's health that helps to foster better clinical decision making. Our solution is built around a suite
of modular and easily configurable software applications and utilizes the Internet to link our payer customers to their members and their members' chosen healthcare providers.
Our Collaborative Care Management solution is comprised of two related suites of products – Integrated Medical Management and Collaborative Data Exchange. Our Integrated Medical Management suite allows our healthcare payer customers to identify active care
management opportunities among their members and automate an intervention process based on clinical best practices. Our Integrated Medical Management suite also helps our customers reduce internal administrative costs by automating traditionally manual processes. Our
Collaborative Data Exchange suite allows our customers to securely transmit health records containing critical patient information in an easily understood format to patients and providers at the time they are making treatment decisions. We refer to these health records as
Patient Clinical Summaries and believe that they are a critical first step to developing electronic health records. In the future, we expect our Patient Clinical Summaries to integrate additional information provided by patients and a broad range of providers, thereby increasing
their value to all constituents.
Since 1999, we have focused on broadening our solution portfolio in order to respond to the evolving needs of our customers. In 1999, we began offering our Analytics and Disease Management module; in 2001, we began offering our Transactions and Information
Exchange module; in 2003, we began offering OptiCareCert; in 2004, we began offering OptiCarePath; and, in 2005, we began offering our customers the ability to electronically transmit Patient Clinical Summaries via our Transactions and Information Exchange infrastructure.
For these solutions, our customers either purchase annual subscription licenses or pay a transaction fee each time they utilize the solutions. As a result, annual subscription licenses and transaction fees have represented an increasing proportion of our revenue. We expect this
trend to continue as an increasing proportion of our customers begin to use or increase their use of these solutions and as an increasing number of providers use our recently released Patient Clinical Summaries.
We license our solutions primarily to large regional healthcare insurance companies. As of March 31, 2006, our customers included approximately 56 regional and national managed care organizations, including the largest organizations in more than 27 regional
markets. Our revenue has increased at a compound annual growth rate of 32.8% since 2001, to $38.6 million for the year ended December 31, 2005. Our overall increase in revenue is attributable to increased emphasis by our customers on active management of their total
insured population and the expansion of our solutions to meet their evolving needs.
Background
We began operations in 1988 by licensing an automated medical management solution to large regional healthcare insurance companies. This solution was the predecessor to our current Advanced Medical
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Management module. In 1999, we acquired the assets of an analytical software company that became the basis of our current Analytics and Disease Management module. In 2000, we expended
a significant amount of capital to begin the development of our Transactions and Information Exchange module, completing the initial development of the module in the third quarter of 2001. In
December 2002, we acquired assets that were the foundation for clinical decision support content, which enabled us to create our Clinical Rules and Processes module. In 2005, we began to
offer our customers the ability to electronically transmit Patient Clinical Summaries to providers at the point of care.
From inception until 1997, our operations were funded primarily through internally generated cash flows and bank borrowings. In 1997, we issued approximately $3.5 million of Series A convertible preferred stock in order to raise capital for marketing our products. In
1999, we made a strategic decision to develop new products. To fund this initiative, in the fourth quarter of 1999 and in the first half of 2000, certain existing investors, including our Chief Executive Officer and Liberty Ventures I, L.P., which is an affiliate of ours as a result
of their ownership of our outstanding capital stock, provided bridge financing until the closing of our Series B convertible preferred financing. To those investors who participated in the bridge financing, we issued seven-year warrants to purchase an aggregate of 435,000 shares
of common stock, 375,000 of which had an exercise price of $2.00 per share and 60,000 of which had an exercise price of $5.00 per share. In June 2000, we issued approximately $30.0 million of Series B convertible preferred stock, primarily to fund the research and
development of new products. In September 2001, we issued approximately $4.0 million of Series C convertible preferred stock in order to fund our working capital requirements.
In 1997, we entered into a borrowing arrangement with a third-party lender pursuant to which we issued warrants to purchase 200,000 shares of common stock at an exercise price of $2.00 per share. In 1999, we issued additional warrants to purchase 100,000 shares of
common stock at an exercise price of $2.00 per share to the same lender. We entered into an arrangement with a different lender in 2001 pursuant to which we issued warrants to purchase 283,185 shares of common stock at an exercise price of $1.13 per share. In 2002, we
entered into a borrowing arrangement with our current lender to provide working capital financing up to $4.0 million based upon eligible receivables. In connection with that arrangement, we issued warrants to purchase an aggregate 235,929 shares of common stock at an
exercise price of $0.90 per share.
Sources of Revenue
We derive revenue from (i) term license fees for our solutions; (ii) subscription, maintenance and transaction fees; and (iii) fees for discrete professional services.
Term License Revenue
Our customers pay a term license fee to utilize our Advanced Medical Management and Clinical Rules and Processes modules for five years. We recognize revenue for term license fees upon delivery of the software.
Subscription, Maintenance and Transaction Fees
Our customers pay an annual subscription license fee to utilize our Analytics and Disease Management and Information Exchange modules. We recognize subscription license fees ratably over the term of the subscription agreement. We also offer our customers a hosted
solution and receive monthly fees for those services. We recognize hosting revenue ratably over the term of the related agreement, which is typically five years in duration.
Our customers pay an annual maintenance and support fee equal to approximately 22% of the annualized Advanced Medical Management license fee, which entitles our customers to unspecified software updates and upgrades and basic product support. For clinical
content, our customers pay an additional 13% of the annualized license fee for maintenance and support. We recognize maintenance and support fees ratably over the term of the maintenance and support agreement.
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Our customers pay transaction fees each time they use our modules associated with member eligibility verification, clinical adjudication of treatment requests and access to on-demand member health information, including Patient Clinical Summaries. We recognize
transaction fees at the time of the transaction.
Professional Services
In conjunction with our solutions, we provide services to assist our customers in the installation and implementation of the software and the integration of our solutions with other systems within the healthcare insurance company. We sell these services on either a fixed
price or a time-and-materials basis and recognize revenue when the services are performed. Services revenue also includes reimbursable billable travel, lodging and other out-of-pocket expenses incurred as part of delivering services to our customers.
Each of our license models provides us with a recurring revenue stream. Historically, a substantial portion of our clients have renewed their licenses each year. During the year ended December 31, 2005, our clients renewed approximately 100% of the aggregate
contract value that were up for renewal during that period. The combination of recurring revenue and high renewal rates provide us with substantial annual revenue visibility. Although in general our revenue is consistent throughout the year, sales of certain modules that have
an initial term license can cause revenue volatility from quarter to quarter. The sales cycle for our Advanced Medical Management module is typically eight months or longer. As a result, it is difficult for us to predict the quarter in which a particular sale may occur. In
addition, in a small portion of our sales, the license fee is material relative to our total revenue during the quarter. Accordingly, our revenue may vary significantly from quarter to quarter depending on the quarter during which a large sale occurs.
Cost of Revenue
Our cost of revenue primarily consists of:
•
compensation and related employee benefits for our professional services, product support and product hosting staff;
•
amortization of internally developed and purchased capitalized software;
•
third-party license and maintenance fees primarily for third-party software incorporated in our Advanced Medical Management module;
•
solution hosting costs associated with a third-party secured facility;
•
costs of independent contractors that provide consulting and professional services to our customers; and
•
travel, lodging and other out-of-pocket expenses for our staff and independent consultants to perform work at a customer's site for which we receive reimbursement.
The costs associated with each of our modules, as a percentage of revenue, is different. Therefore, changes in the mix of modules and services will result in fluctuations in gross margin. We expect the percentage of our revenue derived from our Analytics and Disease
Management module, Clinical Rules and Processes module, Transaction and Information Exchange module and Collaborative Care Management solutions to increase in the future. As a result, we expect our gross margins to increase in the future.
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Operating Expenses
We classify our operating expenses as follows:
Sales and Marketing
Sales and marketing expenses primarily consist of:
•
personnel and related costs for employees engaged in sales, corporate marketing, product marketing and product management, including salaries, commissions, other incentive compensation and related employee benefit costs;
•
travel related expenses to meet with existing and potential customers, and for other sales and marketing related purposes;
•
costs associated with trade shows and industry conventions;
•
fees and other expenses related to public relations consultants; and
•
costs associated with our annual user conference and other marketing related activities.
We expense our sales commissions at the time the related revenue is recognized. We expect our sales and marketing expense to increase in the future as we increase the number of direct sales professionals and invest in marketing programs to encourage provider
adoption of Collaborative Care Management solutions. However, we expect sales and marketing expense to remain relatively constant as a percentage of revenue for the foreseeable future.
Research and Development
Research and development expenses consist primarily of:
•
personnel and related costs, including salaries and employee benefits for software engineers, software quality assurance engineers and clinical systems engineers;
•
consulting fees paid to independent consultants who provide software or quality engineering services to us; and
•
costs of medical panels and research for annual clinical updates to our solutions.
To date, our research and development efforts have been devoted to new product offerings and increases in features and functionality of our existing suites. We expect research and development expenses to increase in the future as we continue to develop innovative new
solutions for our customers. However, we expect research and development expenses to remain consistent as a percentage of revenue, fluctuating slightly depending on our product development initiatives.
Historically, we have capitalized
    a portion of our research and development expenses related to purchased and
    internally developed software. Capitalized research and development expenses
    totaled $2.0 million
    and $0.9 million for the years ended December 31, 2005
and 2004, respectively. No research and development expenses were capitalized
    in 2003. Otherwise, we expense research and development as those costs are
    incurred.
General and Administrative
General and administrative expenses represent the complete, unallocated costs and expenses of managing and supporting our entire operations. General and administrative expenses consist primarily of:
•
personnel and related costs for our executives, finance, human resources, corporate information technology systems, strategic business, corporate quality, corporate training and administrative personnel;
•
legal and accounting professional fees;
•
facilities and related costs;
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•
recruiting and training costs;
•
depreciation;
•
travel related expenses for executives and other administrative personnel; and
•
computer maintenance and support for our internal information technology system.
We expect general and administrative expenses to increase in the future as we absorb expenses related to being a publicly traded company and invest in an infrastructure to support our continued growth. However, we expect general and administrative expenses to
decrease as a percentage of revenue for the foreseeable future.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and consolidated results of operations are based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation
of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure of contingent assets and liabilities. On an on-going basis we evaluate our estimates based
upon historical experience and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our
actual results may differ from these estimates.
We believe that the following critical accounting policies affect our more significant estimates and judgments used in the preparation of our consolidated financial statements:
Revenue Recognition
We derive revenue primarily from three sources: (i) initial term and renewal license fees for our Advanced Medical Management and Clinical Rules and Processes modules; (ii) recurring revenue consisting of annual recurring fees for our Analytics and Disease
Management and Transactions and Information Exchange modules; transaction revenue associated with member eligibility verification, clinical adjudication of treatment requests and access of on-demand member health information; and technical and clinical maintenance and
support fees; and (iii) fees for discrete professional services. Our standard license agreement typically provides a time-based license, which is typically five years in duration, to use our solutions. We may license our software in multiple element arrangements if the customer
purchases any combination of maintenance, consulting, training or hosting services in conjunction with the software product license.
We recognize revenue pursuant to the requirements of AICPA Statement of Position, or SOP, 97-2,
Software Revenue Recognition
; as amended by SOP 98-9,
Software Revenue Recognition, With Respect to Certain Transactions
; SOP 81-1,
Accounting for Performance
of Construction-type and Certain Production-type Contracts
; the Securities and Exchange Commission's Staff Accounting Bulletin, or SAB, No. 104,
Revenue Recognition
; Emerging Issues Task Force, or EITF, Issue No. 00-21,
Revenue Arrangements With Multiple
Deliverables
; EITF Issue No. 00-03,
Application of AICPA Statement of Position
97-2
to Arrangements That Include the Right to Use Software Stored on Another Entity's Hardware
; EITF Issue No. 03-05,
Applicability of AICPA Statements of Position
97-2,
Software Revenue
Recognition, to Non-Software Deliverables in an Arrangement Containing More-Than-Incidental Software
; and other authoritative accounting guidance.
We recognize revenue using the residual method when vendor-specific objective evidence, or VSOE, of fair value exists for all of the undelivered elements in the arrangement, but does not exist for one or more delivered elements, and all revenue recognition criteria in
SOP 97-2, other than the requirement for VSOE of fair value of each delivered element of the arrangement, are satisfied. We allocate revenue to each undelivered element based upon its respective fair value determined by the price charged when that element is sold separately
or, for elements not yet sold separately, the price is established by management if it is probable that the price will not change before the element is sold separately. We defer revenue for all
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undelivered elements and recognize the residual amount of the arrangement fee, if any, when the basic criteria in SOP 97-2 have been met.
Under SOP 97-2, provided that the customer's contract does not require significant production, modification or customization of our basic software code, we recognize revenue when the following four criteria have been met:
•
persuasive evidence of an arrangement exists;
•
delivery of our basic software code has occurred;
•
the license fee is fixed or determinable; and
•
collection of the license fee is probable.
For arrangements where we provide software hosting services, when all other revenue recognition criteria have been met, we recognize and include in subscription, maintenance and transaction fee revenue license fees upon delivery of the software and hosting revenue
over the hosting period unless:
•
the customer cannot take possession of the software at any time during the hosting period without significant penalty;
•
the customer cannot contract with another hosting provider without significant effort or expenditure; or
•
the software's functionality is compromised by the termination of our hosting services.
Under these circumstances we recognize all revenue under the contract ratably over the longer of the hosting period or the maintenance period.
If at the outset of an arrangement we determine that the arrangement fee is not fixed or determinable, then revenue is deferred until the arrangement fee becomes due and payable by the customer, assuming all other revenue recognition criteria have been met. If at the
outset of an arrangement we determine that collectibility is not probable, then revenue is deferred until payment is received. Our license agreements typically do not provide for a right of return other than during the standard 90-day warranty period. Historically, we have not
incurred warranty expense or experienced returns of its products. If an arrangement allows for customer acceptance of the software or services, then we defer revenue recognition until the earlier of customer acceptance or when the acceptance rights lapse.
We also license software under short-term time-based licenses, which generally include maintenance during the license period. License and maintenance revenue related to these arrangements is recognized ratably over the license term. Revenue for multiyear time-based
licenses that include maintenance, whether separately priced or not, is recognized ratably over the license term unless a substantive maintenance renewal rate exists, in which case the residual amount is recognized as software revenue when the basic criteria in SOP 97-2 have
been met.
Our initial maintenance term is generally in the range of one to five years, renewable by the customer on an annual basis thereafter. Our customers typically prepay maintenance for periods of one to 12 months. Maintenance revenue is deferred and recognized ratably
over the term of the maintenance contract. Should a customer on maintenance be specifically identified as a bad debtor, then we would cease recognizing maintenance revenue except to the extent that maintenance fees have already been collected.
While the statements of work with our customers may specify multiple elements, we believe that the service elements included in our contractual arrangements with customers are not essential to the functionality of our software, which can operate in a standalone
fashion upon installation. These service elements do not include significant modification or customization of our software, but may include configuring, designing and implementing simple interfaces with other customer software, installation and configuration of third-party
software, and training in the use of both our software and third-party software. The timing of payments for software is independent of the payment terms for the service elements in our contractual arrangements with customers. In multi-element arrangements involving software
and consulting, training or other services that are not essential to the functionality of the software, the services revenue is accounted for separately from the software revenue. VSOE for services did not exist during 2004 and prior. As a result, revenue attributable to
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all elements in a multi-element arrangement, including software and services, in 2004 and 2003 were deferred until the related services were completed and only then recognized as revenue,
assuming VSOE exists for all other undelivered elements. In situations when revenue is deferred as a result of ongoing services, the costs associated with all delivered elements are also deferred
and recognized as expense when the services are completed. As of March 31, 2006, December 31, 2005 and 2004, $0, $0 and $0.5 million, respectively, of deferred costs were included within
prepaid expenses and other current assets for such periods. In late 2004, we introduced package pricing for the various service elements of our contractual arrangements with customers, and now
recognize VSOE for service elements based on that pricing.
Consulting, training and other services are typically sold under fixed-price arrangements and are recognized using the percentage-of-completion method based on direct labor hours incurred to date as a percentage of total estimated project costs required to complete the
project. Consulting services primarily comprise implementation support related to the installation and configuration of our products and do not typically require significant production, modification or customization of the software. In arrangements that require significant
production, modification or customization of the software and where services are not available from third-party suppliers, the consulting and license fees are recognized concurrently. When total cost estimates exceed revenue in a fixed-price arrangement, the estimated losses are
recognized immediately in cost of revenue.
The assumptions, risks and uncertainties inherent with the application of the percentage-of completion method affect the timing and amounts of revenue and expenses reported. Numerous internal and external factors can affect estimates, including direct labor rates,
utilization and efficiency variances.
Where contractual arrangements with customers include the sale of third-party software, revenue is recognized for the sale of the third-party software and the related expense is included in cost of revenue.
In accordance with EITF Issue No. 01-14,
Income Statement Characterization of Reimbursements Received for Out-of-Pocket Expenses Incurred
, we account for out-of-pocket expenses rebilled to customers as maintenance, consulting and training revenue with related
costs included in cost of revenue. For the three months ended March 31, 2006 and 2005, and for the years ended December 31, 2005, 2004 and 2003, reimbursement expenses totaled $0.1 million, $0.1 million, $0.4 million, $0.4 million and $0.3 million, respectively.
We also generate revenue from transactions that are processed through our web portal. Fees from these transactions are billed to customers in arrears on a monthly basis and are recognized in the period in which the transactions occur.
We believe that our accounting estimates used in applying our revenue recognition are critical because:
•
the determination that it is probable that the customer will pay for the products and services purchased is inherently judgmental;
•
the allocation of proceeds to certain elements in multiple-element arrangements is complex;
•
the determination of whether a service is essential to the functionality of the software is complex;
•
establishing company-specific fair values of elements in multiple-element arrangements requires adjustments from time-to-time to reflect recent prices charged when each element is sold separately; and
•
the determination of the stage of completion for certain consulting arrangements is complex.
Changes in the aforementioned items could have a material effect on the type and timing of revenue recognized.
Accounts Receivable and Allowance for Doubtful Accounts
The majority of our accounts receivable are due from trade customers. Credit is extended based on evaluation of each customer's financial condition. Collateral is not required. Accounts receivable payment terms are typically 30 days and are stated in the financial
statements at amounts due from customers net of an
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allowance for doubtful accounts. Accounts outstanding longer than the payment terms are considered past due. We determine our allowance by considering a number of factors including the
length of time trade accounts receivable are past due, our previous loss history, customers' current ability to pay their obligations to us and the condition of the general economy and the industry
as a whole. We write off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts.
Capitalized Software Research and Development Costs
We record capitalized software costs on the balance sheet at the lower of unamortized capitalized costs or net realizable value. We capitalize purchased and internally developed software in accordance with Statement of Financial Accounting Standards, or SFAS,
No. 86,
Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed.
We identify projects that typically represent significant improvements in features and functionality. The costs incurred in the preliminary stages of development are expensed as
research and development costs as they are incurred. Once a solution has reached the development stage where technological feasibility has been established, internal and external costs will be capitalized based upon the development hours charged against the project.
Amortization begins and capitalization ends when the product is available for general release to our customers. Annual amortization of capitalized software costs is the greater of the amount computed using (i) the ratio that the current gross revenue for a product bears to the
total of current and anticipated future gross revenue for that product or (ii) on a straight-line basis over the estimated economic life of the product, which ranges from three to five years. We evaluate the useful lives of these assets quarterly and test for impairments whenever
events or changes in circumstances occur that could impact the recoverability of these assets.
Stock-Based Compensation
Prior to January 1, 2006, stock-based
    compensation was measured in accordance with the provisions of SFAS No. 123,
Accounting
    for Stock-Based Compensation
, which permitted companies to continue to
    apply the provisions of Accounting Principles Board Opinion,
or APB, No. 25,
Accounting for Stock Issued to Employees,
and related
interpretations including Financial Accounting Standards Board, or FASB, Interpretation
No. 44,
Accounting for Certain Transactions Involving Stock Compensation,
an Interpretation of APB Opinion
No.
25,
using the intrinsic value method. Under this method,
compensation expense is measured as the excess, if any, of the fair market value
of our common stock at the date of the grant over the exercise price of the option.
In accordance with the provisions of SFAS No.
123 and SFAS No. 148,
Accounting for Stock-Based Compensation – Transition
and Disclosure
, we disclosed pro forma results of operations as if the minimum
value-based method had been applied in measuring compensation expense for stock-based
incentive awards. Although  our board of directors used their best estimate of
the fair value of our stock price, and made grants of stock options
in 2003, 2004, and 2005 with exercise prices equal to those estimates of fair
value, a subsequent independent appraisal of our common stock's
value on the grant dates resulted in recognizing stock-based compensation expense
in our Consolidated Statement of Operations for the years ended December 31,
2005, 2004, and 2003 in the amounts of $0.3 million, $21,000 and $0, respectively
for the difference between the fair market value of the underlying common stock
on
the
date of grant and the option exercise price for options granted under our Amended
and Restated Stock
Option Plan.
As required by FASB under SFAS No. 123R,
Share-Based
      Payment
, effective January 1, 2006, we adopted the fair value
      recognition provisions of SFAS 123R which requires us to apply the provisions
      of SFAS 123R to new awards granted, and to awards modified,  repurchased,
      or cancelled after the effective date. We will recognize stock-based compensation
      expense under a fair value computation effective January 1, 2006.
      The fair value of stock options will be recognized as expense in our financial
      statements over the remaining  vesting period of the stock options. The
      adoption of SFAS No. 123R resulted in $0.1 million of expense
      in the first quarter of 2006, based upon options outstanding as of December 31,
      2005 and the options granted in the first quarter of 2006. In addition,
      the adoption of this  standard will result in difficulties comparing our
      operating results for future periods to those of our prior periods, since
      prior periods through 2005 will not reflect stock-based compensation expense
      under SFAS No. 123R.
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Accounting for Preferred Shares and Derivative Shares
We account for our preferred stock and related instruments in accordance with EITF Issue No. 00-19,
Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock
; EITF Issue No. 98-5,
Accounting for Convertible
Securities with Beneficial Conversion Features or Contingent Adjustable Conversion Ratios
; EITF Issue No. 00-27,
Application of Issue No.
98-5 to Certain Convertible Instruments
; SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities
; and other
applicable professional standards. Preferred stock issued at a discount from the common fair value at the commitment date, i.e., the difference between the fair value of the common stock and the conversion price multiplied by the number of shares issuable upon conversion, is
recognized as a beneficial conversion option in accordance with EITF Issue No. 00-27. The beneficial conversion feature is recorded as a deemed dividend and will be amortized over the period from the issue date to the conversion date. The conversion option embedded in the
preferred stock is accounted in accordance with EITF Issue No. 00-19 and recorded as liabilities and marked-to-market at each reporting period.
Accounting for Income Taxes
We account for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes,
under the asset-and-liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Any change in the enacted tax rate and its effect on deferred assets and liabilities is recognized in the period that includes the enactment date. A valuation allowance is recorded against deferred tax assets if it is more likely
than not that such assets will not be realized.
The realization of deferred tax assets is evaluated quarterly by assessing the valuation allowance and by adjusting the amount of the allowance, if necessary. The factors used to assess the likelihood of realization are the forecast of future taxable income, the remaining
time period to utilize any tax operating losses and tax credits, and available tax planning strategies that could be implemented to realize deferred tax assets.
We operate within multiple state taxing jurisdictions and are subject to audit in each jurisdiction. No audits have been made to date, and, any audit may require an extended period of time to resolve. In our opinion, adequate provisions for income taxes have been made
for all periods.
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Consolidated Results of Operations
The following table sets forth key components of our results of operations for the periods indicated as a percentage of total revenue:
Three Months Ended March
31,
Year Ended December
31,
2006
2005
2005
2004
2003
(unaudited)
Revenue
Term license revenue
5
%
11
%
25
%
22
%
12
%
Subscription, maintenance and
transaction fees
60
59
45
53
61
Professional services
35
30
30
25
27
Total revenue
100
100
100
100
100
Cost of revenue
40
55
40
47
45
Gross margin
60
45
60
53
55
Operating expenses
Sales and marketing
25
21
20
17
16
Research and development
18
10
7
12
19
General and administrative
28
30
25
22
21
Total operating expenses
71
61
52
51
56
(Loss) income from operations
(11
)
(16
)
8
2
(1
)
(Gain)
          loss on change
          in fair value of redeemable convertible preferred stock conversion
          options
(2
)
(2
)
11
6
—
Interest
          expense, net
1
1
1
1
1
Loss before benefit for income taxes
(10
)
(15
)
(4
)
(5
)
(2
)
Benefit for income taxes
5
7
17
—
—
Net
          (loss) income
(5
)
(8
)
13
(5
)
(2
)
Accretion of convertible preferred shares and redeemable convertible preferred shares
(9
)
(11
)
(16
)
(10
)
(16
)
Loss available to common shareholders
(14
)%
(19
)%
(3
)%
(15
)%
(18
)%
Comparison of Three Months Ended March
31, 2006 and 2005
Revenue
Consolidated revenue increased 47% to $8.8 million for the three months ended March 31, 2006 from $6.0 million for the three months ended March 31, 2005. The $2.8 million increase is due to an increase in subscription fees for our Analytics and Disease
Management module and our Clinical Rules and Processes module, an increase in transaction fees for authorizations and referrals transmitted over Transactions and Information Exchange module and an increase in the volume of professional services fees for work during the
three months ended March 31, 2006 over the three months ended March 31, 2005.
Cost of Revenue
Cost of revenue increased 9% to $3.6 million for the three months ended March 31, 2006 from $3.3 million for the three months ended March 31, 2005. This increase is due primarily to increased personnel and related costs in our professional services operations to
support the increased volume of services work and an increase in personnel and related costs in our client support operations due to an increased customer base.
Gross Margin
Gross margin increased 96% to $5.3 million for the three months ended March 31, 2006 from $2.7 million for the three months ended March 31, 2005. As a percentage of revenue, gross margin increased to 60% for the three months ended March 31, 2006 from 45%
for the three months ended March 31, 2005. This increase is due primarily to increased operational efficiency in our professional services operation as
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well as a higher proportion of revenue derived from solution licenses and transaction fees, which have a higher gross margins than revenue from professional services.
Sales and Marketing
Sales and marketing expenses increased 69% to $2.2 million for the three months ended March 31, 2006 from $1.3 million for the three months ended March 31, 2005. The $0.9 million increase is primarily attributable to increased personnel and personnel-related
costs in the sales and product marketing operations and increased travel and travel related expenses.
Research and Development
Research and development expenses
    increased 167% to $1.6 million for the three months ended March 31,
    2006 from $0.6 million for the three months ended March 31, 2005.
    This $1.0 million increase primarily reflects increased personnel and
    personnel-related  costs and increased independent contractor costs. For
    the three months ended March 31, 2006, we capitalized $0.3 million
    of software development costs related to specific projects which will add
    new product features and functionality, a decrease of 25% from $0.4 million

capitalized for the three months ended March 31, 2005. Total research and
development expenditures increased 90% to $1.9 million (including capitalized
software development costs of $0.3 million) for
the
three
months
ended March 31, 2006 from $1.0 million (including capitalized
software development costs of $0.4 million) for the three months ended March 31,
2005.
General and Administrative
General and administrative expenses increased 39% to $2.5 million for the three months ended March 31, 2006 from $1.8 million for the three months ended March 31, 2005. This $0.7 million increase is due primarily to increased personnel and personnel-related
costs, legal and travel related costs associated with development of Collaborative Data Exchange strategic relationships, increased depreciation expense and increased personnel and personnel-related costs within corporate data and communications support. In addition,
approximately $0.1 million is included in general and administrative expenses in the first quarter of 2006 related to stock compensation expense and the adoption of SFAS No. 123R,
Share Based Payment
, as of January 1, 2006.
(Gain) Loss on Change
              in Fair Value of Redeemable Convertible Preferred Stock Conversion Options
The fair value of conversion options
    changed by $40,000 to $158,000 for the three months ended March 31, 2006
    from a $118,000 decrease for the three months ended March 31, 2005. The change
  resulted from the increase in the fair value of the conversion options calculated
    using the Black-Scholes model.
Interest
              Expense, net
Interest expense, net increased 46%
    to $60,000 for the three months ended March 31, 2006 from $41,000 for
    the three months ended March 31, 2005. This $19,000 increase is attributable
    to higher overall average borrowings outstanding as well as higher average
    costs of
borrowing for the three months ended March 31, 2006 compared to the three
months ended March 31, 2005.
Provision for Income Taxes
We project our taxable income for the year ending December 31, 2006 by calculating our effective tax rate for the period. For interim period reporting purposes, we calculate an income tax provision (benefit) using the effective tax rate for the full-year.
Comparison of Years Ended December
31, 2005 and 2004
Revenue
Consolidated revenue increased 38% to $38.6 million for the year ended December 31, 2005 from $28.0 million for the year ended December 31, 2004. The $10.6 million increase in consolidated revenue was
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primarily attributable to an increase
    in the number and average size of sales of our Integrated Medical Management
    suite closed during 2005 compared to 2004, an increase in professional  services
    fees attributable to increased volume of services work for existing customers
    and an increase in transaction fees and hosting revenue. Term license revenue
    increased 55% for the year
ended December 31, 2005 over the year ended December 31, 2004 primarily
resulting from the sale of our complete Integrated Medical Management suite to
a large healthcare insurance  company. Revenue derived from transaction fees
and hosting fees increased 76% for the year ended December 31, 2005 over
the year ended December 31, 2004 due to the sale of our solutions
to several customers on a hosted basis and an increase in the volume of authorizations
and referrals transmitted over the Transactions and Information Exchange module.
Cost of Revenue
Cost of revenue increased 17% to $15.3 million for the year ended December 31, 2005 from $13.1 million for the year ended December 31, 2004. The $2.2 million increase is primarily attributable to increases in personnel and personnel-related costs and costs of
independent contractors in the professional services operation and increased amortization of capitalized software costs. The increase in personnel was required to support the increase in professional services business.
Gross Margin
Gross margin increased 55% to $23.3 million
    for the year ended December 31, 2005 from $15.0 million for the
    year ended December 31, 2004. As a percentage of revenue, gross margin
    increased to 60% for the year ended December 31, 2005 from 53% for the
    year
ended December 31, 2004. The increase is attributable to a higher proportion
of revenue derived from solution licenses and transaction fees, which have a
higher gross margin than revenue for professional services. In addition, gross
margins on professional services improved  over 2004 reflecting improved operational
efficiency.
Sales and Marketing
Sales and marketing expenses increased 66% to $7.8 million for the year ended December 31, 2005 from $4.7 million for the year ended December 31, 2004. The $3.1 million increase is attributable primarily to increased commission expense due to the increase in
consolidated revenue in 2005 over 2004, increased sales personnel and personnel-related costs resulting from the reorganization of our sales organization and creation of a sales team focused on cross-selling, increased travel-related expenditures and increased trade show
expenses and other marketing-related costs.
Research and Development
Research and development expenses
    decreased 19% to $2.6 million for the year ended December 31, 2005
    from $3.2 million for the year ended December 31, 2004. The net
    decrease of $0.6 million reflects an increase in capitalization of software
    development  partially offset by increased development efforts adding new
    product features and functionality prior to establishing technological feasibility,
    which required increased personnel and personnel related costs as well as
    increased use of independent contractors. For the year ended
December 31, 2005, we capitalized $2.0 million of software development
costs, an increase of $1.1 million over the $0.9 million of software
development costs capitalized for the year ended December 31, 2004. Total
research and development expenditures for the year
ended December 31, 2005 were $4.6 million (including capitalized software
development costs of $2.0 million) in
aggregate,
a
12%,
or
$0.5 million increase over total research and development expenditures of
$4.1 million (including capitalized software development costs of $0.9 million)
for
the
year
ended
December 31,
2004.
General and Administrative
General and administrative expenses
    increased 54% to $9.7 million for the year ended December 31, 2005
    from $6.3 million for the year ended December 31, 2004. The $3.4 million
    increase is primarily attributable to the accrual of a special incentive
    pool of
$1.1 million based upon our results of operations for the year ended December 31,
2005, the creation of a strategic business development operation focused on developing
Collaborative Care Management opportunities, increased travel-related expenses
(primarily
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attributable to the strategic business development operation), increased facilities and facilities-related expenses, increased depreciation related to increased capital expenditures, increased
recruiting and retention costs and increased corporate data and communication costs.
(Gain)
              Loss on Change in Fair Value of Redeemable Convertible Preferred
              Stock Conversion Options
The fair value of conversion options
    changed by $2.4 million to $4.3 million for the year ended December 31,
    2005 from $1.9 million for the year ended December 31, 2004. The change
    resulted from the change in the fair value of the conversion options calculated
    using the Black-Scholes model.
Interest
              Expense, net
Interest expense, net increased 57%
    to $274,000 for the year ended December 31, 2005 from $175,000 for the
    year ended December 31, 2004. The $99,000 increase is attributable to
    increased average borrowings for capital expenditures, primarily through
    capital leases,  offset by lower average borrowings for working capital and
    secondarily to increased average interest rates on borrowings in 2005 compared
    to 2004.
Provision for Income Taxes
We realized an income tax benefit
    of $6.5 million for the year ended December 31, 2005 as compared to no provision
    or benefit for the year ended December 31, 2004. The $6.5 million increase
    was primarily attributable to the utilization of our net operating loss carryforward
    and the reduction in our tax valuation allowance of approximately $7.5 million
    with a consequent increase in our net deferred tax asset of $6.5 million.
    These changes resulted from management's evaluation of our positive
    and negative evidence bearing upon  the ability to realize our deferred tax
    assets and we believe that it is more likely than not that we will realize
    a portion of the benefits of federal and state tax assets.
Comparison of Years Ended December
31, 2004 and 2003
Revenue
Consolidated revenue increased 37% to $28.0 million for the year ended December 31, 2004 from $20.5 million for the year ended December 31, 2003. The $7.5 million increase is attributable to an increase in the number and average size of sales of our Integrated
Medical Management suite closed during 2004 compared to 2003, the recognition of fees from term licenses entered into during 2003 but only recognized in 2004 when all services work was completed, an increase in the volume of authorizations and referrals transmitted over
the Transactions and Information Exchange module resulting from new contracts closed in 2003 and an increase in volume of professional services work in 2004.
Cost of Revenue
Cost of revenue increased 41% to
    $13.1 million for the year ended December 31, 2004 from $9.3 million
    for the year ended December 31, 2003. The $3.8 million increase
    is due to increased personnel and personnel-related costs and increased independent
    contractor  costs in the professional services operation, increased costs
    of third-party software fees required for new sales of our Advanced Medical
    Management module closed in 2004 and increased personnel and personnel-related
    costs in product support operations.
Gross Margin
Gross margin increased 34% to $15.0 million
    for the year ended December 31, 2004 from $11.2 million for the
    year ended December 31, 2003. As a percentage of revenue, gross margin
    decreased to 53% for the year ended December 31, 2004 from 55% for the

year ended December 31, 2003. The decrease in gross margin as a percentage
of revenue reflects reduced productivity within the professional services operations,
partially offset by a higher proportion of revenue derived from solution licenses
and transaction fees which have a  higher gross margin than revenue for professional
services.
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Sales and Marketing
Sales and marketing expenses increased 47% to $4.7 million for the year ended December 31, 2004 from $3.2 million for the year ended December 31, 2003. The $1.5 million increase is attributable to increased sales commissions associated with the increased
revenue, additional sales personnel and personnel-related costs, increased travel-related costs for the sales group and increased trade show and other marketing costs.
Research and Development
Research and development expenses
    decreased 18% to $3.2 million for the year ended December 31, 2004
    from $3.9 million for the year ended December 31, 2003. The net
    decrease of $0.7 million reflects increased development efforts adding
    new product features  and functionality prior to establishing technological
    feasibility, which required increased personnel and personnel related costs
    as well as increased use of independent contractors, both offset by increased
    capitalized software development. For the year ended December 31,
2004, we capitalized $0.9 million of software development costs. For the
year ended December 31, 2003, we did not capitalize any software development
costs. We began offering our Integrated Medical Management suite in early 2003
and our research and development  operation was focused primarily on maintenance
of the new product offering. Total research and development expenditures for
the year ended December 31, 2004 aggregated $4.1 million (including
capitalized software development costs of $0.9 million),
a
5%,
or
$0.2 million increase over total research and development expenditures of

$3.9 million for the year ended December 31, 2003.
General and Administrative
General and administrative expenses increased 47% to $6.3 million for the year ended December 31, 2004 from $4.3 million for the year ended December 31, 2003. The $2.0 million increase was due to the addition of a Chief Medical Officer to our executive team,
increased recruiting costs, increased depreciation expense associated with capital purchases, a general increase in corporate, finance, human resource and administrative personnel and personnel related costs.
(Gain)
              Loss on Change in Fair Value of Redeemable Convertible Preferred
              Stock Conversion Options
The fair value of conversion options
    was $1.9 million for the year ended December 31, 2004
    compared to a $42,000 gain for the year ended December 31, 2003. The
    increase resulted
    from the increase in the fair value of the
  conversion option calculated using the Black-Scholes model.
Interest
              Expense, net
Interest expense, net decreased 30%
    to $175,000 for the year ended December 31, 2004 from $249,000 for the
    year ended December 31, 2003. The $74,000 net decrease reflects lower
    average borrowings under our working capital facility partially offset by
    higher average
borrowings for capital expenditures.
Provision for Income Taxes
We made no provision for income taxes in 2003 or 2004.
Unaudited Quarterly Statements of Operations
The following tables present our unaudited quarterly results of operations for each of the nine quarters beginning March 31, 2004 and ending March 31, 2006. You should read the following table in conjunction with our audited consolidated financial statements and
related notes appearing at the end of this prospectus. We have prepared the unaudited information on a basis consistent with our audited consolidated financial statements and have included all adjustments, which, in the opinion of management, are necessary to fairly present
our operating results for the quarters presented. Our historical unaudited quarterly results of operations are not necessarily indicative of results for any future quarter or for a full year.
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Three Months Ended
Mar. 31,
2006
Dec. 31,
2005
Sept. 30,
2005
June
30,
2005
Mar. 31,
2005
Dec. 31,
2004
Sept. 30,
2004
June
30,
2004
Mar. 31,
2004
(unaudited)
(in thousands)
Consolidated Statement of Operations Data:
Revenue
Term license revenue
$
415
$
2,862
$
5,032
$
1,183
$
652
$
797
$
2,279
$
2,263
$
921
Subscription, maintenance and transaction fees
5,308
6,226
3,926
3,493
3,542
3,623
3,695
3,390
3,958
Professional services
3,103
5,076
2,805
2,013
1,786
1,867
2,568
1,434
1,233
Total revenue
8,826
14,164
11,763
6,689
5,980
6,287
8,542
7,087
6,112
Cost of revenue
3,555
4,583
4,076
3,388
3,268
3,341
3,536
3,065
3,130
Gross margin
5,271
9,581
7,687
3,301
2,712
2,946
5,006
4,022
2,982
Operating expenses
Sales and marketing
2,205
2,444
2,238
1,846
1,250
1,081
1,179
1,455
953
Research and development
1,561
676
580
771
600
946
738
711
848
General and administrative
2,475
3,980
2,005
1,918
1,804
1,705
1,658
1,557
1,400
Total operating expenses
6,241
7,100
4,823
4,535
3,654
3,732
3,575
3,723
3,201
(Loss) income from operations
(970
)
2,481
2,864
(1,234
)
(942
)
(786
)
1,431
299
(219
)
(Gain) loss on change in fair value of redeemable convertible preferred stock conversion options
(158
)
(183
)
4,788
(153
)
(118
)
(123
)
1,987
(6
)
(8
)
Interest
    expense, net
60
100
78
55
41
56
51
39
29
(Loss)
    income before benefit for income taxes
(872
)
2,564
(2,002
)
(1,136
)
(865
)
(719
)
(607
)
266
(240
)
Benefit for income taxes
416
4,503
1,095
507
386
—
—
—
—
Net (loss) income
$
(456
)
$
7,067
$
(907
)
$
(629
)
$
(479
)
$
(719
)
$
(607
)
$
266
$
(240
)
Accretion of convertible preferred shares and redeemable convertible preferred shares
(821
)
(821
)
(4,117
)
(644
)
(644
)
(644
)
(644
)
(852
)
(843
)
(Loss) income available to common shareholders
$
(1,277
)
$
6,246
$
(5,024
)
$
(1,273
)
$
(1,123
)
$
(1,363
)
$
(1,251
)
$
(586
)
$
(1,083
)
(Loss)
    income per share available to common shareholders, basic
$
(0.19
)
$
0.96
$
(0.78
)
$
(0.19
)
$
(0.17
)
$
(0.21
)
$
(0.20
)
$
(0.09
)
$
(0.17
)
Income (loss)
          per share available to common shareholders, diluted
$
—
$
0.22
$
—
$
—
$
—
$
—
$
—
$
—
$
—
Weighted
          average shares used to compute (loss) income available to common shareholders
          per common shareholder, basic and diluted
6,549,699
6,498,829
6,445,686
6,445,643
6,441,869
6,435,536
6,427,538
6.358,508
6,222,090
Weighted
          average shares used to compute (loss) income available to common shareholders-diluted
6,549,699
28,684,063
6,445,686
6,445,643
6,441,869
6,435,536
6,427,538
6,358,508
6,222,090
Comparison of Unaudited Quarterly Results
Revenue
Our total consolidated revenue has increased over the periods presented based on new sales of our Integrated Medical Management suite and increased utilization of the solutions from which we derive transaction fees. Our total consolidated revenue has varied from
quarter to quarter based on new sales and renewals of term licenses for our Advanced Medical Management module and the volume of services work contracted from both existing and new customers.
Cost of Revenue
Our cost of revenue has varied on a quarterly basis reflecting third-party software fee costs associated with new sales of our Advanced Medical Management module, amortization of capitalized software as projects are completed and software is deployed for general use
and the addition of personnel and/or independent contractors to support the contracted services revenue.
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Gross Margin
Our gross margins have varied on a quarterly basis primarily due to the mix of revenue and the proportion of license revenue and transaction fees to the total revenue for the quarter and the impact of training and other non-billable time of resources added to the
professional services operations.
Sales and Marketing
Sales and marketing expenses have generally increased over the periods presented due to the addition of sales and product marketing personnel. Quarterly fluctuations are the result of the timing of marketing expenditures and sales commission expense associated with
license revenue recognized during the quarter.
Research and Development
Research and development expenses have generally increased over the periods presented due to the increased focus on new product features and functionality and the associated addition of personnel and independent consultants.
General and Administrative
General and administrative expenses have generally increased over the periods presented reflecting expansion of executive management, addition of strategic business development operations, increased costs of recruiting staff for the entire organization, increased
facilities cost and increased depreciation expense. In the three months ended December 31, 2005, we recorded an accrual of $1.1 million for a special incentive, based upon our results of operations for the year ended December 31, 2005.
Liquidity and Capital Resources
Since our inception, we financed
    our operations primarily through internally generated cash flows, borrowings
    from banks and the issuance of preferred stock. As of December 31, 2005,
    we had cash of $2.4 million and receivables of $10.4 million. As
    of
December 31, 2005, we had no borrowings under our bank working capital line
and had $3.8 million in total capital equipment financing, primarily capital
leases, outstanding. As of December 31, 2005, we had accumulated dividends
on our preferred stock of $14.5 million.
In connection with this offering, all of our outstanding preferred stock will
be converted to common stock under the terms of each class of preferred
stock, the Series A accrued dividend as of the date of this offering will be
converted to common stock pursuant to an election  of each holder as provided
under the rights, preferences and designations of the Series A preferred stock
and the Series B and Series C accrued dividends as of the date of this offering
will be paid in cash from the proceeds of this offering.
We currently are negotiating an extension
    of our working capital line with Silicon Valley Bank that is collateralized
    by all our assets. Our borrowings under this facility will be no more than
    the lesser of $8 million or 80% of eligible receivables, as such term is
    defined  in the bank agreement, minus the total amounts then undrawn on all
    outstanding letters of credit, foreign exchange contracts, or any other accommodations
    issued or incurred by Silicon Valley Bank for our benefit. As of March 31,
    2006, we had no borrowings outstanding  under the existing facility and our
    maximum borrowing availability was $3.0 million. We will also have a
    $1.0 million equipment line of credit with Silicon Valley Bank that
    is collateralized by our assets. Borrowings under this line are for capital
    equipment and advances are  made during a calendar quarter. At the end of
    each calendar quarter, all advances are converted to a thirty-month amortizing
    term loan. As of March 31, 2006, we had $0.2 million in capital
    equipment financing under the existing facility. Although our credit agreement
    with
Silicon Valley Bank expired on June 30, 2006, we currently are negotiating
an extension of this facility and expect to execute a final agreement based on
an executed term sheet in the near future.
Operating Activities
Net cash provided by operating activities was $2.9 million and $2.2 million for the three months ended March 31, 2006 and 2005, respectively. Net cash provided from operating activities for the three months
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ended March 31, 2006 consisted
    of a net loss of $0.5 million, offset by non-cash depreciation and amortization
    of $0.5 million, an increase of $1.6 million in deferred revenue
    and by changes in working capital. Net cash provided by operating activities
    for the three months ended March 31, 2005 consisted of a net loss of
    $0.5 million, offset by non-cash depreciation and amortization
of $0.5 million, an increase in deferred revenue of $2.4 million and
by changes in working capital.
Net cash provided by operating activities
    was $5.7 million and $2.5 million for the years ended December 31,
    2005 and 2004, respectively. Net cash provided from operating activities
    for the year ended December 31, 2005 primarily resulted from net income
    of
$5.1 million, plus non-cash depreciation and amortization of $2.1 million,
and an increase in deferred revenue of $3.7 million, partially was offset
by changes in working capital of $5.2 million. Net cash provided from operations
for the year ended December 31, 2004
consisted of a net loss of $1.3 million, offset by non-cash depreciation
and amortization of $1.9 million and an increase in deferred revenue of
$2.0 million,
partially offset by changes in working capital of $0.1 million.
Investing Activities
Net cash used in investing activities
    was $0.5 million and $0.5 million for the three months ended
    March 31,
    2006 and 2005, respectively. Net cash used in investing activities for the
    three months ended March 31, 2006 related to development activities
    to enhance our  product offering and the capitalization of the cost associated
    with those projects of $0.4 million and the purchase of office equipment
    and computer equipment of $0.1 million. Net cash used in investing activities
    for the three months ended March 31, 2005, related to
development activities to enhance our product offering and the capitalization
    of the cost associated with those projects of $0.4 million and the purchase
    of office equipment and computer equipment of $0.1 million.
Net cash used in investing activities
    was $3.2 million and $2.0 million for the years ended December 31,
    2005 and 2004, respectively. Net cash used in investing activities for the
    year ended December 31, 2005 related to development activities to enhance
    our  product offering and the capitalization of the cost associated with
    those projects of $2.0 million, the capitalization of contingent payments
    of $0.1 million related to the acquisition of clinical decision support
    software at the end of 2002, the capitalization of software developed  by
    an independent firm of $0.8 million and the purchase of office equipment
    and computer equipment of $0.8 million. Net cash used in investing activities
    for the year ended December 31,
2004 related to development activities to enhance our product offering and the
capitalization of the cost associated with those projects of $0.9 million,
the capitalization of contingent payments related to the acquisition of clinical
decision support software at the end of 2002 of $0.3 million and the purchase
of office equipment and computer equipment of
$0.9 million.
Financing Activities
Net cash used in financing activities
    was $0.3 million for the three months ended March 31, 2006 compared
    to net cash provided by financing activities of $0.1 million for the
    three months ended March 31, 2005. Net cash used in financing activities
    for the three  months ended March 31, 2006 consisted of repayments against
    our capital leases outstanding and our equipment line of credit. Net cash
    provided by financing activities for the three months ended March 31, 2005
    consisted of borrowings against our equipment line of credit of
$0.2 million partially offset by repayments against our capital leases outstanding.
Net cash used in financing activities was $0.5 million and $0.8 million for the years ended December 31, 2005 and 2004, respectively. Net cash used in financing activities for the year ended December 31, 2005 consisted of borrowings against our equipment line of
credit of $0.2 million and repayments against our capital leases outstanding. Net cash used in financing activities for the year ended December 31, 2004 consisted of repayments on our capital leases outstanding and repayment of borrowings on our working capital line.
We believe that our cash balances, cash flows from operations and available borrowings under our working capital line of credit, equipment line of credit and capital leases will be sufficient to satisfy our working capital and capital expenditure requirements for at least
the next 12 months. We will use
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approximately $9.3 million of the estimated net proceeds of this offering to pay the accrued and unpaid dividends to the former holders of our Series B and Series C preferred stock upon the
automatic conversion of such shares to common stock upon the consummation of this offering. We intend to use the balance of the net proceeds of this offering for general corporate purposes,
including working capital needs. We believe opportunities may exist to expand our current business through strategic acquisitions and investments in technology, and we may use a portion of the
proceeds for these purposes. Changes in our operating plans, lower than anticipated revenue, increased expenses or other events, including those described in "Risk Factors" may cause us to
seek additional debt or equity financing on an accelerated basis. Financing may not be available on acceptable terms, or at all, and our failure to raise capital when needed could negatively
impact our growth plans, our financial condition and results of operations. Additional equity financing would be dilutive to the holders of common stock, and debt financing, if available, may
involve significant cash payment obligations and covenants or financial ratio requirements that restrict our ability to operate our business. We do not, however, have any current plans to issue
additional equity, including preferred stock, in the near future. After this offering, we expect to have cash and cash equivalents in excess of $           million.
Contractual Obligations and Commitments
The following table summarizes our contractual arrangements at December 31, 2005, after giving effect to the completion of this offering, and our application of the net proceeds and the timing and effect that such commitments are expected to have on our liquidity and
cash flows in future periods:
Payments Due by Period
2006
2007
2008
2009
2010
Thereafter,
through 2016
(in thousands)
Contractual Obligations:
Capital leases
$
1,428
$
1,343
$
988
$
299
$
79
—
Operating leases
1,136
1,130
1,009
1,038
1,076
$
6,874
Note payable
(1)
100
75
—
—
—
—
Other long term liabilities
—
22
—
—
—
—
Third-party software agreements
588
150
200
—
—
—
Total
$
3,247
$
2,720
$
2,197
$
1,337
$
1,155
$
6,874
(1)
Excludes interest which
          is calculated at prime (7.25% at December 31, 2005) plus 1.75%.
The amounts listed above for capital leases represent payments that we are required to make for equipment. If we fail to remain current with our obligations for any of these capital leases, we would be in default, and our continued failure to cure such default would
cause our remaining obligations under the defaulted capital lease to become immediately due.
The amounts listed above for operating leases represent base monthly rent on leases for office space and copier and fax equipment, and do not include required variable facility operating expense reimbursements to the landlord. If we fail to make payments on our office
space, we will be required to pay all remaining lease payments immediately.
In May 2006, the Company entered
    into an operating lease for additional premises. The amounts listed above
    do not include base monthly rent amounts due under this lease.
We are party to a Loan and Security Agreement with Silicon Valley Bank dated July 2, 2002 pursuant to which Silicon Valley Bank provides senior debt financing to us. Our obligations under the Loan and Security Agreement are secured by a lien on all of our assets.
In the event that we make a misrepresentation, breach a warranty or fail to perform a covenant set forth in the Loan and Security Agreement (each of which is defined in the agreement as a default), Silicon Valley Bank may, among other things, cease making loans to us,
accelerate the date for payment of all of our outstanding obligations to the bank and/or take possession of and sell all of our assets. Additionally, from and after the occurrence and during the continuance of a default, the then current interest rate on the outstanding loans under
the Loan and Security Agreement will increase by 4%. Although our credit agreement with Silicon Valley Bank expired on June 30, 2006, we currently are
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negotiating an extension of this
    facility and expect to execute a final agreement based on an executed term
    sheet in
    the near future.
The Company is party to a contract
    to purchase third-party licenses from a software vendor. The agreement expired
    on December 31, 2005; however, the agreement automatically renews on
    an annual basis, unless terminated by either party. $451 and $451 of expense
    was incurred under this agreement in 2005 and 2004 and is included in cost
    of revenue in the accompanying financial statements. Scheduled future minimum
    payments as of December 31, 2005 under this contract are $493 in 2006.
The Company is party to a contract
    whereby they are obligated to make minimum royalty payments on an annual
    basis. Total minimum royalty payments under this agreement aggregate $500
    and are recorded ratably over the four year term of the agreement. The Company
    recorded $125 and $63 of expense under this agreement for the years ended
    December 31, 2005 and 2004, respectively. Scheduled future minimum payments
    under this contract are $445 as of December 31, 2005.
Quantitative and Qualitative Disclosures About Market Risk
Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in interest rates. We do not hold or issue financial instruments for
trading purposes.
Interest Rate Risk
The primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing risk. Some of the securities in which we may invest may be subject to market risk. This means that a change in prevailing interest rates
may cause the principal amount of the investment to fluctuate. To minimize this risk in the future, we intend to maintain our portfolio of cash equivalents and short-term investments in a variety of securities, including commercial paper, money market funds, government and
non-government debt securities, certificates of deposit and money market funds. Money market funds are not subject to market risk because the interest paid on these funds fluctuates with the prevailing interest rate. However, a decline in interest rates would result in reduced
future investment income.
Our interest expense, generally, is not sensitive to changes in prevailing interest rates since the majority of our borrowings outstanding, capital leases, are at a fixed rate. Borrowings under our working capital and equipment lines of credit are subject to adjustments in
prevailing interest rates. Future increases in prevailing rates will increase future interest expense. However, we do not believe a 10% increase in prevailing interest rates will have a material effect on our interest expense.
Recent Accounting Pronouncements
In December 2004 the FASB issued SFAS No. 123R,
Share-Based Payment
, which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus on transactions in which an entity obtains
employee services in share-based payment transactions. SFAS 123R is a revision to SFAS No. 123 and supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees
, and its related implementation guidance. SFAS No. 123R requires companies to recognize the
fair value of stock options and other stock-based compensation to employees, including grants of employee stock options, effective January 1, 2006. SFAS No. 123R requires us to measure the cost of employee services received in exchange for stock compensation based upon
the grant-date fair value of the employee stock options. Incremental compensation costs arising from subsequent modifications of awards after the grant date must also be recognized as compensation expense.
Prior to January 1, 2006, we measured stock-based compensation in accordance with APB No. 25. Beginning January 1, 2006, we adopted the fair value recognition provisions of SFAS No. 123R and have reflected share-based compensation of $0.1 million in the
results of operations for the three months ended March 31, 2006. Based upon the stock options outstanding at December 31, 2005 and options granted in January 2006, we will recognize compensation expense in future consolidated statements of income of approximately
$0.4 million in each of the years ended December 31, 2007 and 2006, respectively, based upon the option vesting schedule. Under the modified-prospective-transition method of SFAS No. 123R, results for prior periods have not been restated. The impact on our financial
condition or results of operations will depend on the number and terms of share-based payments granted in the future.
In May 2005, the FASB issued SFAS No. 154,
Accounting Changes and Error Corrections – a replacement of APB Opinion No.
20 and FASB Statement No.
3.
Among other changes, SFAS No. 154 requires that a voluntary change in accounting principle be applied
retrospectively with all prior period financial statements presented on the new accounting principle, unless it is impracticable to do so. SFAS No. 154 also provides that (i) a change in method of depreciating or amortizing a long-lived nonfinancial asset be accounted for as a
change in estimate (prospectively) that was effected by a change in accounting principle and (ii) a correction of errors in previously issued financial statements should be termed a "restatement." The new standard is effective for accounting changes and correction of errors
made in fiscal
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years beginning after December 15, 2005. We do not expect adoption of SFAS No. 154 to have a material effect on our results of operations or financial condition.
In June 2005, the EITF reached a
    consensus on EITF Issue No. 04-10,
Determining Whether to Aggregate Operating
    Segments That Do Not Meet the Quantitative Thresholds
. This guidance
    requires that individual operating segments that do not meet the quantitative

thresholds set forth in SFAS No. 131,
Disclosure about Segments of an
Enterprise and Related Information
, for separate reporting may be aggregated
only if the segments meet certain requirements. These requirements are applicable
for fiscal years ending after October 13,
2004. The adoption of EITF Issue No. 04-10 does not affect us because we currently
operate in only one segment.
In September 2005, the EITF reached consensus on EITF Issue No. 05-02,
The Meaning of "Conventional Convertible Debt Instrument" in EITF Issue No.
00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own
Stock.
EITF Issue No. 05-02 is effective for new instruments entered into and instruments modified in reporting periods beginning after June 29, 2005. The adoption of EITF Issue No. 05-02 is expected to have no impact on our financial statements.
At the June 15-16, 2005 EITF meeting
    the EITF discussed EITF Issue No. 05-04,
The Effect of a Liquidated Damages
    Clause on a Freestanding Financial Instrument Subject to EITF Issue No.
00-19,
    Accounting for Derivative Financial Instruments Indexed to, and  Potentially
    Settled in, a Company's Own Stock
. EITF Issue No. 05-04 addresses
    how a liquidated damages clause payable in cash affects the accounting for
    a freestanding financial instrument subject to the provisions of EITF Issue
    No. 00-19. The guidance discussed
(i) whether a registration rights penalty meets the definition of a derivative
and (ii) whether the registration rights agreement and the financial instrument
to which it pertains should be considered as a combined instrument or as separate
freestanding instruments. At the
September 15, 2005 EITF meeting, the EITF postponed further deliberations
on EITF Issue No. 05-04, and the FASB staff requested that the FASB consider
a separate Derivatives Issue Guide, or DIG, issue that addresses whether a registration
rights agreement is a derivative
in accordance with SFAS No. 133,
Accounting for Derivative Instruments
and Hedging.
Following the resolution of that DIG issue, the FASB staff will
request that the EITF reconvene deliberations on EITF Issue No. 05-04. While
EITF Issue No. 05-04 remains unresolved,  we have determined that the liquidated
damage clauses contained in our convertible note agreements have been properly
considered and accounted for in accordance with the prevailing guidance.
In June 2006, FASB issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No.
109
, or FIN 48, which clarifies the accounting for uncertainty in tax positions. This interpretation requires the financial
statement recognition of a tax position taken or expected to be taken in a tax return if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The provisions of FIN 48 are effective for fiscal years beginning after
December 15, 2006. The Company is currently evaluating the impact that the adoption of FIN 48 will have on its financial condition and results of operations.
Controls and Procedures and Changes in Accountants
On March 14, 2006, upon the
    authorization of our board of directors acting on the recommendation of the
    audit committee of the board of directors, we selected Grant Thornton LLP
    as our independent registered public accounting firm. We did not consult
    with
    Grant  Thornton on any financial or accounting reporting matters before its
    appointment. All of the audited financial statements included in this prospectus
    have been audited by Grant Thornton.
In connection with the audits of our financial statements for the years ended December 31, 2005, 2004 and 2003, Grant Thornton identified and informed us that we had a material weakness (as defined under the standards established by the Public Company Accounting
Oversight Board – U.S.) with respect to our accounting and reporting of certain complex transactions. As a result of this material weakness, we restated our financial statements as of and for the years ended December 31, 2004 and 2003. Our selected financial data as of and
for the years ended December 31, 2002 and 2001 were derived from financial statements, which we restated as a result of this material weakness and which were audited by Grant Thornton.
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To address this material weakness and those weaknesses identified by our former independent registered public accounting firm discussed below, we have expanded our accounting staff with additional skills and experience and have begun to engage outside professionals
to provide support and guidance in areas where we cannot economically maintain the required skills and experience internally. We intend to continue the expansion of our accounting staff and engagements of outside professionals if and as we believe necessary.
KPMG LLP (KPMG) was previously the principal accountants for the Company. On March 14, 2006, upon the authorization of our board of directors acting on the recommendation of our audit committee, we dismissed KPMG as our independent registered public
accounting firm. The audit report of KPMG on our consolidated financial statements as of and for the year ended December 31, 2004 did not contain any adverse opinion or disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope, or accounting
principles, except that such report contained a separate paragraph stated as follows: "We also audited the adjustments described in Note 3 to the accompanying consolidated financial statements that were applied to restate the 2003 financial statements. The consolidated
financial statements of the Company as of December 31, 2003 were audited by other auditors whose report thereon dated February 25, 2004, expressed an unqualified opinion on those statements, before the restatement described in Note 3 to the consolidated financial
statements."
In connection with the audit of the year ended December 31, 2004, and the subsequent interim period through March 14, 2006, there were (i) no disagreements with KPMG on any matter of accounting principles or practices, financial statement disclosure, or auditing
scope or procedures, which disagreements, if not resolved to the satisfaction of KPMG, would have caused KPMG to make reference in connection with its report to the subject matter of the disagreements, and (ii) no reportable events of the type listed in paragraphs (A)
through (D) of Item 304(a)(1)(v) of Regulation S-K, except that KPMG reported orally to and discussed with our audit committee on December 16, 2005 that during its audit of the consolidated financial statements as of and for the year ended December 31, 2004, it noted
material weaknesses in internal controls related to accounting for revenue recognition, accounting for the accretion of costs and dividends related to preferred stock and accounting for income taxes. We have authorized KPMG to respond fully to any inquiries by our successor
independent registered accounting firm, Grant Thornton, regarding these material weaknesses.
On May 27, 2005, upon the authorization of our board of directors, acting on the recommendation of our audit committee, we dismissed Goldenberg Rosenthal, LLP and engaged KPMG as our independent registered public accounting firm. We did not consult with
KPMG on any financial or accounting reporting matters before its appointment.
In  connection with the audit of the year ended December 31, 2003 and the subsequent interim period through through May 27, 2005, there were no disagreements with Goldenberg Rosenthal on any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Goldenberg Rosenthal, would have caused them to make reference thereto in their report on our financial statements for such years. The audit report of Goldenberg Rosenthal
on our consolidated financial statements as of and for the year ended December 31, 2003 did not contain an adverse opinion or disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principle.
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BUSINESS
Company Overview
We are a leading provider of software, services and clinical content to healthcare payers that allow them to improve the quality and affordability of healthcare provided to their members and increase their administrative efficiency. Our Collaborative Care Management
solution analyzes data, automates payer workflow processes and electronically connects payers, providers and patients, providing them with a common view of the patient's health that helps to foster better clinical decision making. Our solution is built around a suite of modular
and easily configurable software applications and utilizes the Internet to link our payer customers to their members and their members' chosen healthcare providers.
Our Collaborative Care Management solution is comprised of two related suites of products – Integrated Medical Management and Collaborative Data Exchange. Our Integrated Medical Management suite allows our healthcare payer customers to identify active care
management opportunities among their members and automate an intervention process based on clinical best practices. Our Integrated Medical Management suite also helps our customers reduce internal administrative costs by automating traditionally manual processes. Our
Collaborative Data Exchange suite allows our customers to securely transmit health records containing critical patient information in an easily understood format to patients and providers at the time they are making treatment decisions. We refer to these health records as
Patient Clinical Summaries, and believe that they are a critical first step to developing Electronic Health Records. In the future, we expect our Patient Clinical Summaries to integrate additional information provided by patients and a broad range of providers, thereby increasing
their value to all constituents.
As of March 31, 2006, our customers included approximately 56 regional and national managed care organizations, including the largest organizations in more than 27 regional markets. In the aggregate, our customers insure or manage care for approximately one out of
every six insured persons in the United States. Depending on the application, we provide our solutions on an annual subscription basis, under limited term licenses or on a per-transaction basis, both of which provide us with recurring revenue. We primarily license our solutions
through direct sales to customers in the United States. Our revenue has increased at a compound annual growth rate of 32.8% since 2001, to $38.6 million for the year ended December 31, 2005, from $12.4 million for the year ended December 31, 2001.
Industry Overview
The Centers for Medicare & Medicaid Services, or CMS, projected that more than $2.0 trillion was spent on healthcare in 2005, representing 16% of the U.S. Gross Domestic Product, or GDP. CMS estimates that spending will grow to $4.0 trillion by 2015, or 20% of
the GDP, representing 7.2% annual growth since 2004. Healthcare costs are increasing in part due to improvements in medical technology and medical treatments, but also because of increases in general utilization of healthcare products and services. Rising healthcare costs
negatively impact a wide array of constituencies, including federal and state governments, employers, consumers and healthcare providers. However, we believe that the broad array of healthcare payers is the most directly impacted. Payers include federal and state government
programs like Medicare, Medicaid and public employee health benefit plans, large commercial insurers and numerous other national, regional and local health plans and administrators and self-insured corporations. Rising healthcare costs consistently threaten to negatively
impact these payers.
We believe that payers have two options if they are to maintain their viability. First, payers can proactively manage the delivery of healthcare services and products to their members to improve the quality and cost of care. Second, they can offset rising healthcare costs
by reducing their internal administrative costs through efficiency gains. To the extent they are not successful at proactively managing care more effectively and reducing their internal administrative costs, payers must pass the rising cost of healthcare on to their customers and
their members. Passing on these costs ultimately threatens the payers' relationships with their customers and/or members as enterprises and consumers also seek to lower their healthcare-related expenditures. Accordingly, payers are consistently seeking new strategies to more
effectively manage the care delivery process for their members and reduce their internal operating costs. According to a Gartner survey
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entitled "Healthcare Payers' IT Budgets Continue to Climb," published on April 17, 2006, health plans' information technology budgets increased by over 25% on a per member basis from
2002 to 2004. We believe, based on our research, that the market for care management solutions is currently in excess of $1 billion per year and is growing at a compound annual growth rate in
excess of 15.8%.
Overuse, underuse and misuse of medical services and treatments is widespread.
We believe that one of the material contributors to rising healthcare costs is overuse, underuse and misuse of medical services and treatments caused by providers lacking timely access to necessary patient information and providers consistently failing to apply clinical
best practices, which we refer to as poor-quality care. We believe that this combination has led to avoidable medical errors, injuries and fatalities. For example, The Institute of Medicine reported in 1999 that as many as 98,000 people die in hospitals each year as a result of
preventable medical errors. Additionally, the Institute for Healthcare Improvement found that poor communication is responsible for as many as 50% of all medication errors and up to 20% of adverse drug events in hospitals.
Providers Generally Lack Necessary Patient Information.
We believe that a primary contributor to medical errors is generally the lack of information exchange among different providers treating the same patients. Generally, providers have access to only the patient
information contained in their own files and systems. For providers seeing a patient for the first time, the information is often limited to information provided by the patient, which is generally rudimentary, incomplete or inaccurate. We believe that this issue is particularly acute
in emergency room situations where physicians need to make quick decisions about how to treat a patient, and generally lack the critical information that they need to provide the patient with optimal care. We believe that this absence of complete patient information has a
negative impact on the quality and cost of care by causing providers to misdiagnose medical conditions, prescribe medications that negatively interact with each other, and order duplicative or medically unnecessary tests and procedures.
In an effort to address this critical roadblock to improving quality of care, in 2004, President Bush appointed a National Coordinator for Health Information Technology to develop a strategy for a national health information infrastructure. Largely as a consequence, we
believe that electronic health information networks are gaining popularity as a potential means to foster the exchange of healthcare data by linking payers, providers and patients to the same network. Both the Nationwide Health Information Network and its regional
counterparts, the Regional Health Information Organizations, depend on the existence of Electronic Health Records, or EHRs, for their success. EHRs are intended to provide a comprehensive view of a patient's health status and care history compiled from an individual
patient's information across the healthcare system. We believe that EHRs will eventually consolidate information supplied by payers (Payer Based Health Records), information supplied by providers (Electronic Medical Records, or EMRs) and information supplied by patients
(Personal Health Records, or PHRs).
However, an impediment to creating EHRs in the near term is the relative scarcity of detailed electronic patient data. According to a U.S. Department of Health and Human Services study, published by the Centers for Disease Control in March 2005, only 17% of
physicians were utilizing EMR systems in their practices in 2003, and under a third of hospitals were utilizing EMRs in 2002. In terms of patient-supplied data, we believe that PHRs are in their infancy. Based on our analysis of industry reports and our customers' experience
with Internet applications they provide to their members, we believe that fewer than 1% of the population of the United States has created and maintains an electronic PHR for themselves and/or their families. As a result, we believe that today's only reliable source of
comprehensive patient data comes from payers, which have vast amounts of member data contained in their legacy claims processing and care management systems.
Clinical Best Practices Are Not Universally Applied by Providers.
Even when physicians have a reasonably complete picture of a patient's status, physicians often do not have all of the medical information that would help them treat the patient, thereby putting the
patient's health at unnecessary risk. A wide array of medical organizations, such as the American Medical Association, American Diabetes Association and American Heart Association, consistently update clinical best practices for treatment of medical conditions and chronic
diseases. Although providers have access to this information, based on a RAND study published
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in the New England Journal of Medicine in June 2003, we believe that clinical best practices are not employed approximately 45% of the time. Failure to apply clinical best practices can raise
healthcare costs by decreasing the quality and cost effectiveness of the treatment. We believe that these failures occur for a variety of reasons, including provider inability to keep up with
clinical best practices due to the volume of medical conditions and diseases and the frequency that clinical best practices change.
Given the magnitude of the challenges facing the healthcare system, the need for payers to respond to rapid increases in medical costs, and the capital requirements for information systems to address the challenges, we believe that the payers are the logical drivers of
change. Payers, however, face their own challenges.
Payers generally lack systems to effectively and efficiently address poor-quality care.
Due to their role in the healthcare system, payers are uniquely positioned to identify poor-quality care and have an interest in improving outcomes for their members to reduce the cost of care. As the financial intermediary between the provider and patient, payers have
the opportunity to monitor the care provided to their members through active care management programs. Payers have a large volume of patient information in electronic format contained in their legacy claims processing and care management systems. However, we believe
that payers generally lack the information technology systems to play these roles effectively and efficiently. Based on our experience, we believe that payers generally rely on a combination of manual processes, third-party point solutions and proprietary systems for many
components of the care management process. As a result, we believe that these processes generally suffer from the following critical weaknesses:
Payers Cannot Effectively and Efficiently Identify High-Risk Patients.
In order for payers to identify poor-quality care, they must monitor the care provided to their members. Payers widely rely on manual processes, third-party providers or their own proprietary systems
with limited functionality and scalability to identify high-risk members. The administrative cost of using clinical staff to closely monitor every member is prohibitively expensive and materially outweighs the financial benefits. For payers to have a positive influence on quality
and cost of care at an acceptable administrative cost, we believe that they must have the technology to identify members with a high risk of substantial healthcare costs, including members with chronic diseases such as diabetes, or severe medical conditions such as breast
cancer. While identifying patients whose historical costs have been high is relatively easy, the challenge is to identify those patients who will incur high costs in the next 12 to 18 months. We believe that less than 20% of payers' most seriously ill members are responsible for
a majority of the payers' healthcare costs.
Payers Lack Information Systems to Optimally Manage Member Care.
Payers employ teams of doctors and nurses, who are in short supply and highly compensated, to monitor the care provided to high-risk members and often intervene where necessary. These
professionals review each patient's treatment plan against clinical best practices and intervene with the treating provider and patient to the extent poor-quality care exists. This process is referred to as care management. In our experience, these care management professionals
lack comprehensive information technology systems to support their workflow processes. Furthermore, they often rely on manual, ad-hoc processes to interject clinical best practices into their workflow. As a result, we believe that the traditional care management process suffers
from the following weaknesses:
•
care managers fail to consistently identify poor-quality care;
•
care managers' intervention processes have a high risk of manual error;
•
care managers cannot consistently apply the most recent clinical best practices;
•
payers fail to capture and analyze valuable historical data; and
•
payers can only apply care management to the most obvious, highest cost members.
Payers Lack Systems Necessary to Share Critical Patient Information Internally and With Providers.
We believe that payers have the most comprehensive base of patient information in electronic format. Their legacy claims and care management systems contain basic
member identification information as well as raw data on the member's historical medical conditions, inpatient facility admissions, emergency
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room visits, tests and procedures, medications and providers. This information, once processed and validated, can be utilized throughout a payer's organization to help to improve the quality of
care. However, this generally does not occur, because many payers' legacy systems are not integrated with other systems. Therefore, data housed in one system cannot be leveraged by other
functional departments without direct access to that system. The information contained in payers' legacy systems can be even more valuable at the point of care. For example, we believe that
this basic information would increase an emergency room doctor's ability to provide high quality care when presented with an unconscious patient. However, in order for this information to
positively influence care decisions, providers must have on-demand access to this information in an easily understood format. To date, payers have lacked the systems necessary to automatically
assemble the data, review the data for inconsistencies, analyze and summarize the data, and disseminate the data internally and to providers in real time.
Benefits of Our Solutions
Our Collaborative Care Management solution is comprised of two related suites of products – Integrated Medical Management and Collaborative Data Exchange. Our Integrated Medical Management suite is a seamless payer-based care management system that analyzes,
applies, administers and automates healthcare programs based on actionable intelligence. It assembles current and historical data and transforms it into an easily understood format. Our Integrated Medical Management suite also provides comprehensive, automated tools to
ensure the most efficient handling of the information and consistent application of rules throughout the collaborative care management decision making process. Our Collaborative Data Exchange suite enables providers to obtain a Patient Clinical Summary, which includes the
patient's demographic information, medical conditions, medications, providers and treatment opportunities in an on-demand, easy to use format. As a result, the Patient Clinical Summary allows patients and providers to leverage the same actionable intelligence at the point of
care as the care manager. We believe that these solutions promote collaborative health care management where all healthcare stakeholders – the payer, the provider and the patient – participate in helping to obtain the best outcome at the best cost.
We believe our solutions allow our payer customers to improve the quality of care and reduce costs by enabling payers to:
•
Identify high-risk members.
Our solutions automatically organize the data contained in our customers' legacy claims processing and care management systems and apply proprietary algorithms to that data to classify their members based on their risk of incurring
material medical costs. We believe that these solutions increase the effectiveness of our customers' care management programs by more accurately and efficiently identifying members that would benefit from active disease or case management, thereby helping to improve
the quality and to reduce the cost of care.
•
Promote consistency and reduce manual errors and administrative costs through automation.
Our solutions automate the workflow process for utilization management, case management and disease management. With respect to utilization management, our solutions automate workflow processes to enable our customers to adjudicate approximately 85% of
healthcare authorization requests from providers without manual intervention and guides utilization management specialists through the workflow process for the remaining, more complex cases. By doing so, these solutions allow our customers' specialists to handle more
cases and to focus on more complex value-added tasks, thereby reducing administrative costs. With respect to case management and disease management, our solutions guide care management specialists through a systematic intervention process specifically tailored to
the member's medical condition or disease based on clinical best practices and our customers' internal rules and guidelines. By doing so, we believe our solutions promote consistent utilization and care management processes that are less prone to manual error, thereby
helping to improve the quality and to reduce the cost of care.
•
Promote the consistent application of clinical best practices.
Our solutions enable care management professionals to apply clinical best practices and best processes when adjudicating the medical appropriateness of requested services, evaluating treatment plans and
creating intervention plans. Accordingly, adjudications are more accurate and care management intervention plans are more
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consistently based on clinical best practices helping to improve the quality and to reduce the cost of care.
•
Utilize analytics to improve processes.
The reporting tools contained in our solutions allow our customers to analyze historical results to determine which care management interventions were generally the most effective in improving the quality of care and cost
efficiency. These tools allow our customers to continually refine and improve their internal care management rules and guidelines.
•
Enable enhanced information
            access.
Our solutions establish
            a single source of clinical information that supports integration
            with our customers' other operational systems to ensure that
            care managers have access to the most current information. By providing
            access  to all relevant data, we allow more effective care management
            programs. Our solutions also allow patients and providers to obtain
            a Patient Clinical Summary, which includes patient demographic information,
            medical conditions, providers and treatment opportunities in
an on-demand, easy to use format. By providing this critical patient information
            to patients and providers in an easily understood format in real
            time, we believe that we improve the quality and reduce the cost
            of care. For example, in a recently completed study that we commissioned
            conducted on our behalf by HealthCore, Inc., a data analysis company
            owned
            by
            Wellpoint, the sharing of Patient Clinical Summaries by BlueCross
            BlueShield of Delaware with the staff at the emergency department
            for Christiana Care Health System greatly reduced the cost of
care for patients seen in the emergency room. The study compared the costs of
            services delivered in the emergency department and, for those patients
            admitted to the hospital, during their first day of hospitalization.
            HealthCore included data on 918 emergency room visits  where Patient
            Clinical Summaries were retrieved and 3,590 matched "control" visits
            where no Patient Clinical Summaries were used. The conclusion was
            that overall costs paid by the health plan and the patient dropped
            by an average of approximately $545 per  emergency department visit,
            or 19.7% of the average cost of the control visits that did not utilize
            this information.
Our Strategy
Our goal is to be the leading provider of care management solutions and to encourage market-wide adoption of our Patient Clinical Summaries. Key elements of our strategy include:
•
Continue to expand our relationships with customers.
We have developed strong customer relationships, which we believe provide us with both recurring revenue streams from those customers and cross-selling opportunities. During 2005, we renewed approximately
100% of our customer contracts which were subject to renewal. Historically, our revenue per customer has increased as we have expanded our penetration within those customers by including more members and increasing the number of solutions purchased by those
customers. We will further strengthen relationships with our existing customers to ensure a consistent renewal rate in the future. We also intend to develop innovative cross-selling programs to continue to increase our revenue per customer.
•
Innovate new solutions and lead the next generation of Collaborative Care Management.
Over the past seven years, we have introduced several new solutions and expanded our clinical content in response to the unique needs of our customers. We have
accomplished this expansion through internal development, as well as acquisitions. We intend to further develop innovative solutions, both internally and through acquisitions, to improve the quality and cost of care and increase administrative efficiency. In particular, we
intend to lead the market in the development of the next generation of Collaborative Care Management solutions. To that end, we are currently developing two new software modules, called MEDeWeaver and MEDePathway, which we expect will allow providers and
patients to populate Patient Clinical Summaries with additional information. We expect these expanded solutions to serve as the foundation for electronic health records by aggregating payer, provider and patient-contributed information.
•
Apply resources to ensure provider adoption of Patient Clinical Summaries.
We released our Collaborative Data Exchange suite in 2005 and currently are deploying it for eight managed care organizations. We generate a transaction fee for each Patient Clinical
Summary delivered to a provider. Therefore, the growth in revenue for our Collaborative Data Exchange suite is contingent
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upon adoption of Patient Clinical Summaries by providers. In order to cultivate provider adoption, we created a specialized marketing and training team and worked with our customers'
provider relations departments to strengthen our ability to increase usage of our Patient Clinical Summaries. We intend to continue to creatively apply resources in order to encourage
provider adoption of Patient Clinical Summaries.
•
Expand our customer base.
We have grown our annual revenue to $38.6 million in 2005 by licensing our solutions to approximately 56 customers. We estimate that there are at least 300 additional managed care organizations in the United States that could benefit
from our solutions. Because they share the same challenges as our existing customers, we believe that self-insured companies and Medicare and Medicaid organizations are also attractive target customers. Our strategy also includes committing resources to license our
solutions into smaller payers in markets where our larger customers have rolled out our principal connectivity module, Transactions and Information Exchange. We believe these smaller payers can achieve high productivity gains from the already established provider
adoption of our self-service tools. Furthermore, we expect that the emerging Regional Health Information Organizations will provide us with a new market opportunity. We intend to continue to invest in sales and marketing to increase awareness of our solutions within
the payer market and obtain additional payer customers.
•
Continue to build recurring and predictable revenue streams.
Historically, we derived most of our revenue from our Advanced Medical Management module, for which our customers purchase five-year term licenses. Although this module provides us with a
recurring revenue stream, the size of the license fee and the fact that we recognize the license fee at the time we enter into the contract has caused this revenue stream to fluctuate, sometimes significantly, from quarter to quarter. In 1999, we began offering our customers
additional solutions and clinical content for which they pay annual subscription licenses or transaction fees. These revenue streams provide us with greater quarterly revenue visibility as we recognize the revenue from annual subscription licenses ratably over the term of
the license and from transactions as they occur. We intend to continue to develop new solutions for which our customers will pay annual subscription licenses or transaction fees.
Our Collaborative Care Management Solution
Our Integrated Medical Management Suite
Our Integrated Medical Management suite consists of four major modules: Analytics and Disease Management, Advanced Medical Management, Clinical Rules and Processes and Transactions and Information Exchange.
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Analytics and Disease Management
.     Our Analytics and Disease Management module is a decision support module which provides our customers with the patient identification, clinical analysis and risk stratification tools necessary to identify diseases and conditions that
materially affect cost and clinical utilization.
•
Payer Based Health Record.
Our Analytics and Disease Management module automates the creation of an electronic Payer Based Health Record for each of a payer's members. It does so by aggregating the data contained in the payer's legacy claims processing
systems, capturing all of the raw data related to a specific member and combining that information with the care management data that exists in the Advanced Medical Management module. After gathering the data, our module applies proprietary algorithms and
embedded clinical content to analyze the data for inconsistencies. For example, the existence of one test for diabetes without corresponding evidence of treatment for diabetes does not result in the listing of diabetes on the member's list of medical conditions. Once the
Payer Based Health Record has been created, it is available for use in all of our other solutions, as well as for reporting and further analysis.
•
Risk stratification.
Leveraging the same data utilized to create the Payer Based Health Record, our Analytics and Disease Management module automatically identifies members who could immediately benefit from active disease or case management to help to
improve clinical or cost outcomes. After patients have been identified and their clinical information analyzed, proprietary algorithms and, in some cases third-party applications, contained in our module classify members, enabling our customers to match the intensity of
the case or disease management resources with the patient's need. In conjunction with the stratification methodology, our Analytics and Disease Management module establishes a set of triggers for specific events that indicate whether a member is likely to become a cost
or utilization outlier. These triggers can be customized to match the specific clinical criteria used by our customers, or provided as part of the Clinical Rules and Processes module.
•
Integration with Advanced Medical Management and reporting.
When integrated with our Advanced Medical Management module, the data derived by our Analytics and Disease Management module is then electronically integrated with our customers' care
management workflow system. After a care management program has been established, the reporting tools provided in our Analytics and Disease Management module allow our customers to determine which interventions were the most efficient in meeting the plan's
goals, which were the most cost effective and which led to the best health outcomes for their members. This information allows the payers' medical directors to begin to develop best practice models, monitor their effectiveness and then modify the best practice models as
necessary.
Advanced Medical Management.
Our Advanced Medical Management module serves as the core of the Integrated Medical Management suite, enabling our customers to manage all aspects of their care management programs, providing centralized reporting and
establishing a single source of clinical information leveraged by each component of the integrated suite. The module supports integration with our customers' other operational systems, such as claims and eligibility systems, to ensure that payers' care managers have access to
the most current data and that those operational systems have access to the most current care management data. It also assists our customers with meeting regulatory and accreditation requirements for consistent care management processes.
•
Workflow automation.
Leveraging this comprehensive data repository, our Advanced Medical Management module automates workflow across the continuum of the care management process including:
•
Utilization management.
This quality
        assurance process allows payers to confirm the medical necessity of healthcare
        services and products. Utilization management generally includes the
        clinical review of hospital admissions, organ transplants, elective surgeries,
        high-tech diagnostic tests and expensive medications, often before the
    service or product is delivered to the patient.
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•
Case management.
This care and financial
        benefits coordination process supports patients with multiple conditions
        and/or traumatic injuries by ensuring that the patient receives the appropriate
        care from different members of the patient's care team at the appropriate
        time and in the appropriate setting, even when the patient's health
        benefit plan might require modification to provide coverage for such
    treatment.
•
Disease management.
These coaching
        and care coordination processes support patients with chronic conditions
        by helping to ensure that the patient understands the nature of the condition
        and the best ways to minimize the impact of the condition, and that the
        patient complies with the established treatment regimen. The disease
        manager also helps coordinate the patient's interaction with the
        healthcare system to ensure that the patient receives the appropriate
        care from different members of the patient's care team at the most
    appropriate time and in the most appropriate setting.
•
Interoperability with Analytics and Disease Management.
When payers utilize our Advanced Medical Management module in combination with our Analytics and Disease Management module, workflows are automatically populated with care management data
generated by the Analytics and Disease Management module. Additionally, since the same data also is used to create the Patient Clinical Summary for the provider, everyone on the care management team is working with consistent data.
•
Interoperability with Transactions and Information Exchange.
When payers utilize our Advanced Medical Management module with our Transaction and Information Exchange module, most authorizations and referrals that traditionally would be handled by a payer
care manager for approval over the telephone are automatically, clinically adjudicated with the same rules that the payer care manager would have used. Only the referrals and authorizations that are considered too complicated or questionable are presented to a payer care
manager, having automatically populated their work queue, when the exception occurs. The case is then presented with all of the pertinent history and relevant clinical guidelines to help the payer care manager adjudicate the request manually.
Clinical Rules and Processes.
Our Clinical Rules and Processes module is a content solution consisting of clinical best practices, which have been validated by evidence-based medicine, and care management best processes, which we have defined based on our
customers' shared experience. When deployed as part of our Integrated Medical Management suite, our Clinical Rules and Processes module supplements a payer's existing rules and guidelines by populating the system with reliable, evidence-based clinical rules. This
supplements our customers' ability to automate processes and promotes the clinical consistency required to provide the best diagnostics and treatment recommendations. We continually update our Clinical Rules and Processes module based on evolving clinical best practices
and best processes and distribute the updated content to our customers annually for lower priority changes and more frequently for higher priority changes.
Our Clinical Rules and Processes module consists of two primary categories of content:
•
Medical Appropriateness Criteria.
This category consists of clinical content for utilization management regarding the medical appropriateness of a proposed healthcare service or treatment. These rules are used to manually or automatically adjudicate requests for
authorizations and referrals.
•
Clinical Care Pathways.
This category consists of content for case and disease management that automatically populates questionnaires, goal templates, and other correspondence to patients and providers. This information is integrated with the Advanced Medical
Management module and is exposed to the payer care manager when they bring up a case in their workflow. We support clinical care pathways for 28 medical conditions, which we believe address the majority of healthcare spending.
Transactions and Information Exchange.
Our Transactions and Information Exchange module creates a necessary bridge electronically linking physicians, hospitals and other providers to payers. Using this module, providers can electronically submit referrals,
authorizations and extensions requests through multiple communication sources including the Internet, interactive voice response and electronic data interchange. As a result, payers can reach all of their provider community regardless of the technology infrastructure on the
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provider's side. When combined with our Clinical Rules and Processes module, the module provides payers with the ability to automatically process requests from physicians and hospitals. The
automatic approval of routine requests significantly reduces a payer's administrative costs because requests are initiated, processed and completed without human intervention on behalf of the
payer. Payers using the Internet and interactive voice response paths have been able to automate and approve up to 85% of their referral requests. Requests that require human intervention are
flagged for further review and immediately routed to a care manager at the payer for resolution.
Our Collaborative Data Exchange Suite
Our Collaborative Data Exchange suite leverages the connectivity of our Transactions and Information Exchange module to deliver Patient Clinical Summaries electronically and on-demand to providers at the point of care.
Patient Clinical Summaries
Our Patient Clinical Summary is an Electronic Health Record that is currently built from the data contained in the Payer Based Heath Record. The Patient Clinical Summaries present in an easily digested format:
•
patient demographic information, including name, date of birth, contact information and the name of the patient's primary care physician;
•
a summary of the patient's medical conditions categorized by severity;
•
a complete log of the patient's facility admissions and emergency room visits;
•
a summary of historical tests and healthcare services provided to the patient;
•
a summary of medications taken by the patient;
•
a list of the patient's historical providers, their specialty and contact information;
•
a schedule of early detection flags and potential treatment opportunities; and
•
an evaluation of the patients' risk of needing treatment for a serious medical condition in the next 12 months.
Future Solutions
We are currently developing two additional components that we believe will increase materially the value of our Collaborative Data Exchange suite.
MEDeWeaver.
We believe that our MEDeWeaver module will enable the next generation of the Electronic Health Record by weaving together all available sources of patient information, including the Payer Based Health Record, the Electronic Medical Record and
the Personal Health Record. MEDeWeaver is a module that gathers patient data stored in several different databases, analyzes the data for inconsistencies, and combines the data into one report. This product is currently in development and we expect it to be available for
testing by the fourth quarter of 2006.
MEDePathway.
We believe that our MEDePathway module will allow our payer customers to leverage the data contained in the Patient Clinical Summary for other uses. For example, if a payer has a member portal through which they allow their members to access
information, MEDePathway would allow the payer to expose the data contained in the Patient Clinical Summary to the patient through the portal. The data is provided as a standardized transmission allowing the payer to decide how to present the data within the portal. In
effect, MEDePathway will manage incoming requests for information and outgoing responses. It will validate the requestor, manages the communications and security for accepting the request from outside sources, and then delivers the data to the recipient. The data sent is
based on the needs of the receiver and complies with the relevant state and federal data privacy requirements. This product is currently in development.
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Professional Services
Our professional services personnel have extensive domain expertise and use our proprietary technology and content to provide implementation and consulting services, and training. Many of our professional service personnel have held positions at healthcare
organizations or senior level consulting positions at major consulting firms and other enterprise software companies.
Implementation and Consulting Services
Our implementation services begin with an evaluation of a customer's current information technology infrastructure, which includes process engineering to optimize the configuration of our solutions and integration with existing applications to fit each organization's
dynamic business requirements. We support a consulting certification program and have a project management office that equips our consultants with a library of toolkits, forms, training documentation and workshop templates. We also oversee the management of customer
deployments to help enable smooth, systematic and on-time implementations and maximize success and financial returns for our customers. After the initial deployment of our solutions, we provide ongoing strategic consulting services to help our customers achieve desired
results in quality improvement, increased productivity, cost savings and operational effectiveness. We collaborate with customer project leaders to establish an ongoing process for continual evolution and solution optimization so that our customers can promote best practice
usage and end user adoption long after we deploy our solutions.
Training
We offer a full range of educational services including pre-deployment classroom training, train-the-trainer programs, system administrator training, post-deployment specialty training, upgrade training and eLearning/web-based training. We also offer a variety of training
tools to drive user adoption, including solution user manuals, process user guides, feature training exercises, a self-service website for training scheduling and registration, post-training assessments and synchronous, web-based training tools for remote users.
Technology, Development and Operations
Technology
Our Integrated Medical Management suite and Collaborative Data Exchange suite are built on a multi-tier, independent Java 2 Platform, Enterprise Edition, or J2EE, architecture using a standards-based Struts (Model-View-Controller) Framework that consists of open
source components, commercially available products and our own proprietary tools. This framework incorporates a fully defined services-orientated architecture that allows for the continued extension and adaptability of our Integrated Medical Management suite through an
underlying collection of highly cohesive, loosely coupled components. We use this programming model to abstract interfaces, standardize messaging and increase the versatility and the value of our solutions. This approach allows for platform independence coupled with high
scalability and availability.
We have implemented the following guiding principles into our development methodology:
•
flexible architecture to accommodate customer change requests built upon solid business domain models and solution architecture;
•
modular solution architecture to facilitate reuse and enhance marketability;
•
database independence achieved through integration and resource tiers with no dependency on encapsulated and loosely coupled business logic;
•
leverage open community standards; and
•
incremental migration from legacy to new architecture to preserve the customer experience.
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Development
We believe that three primary factors drive our innovation: our clients, our domain experts and our research and development employees. We use the feedback gained through our customer interactions and from all of our employees to add value added enhancements to
the model products. We also leverage the experience of our domain experts, who produce white papers, case studies and thought pieces which form the foundation for our innovation. Our research and development team maintains a repository of ideas, and selected ideas are
presented to the market validation team. Market validated ideas progress to the prototype stage. The executive team reviews prototypes and selects those with the highest potential, which then enter the product development phase.
Operations
Our primary service delivery datacenter is managed by MEDecision within a SunGard hardened datacenter facility in Philadelphia, Pennsylvania. This datacenter serves as the primary facility for our transaction based solutions and also for delivery of Patient Clinical
Summaries to payers, providers and patients. A physically separate segment of this facility is used to deliver our hosted solutions for customers who subscribe to this service offering. We also have a secondary datacenter in Wayne, Pennsylvania for our Analytics and Disease
Management module service bureau offering and a disaster recovery site located within another SunGard facility in Carlstadt, New Jersey. We adhere to industry standards and best practices in our domestic operations. The transaction environment is shared across clients to
reduce costs for each individual client. Each client's network connectivity is highly secured. Data backups are completed over the wide area network to our disaster recovery facility in Carlstadt, New Jersey.
Our datacenters are continuously monitored by a comprehensive set of tools and personnel, 24 hours a day, seven days a week. Our datacenters have built-in power redundancy, with two uninterrupted power supplies backed up by an industrial strength generator to
provide uninterrupted service to our clients. We have documented our network, server and database management procedures including backup and recovery.
Customer Support
We believe that superior customer support is critical to our customers. Our customer support group assists our customers by answering questions and troubleshooting our solutions. Customer support is available 24 hours a day, seven days a week by telephone, email and
over the Internet from a member of our customer support team. Each member of our customer support team receives comprehensive training and orientation to ensure that our customers receive high-quality support and service. Each of our customers is assigned a single point
of contact. When an issue is reported to us, our customer support personnel follow a clearly defined escalation process to ensure that mission-critical issues are resolved to the satisfaction of the client. We believe that our customer service model has materially contributed to
our client retention rate. As of March 31, 2006, our customer support group consisted of 17 employees located in Wayne, Pennsylvania.
Customers
As of March 31, 2006, we had contracts with 45 entities that represented approximately 56 regional and national managed care plans. Our customers include the largest managed care organizations in more than 27 regional markets. In the aggregate, our customers cover
approximately one out of every six insured persons in the United States.
In late 2005, Health Care Service
    Corporation, or HCSC, selected our Collaborative Care Management solution
    for use by its enterprise. As part of that contract, HCSC consolidated three
    separate agreements with us: BlueCross BlueShield of Illinois, Texas, New
    Mexico and Oklahoma. On an aggregated basis, the healthcare plans covered
    by the HCSC
    agreement accounted for 25% of our revenue in 2005, and included a five-year
    term license fee that accounted for 13% of revenue. If the healthcare plans
    currently covered by the HCSC agreement
are aggregated in similar fashion for the purpose of comparison with prior years,
    the plans also accounted for 10% of our revenue in 2004 and 17% of revenue
    in 2003. In 2005, no other customer accounted for greater than 10% of our
    revenue.
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Sales and Marketing
Our target customers include the leading regional health insurance companies and national health insurance companies. We license our solutions to new customers primarily through our direct sales force. We manage our relationships with our existing customers,
including cross-selling and up-selling activities, through client relationship managers. Our sales office is located in Wayne, Pennsylvania.
Our marketing initiatives are generally targeted toward increasing awareness of our solutions within the healthcare payer market. In order to do so, we participate in conferences, trade shows and healthcare industry events, conduct direct mail and email campaigns,
advertise in industry-specific trade magazines and Internet websites, distribute white papers, case studies and thought pieces, and use our website to provide product and company information.
Intellectual Property
Our intellectual property rights are important to our business. We rely on a combination of copyright, trade secret, trademark and other common laws in the United States and other jurisdictions, as well as confidentiality procedures and contractual provisions to protect
our proprietary technology, processes and other intellectual property. However, we believe that the following factors are more essential to our ability to maintain a competitive advantage:
•
our domain expertise;
•
frequent enhancements to our solutions;
•
continued expansion of our healthcare content; and
•
the technological skills of our research and development personnel.
Others may develop products that are similar to and that compete with our technology. We generally enter into confidentiality and other written agreements with our employees and third-party partners, whereby we attempt to control access to and distribution of our
software, documentation and other proprietary technology. Despite our efforts to protect our proprietary technology, third-parties may, in an unauthorized manner, attempt to use, copy or otherwise obtain and market or distribute our intellectual property or proprietary
technology or may otherwise develop a product with similar functionality as our solutions and services. Policing unauthorized use of our intellectual property and proprietary technology is difficult, and nearly impossible on a worldwide basis. Therefore, we cannot be certain
that the steps we have taken or will take in the future will prevent misappropriation of our technology or intellectual property.
Litigation regarding intellectual property is prevalent in the software industry. From time to time, in the ordinary course of our business, we may be subject to claims relating to our intellectual property rights or those of others, and we expect that third-parties may
commence legal proceedings or otherwise assert intellectual property claims against us in the future, particularly if we expand the scope of our business, increase the number of products we offer that compete with third-parties in the industry or the functionality of our solutions
or services overlap with those of third-parties. We cannot be certain that a third-party does not have a patent or other intellectual property rights that could result in a future claim against us. These actual and potential claims and any resulting litigation could subject us to
significant liability for damages. In addition, even if we prevail, litigation could be expensive, time consuming and require additional company resources to defend and could affect our business materially and adversely. Any third-party claims or litigation may also limit our
ability to use various business processes, software and hardware, other systems, technologies or intellectual property, unless we are able to enter into a license agreement with such third-party, which may not be available on commercially reasonable terms, if at all.
Competition
We have experienced, and expect to continue to experience, intense competition from a number of companies. Our Integrated Medical Management suite competes with Landacorp, Inc., McKesson Corporation
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and The TriZetto Group, Inc., each of which offer products that compete with one or more modules in our suite of solutions. The principal competitive factors in our industry include:
•
solution breadth and functionality;
•
ease of deployment, integration and configuration;
•
domain expertise;
•
depth of clinical content;
•
service support;
•
solution price;
•
breadth of sales infrastructure; and
•
breadth of customer support.
We believe that we generally compete favorably with respect to all of these factors.
We may face future competition from large, established healthcare information technology companies, as well as from emerging companies. Barriers to entry into our industry are relatively low, new software products are frequently introduced and existing products are
continually enhanced. In addition, we expect that there is likely to be consolidation in our industry, which would lead to increased price competition and other forms of competition. Established companies not only may develop their own competitive products, but may also
acquire or establish cooperative relationships with current or future competitors, including cooperative relationships between both larger, established and smaller public and private companies. In addition, our ability to license our solutions will depend, in part, on the
compatibility of our software with software provided by our competitors. Our competitors could alter their products so that they will no longer be compatible with our software or they could deny or delay access by us to advance software releases, which would limit our ability
to adapt our software to these new releases. If our competitors were to bundle their products in this manner or make their products non-compatible with ours, our ability to license our solutions might be harmed and could reduce our gross margins and operating income.
Employees
As of March 31, 2006, we had 207 employees, consisting of 39 employees in sales and marketing, 84 employees in research and development, 61 employees in delivery and support of our solutions and 23 employees in general and administrative positions. None of our
employees are represented by a union. We consider our relationship with our employees to be good and have not experienced any interruptions of our operations as a result of labor disagreements.
Facilities
We lease our headquarters in Wayne, Pennsylvania, which consists of approximately 90,000 square feet. The leases for our headquarters expire in August 2016. We believe that our facilities are in good operating condition and will adequately serve our needs for at least
the next 18 months. We also anticipate that, if required, suitable additional or alternative space will be available on commercially reasonable terms, in office buildings we currently occupy or in space nearby, to accommodate expansion of our operations.
Litigation
There are no pending legal proceedings to which we are a party or to which any of our property is subject. We may, however, become subject to lawsuits in the ordinary course of our business.
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MANAGEMENT
Executive Officers and Directors
The following table sets forth information concerning our executive officers and directors as of the date of this prospectus:
Name
Age
Position
Executive officers and directors
:
David St. Clair
53
Chairman of the Board and Chief Executive Officer
John H. Capobianco
54
President, Chief Operating Officer and Director
Ronald D. Nall
59
Executive Vice President and Chief Information Officer
Henry A. DePhillips, III, M.D.
46
Executive Vice President and Chief Medical Officer
Carl E. Smith
58
Executive Vice President and Chief Financial Officer
Danielle Russella Bantivoglio
39
Executive Vice President,
    Client Solutions
Kristel L. Schimmoller
43
Senior Vice President, Product Marketing
Mary Jo Timlin-Hoag
48
Senior Vice President, Client Operations
Non-management directors:
Frank A. Adams
(1)
60
Director
Charles P. Cullen
(1)
42
Director
Thomas R. Morse
54
Director
Timothy W. Wallace
48
Director
(1)
This director will resign immediately prior to the consummation of this offering.
David St. Clair
founded MEDecision in 1988 and has served as the Chairman of our board of directors and Chief Executive Officer since 1988. From 1985 until 1988, Mr. St. Clair served as the Vice President of GMIS, Inc., which was subsequently acquired by
McKesson Corporation. From 1981 until 1985, Mr. St. Clair served as a Principal for Hay Associates in its Strategic Management Group. Mr. St. Clair received a B.A.S. in Mechanical Engineering from the University of Pennsylvania and a M.B.A. from Harvard University.
John H. Capobianco
joined us in 2002 as our Executive Vice President, Sales and Marketing. In 2003, Mr. Capobianco was promoted to President and Chief Operating Officer, and he continues to serve in such capacity. Mr. Capobianco has served as a director since
2002. Since September 2001, Mr. Capobianco has served as President and Chief Executive Officer for TekTite Ltd., a consulting practice that he owns. From February 2001 until August 2001, Mr. Capobianco served as a General Manager for Hewlett-Packard Company.
From March 1998 until January 2001, Mr. Capobianco served as Chief Operating Officer and then Executive Vice President, Strategic Planning, for Bluestone Software. From 1997 until 1998, Mr. Capobianco served as Senior Vice President, Marketing, for SAP America.
From 1996 until 1997, Mr. Capobianco served as Senior Vice President, Corporate Marketing, for Sybase, Inc. From 1995 until 1996, Mr. Capobianco served as Vice President, Marketing, for PRIMAVERA Systems, Inc. From 1985 to 1995, Mr. Capobianco served as Vice
President, Marketing, for Computer Associates International, Inc., now known as CA, Inc.
Ronald D. Nall
joined us in April 2006 and has served as our Executive Vice President and Chief Information Officer since that time. From 2004 until April 2006, Mr. Nall served as Principal for RN Consulting. From 2000 until 2002, Mr. Nall served as Executive
Vice President, Services and Product Delivery, for SynQuest, Inc. From 1997 until 1999, Mr. Nall served as Senior Vice President, Services and Products for PowerCerv Inc. From 1995 until 1997, Mr. Nall served as Senior Vice President, Product Research, Marketing and
Development, for Datalogix International Inc. From 1988 until 1995, Mr. Nall
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Served as Vice President and Product Owner for Computer Associates International. Mr. Nall received a B.S. in Management and a M.B.A. from the University of West Florida.
Henry A. DePhillips, III, M.D.
joined us in 2004 and has served as our Executive Vice President and Chief Medical Officer since that time. From 2000 until 2004, Dr. DePhillips served as Medical Director and then Senior Medical Director of Independence Blue
Cross. Also from 2000 until 2004, Dr. DePhillips served as the Senior Medical Director of AmeriHealth Administrators. From 1996 until 2000, Dr. DePhillips was Regional Medical Director of AmeriHealth Insurance Company. Prior to that time, Dr. DePhillips was a private
physician practicing in Wilmington, Delaware. Dr. DePhillips received a B.S. in Biochemistry from Trinity College and a M.D. from Hahnemann University.
Carl E. Smith
joined
    us in 2001 as our Vice President, Finance and Chief Financial Officer. In
    2002, Mr. Smith became our Secretary, and he continues to serve in such
    capacity. In 2004, Mr. Smith was promoted to Executive Vice President,
    Finance and Chief  Financial Officer, and he continues to serve in such
    capacity. From 1998 until 2001, Mr. Smith served as the Vice President,
    Finance, and then the Chief Financial Officer of Personnel Data Systems,
    Inc. From 1994 until 1998, Mr. Smith served as the Senior Vice President,

Finance and Administration, of ICT Group, Inc. From 1992 until 1994, Mr. Smith
served as the Controller and then the Vice President, Finance for DNA Plant Technology
Corporation. From 1990 until 1992, Mr. Smith served as the Chief Financial
Officer for Envirosafe
Services, Inc. From 1987 until 1989, Mr. Smith served as the Chief Financial
Officer for Environmental Control Group, Inc. From 1974 until 1987, Mr. Smith
served as the Vice President, Controller, and then the Vice President, Finance,
of Advanta Corporation. Mr. Smith
received a B.S. in Business and Accounting from the Pennsylvania State University
and is a Certified Public Accountant.
Danielle Russella Bantivoglio
joined us in 2002 as our Senior Vice President, Sales. In March 2006, Ms. Bantivoglio
    was promoted to Executive Vice President, Client Solutions, and she continues
    to serve in such capacity. From January 2001 until December 2001,
Ms. Bantivoglio served as the General Manager, Americas Independent Software Vendor/Original Equipment Manufacturer Sales, and then General Manager, Worldwide Independent Software Vendor/Original Equipment Manufacturer Sales, of Hewlett-Packard Company.
From April 2000 until January 2001, Ms. Bantivoglio served as the Vice President, Worldwide Sales Operations, for Bluestone Software Inc., which was acquired by Hewlett-Packard Company. From September 1991 until April 2000, Ms. Bantivoglio served as the Vice
President, Sales & Marketing, of Momentum Systems. Ms. Bantivoglio received a B.S. in Business Administration with a concentration in Finance from Drexel University.
Kristel L. Schimmoller
joined us in 1989, and has held several positions of increasing responsibility, including Director, Product Marketing, from 2001 until 2004, and Vice President, Product Marketing, from 2004 until April 2006. In April, 2006, Ms. Schimmoller was
promoted to Senior Vice President, Product Marketing, and she continues to serve in such capacity. Ms. Schimmoller received a B.S. in Computer Science and Mathematics from Elizabethtown College and a M.B.A. from Villanova University.
Mary Jo Timlin-Hoag
joined us in November 2005 as our Vice President, Client Operations. In April 2006, Ms. Timlin-Hoag was promoted to Senior Vice President, Client Operations, and she continues to serve in such capacity. From 2003 until 2005, Ms. Timlin-
Hoag served as Executive Director, Business Development and Business Partners of McKesson Health Solutions. From 2002 until 2003, Ms. Timlin-Hoag served as Project/Operations Manager, Clinical Encounter Solutions for Welch Allyn. From 2000 until 2002, Ms. Timlin-
Hoag served as Senior Director, Strategic Alliances and Business Solutions for G.E. Medical-MedicaLogic. From 1998 until 2000, Ms. Timlin-Hoag served as Director, Medical Call Centers for Patient InfoSystems. From 1994 until 1998, Ms. Timlin-Hoag served as Director,
Patient Management, Mid-Atlantic Region for Aetna US Healthcare. Prior to that time, Ms. Timlin-Hoag was a staff nurse for Frankford Hospital in Philadelphia, Pennsylvania. Ms. Timlin-Hoag received a B.S. in Nursing and a Masters Degree in Public Health from
Pennsylvania State University. Ms. Timlin-Hoag also received certifications in Project Management and Finance and Accounting from Villanova University.
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Non-Management Directors
Frank A. Adams
has served as a member of our board of directors since 2004. Mr. Adams will resign as a director immediately prior to the consummation of this offering. Since 1984, Mr. Adams has served as Managing General Partner for Grotech Capital Group, a
venture capital company. Mr. Adams received a B.S. in Business and a J.D. from the University of Baltimore.
Charles P. Cullen
has served as a member of our board of directors since 2001, and is a member of the audit committee and compensation committee. Mr. Cullen will resign as a director immediately prior to the consummation of this offering. Since 2000, Mr. Cullen
has worked for Grotech Management Company. Mr. Cullen received a B.B.A. in Accounting from Loyola College, a J.D. from the University of Notre Dame and a M.M. in Business from Northwestern University.
Thomas R. Morse
has served as a member of our board of directors since 1997, and is a member of the audit committee and compensation committee. Since 1998, Mr. Morse has served as President of Liberty Advisors, Inc., a venture capital company. Mr. Morse
currently serves on the board of directors of Othera Pharmaceuticals, GCA Corporation and ANI Pharmaceuticals. Mr. Morse is a Chartered Financial Analyst. Mr. Morse received a B.S. in Mechanical Engineering from the United States Naval Academy and a M.B.A. from
the Wharton School of Business at the University of Pennsylvania.
Timothy W. Wallace
has served as a member of our board of directors since March 2002, and is the Chairperson of the audit committee and a member of the compensation committee. Since April 2000, Mr. Wallace has been Chief Executive Officer of FullTilt
Solutions, Inc., an enterprise product information management software company. Mr. Wallace currently serves on the board of directors of Knova Software, for which he also serves as the Chairperson of the audit committee, and Migo Software, for which he also serves as
the Chairperson of the audit committee. Mr. Wallace is a Certified Public Accountant (inactive). Mr. Wallace received a B.S. in Accounting from Indiana University of Pennsylvania and a M.B.A. from Miami University.
Composition of Board of Directors
Our board of directors currently consists of six members – Messrs. St. Clair, Capobianco, Morse, Wallace, Adams and Cullen. Messrs. Adams and Cullen intend to resign from our board of directors effective immediately prior to the consummation of this offering. We
expect to nominate and elect three additional members to our board of directors, effective upon the consummation of this offering. Our directors, other than Mr. St. Clair and Mr. Capobianco, are not, and never have been, our employees or any of our subsidiaries. Each of
Messrs. Morse and Wallace are "independent directors," as defined by the NASDAQ Global Market's listing standards.
Effective upon the consummation of this offering, we will divide the terms of office of the directors into three classes:
•
Class I, whose terms will expire at the annual meeting of shareholders to be held in 2007;
•
Class II, whose terms will expire at the annual meeting of shareholders to be held in 2008; and
•
Class III, whose terms will expire at the annual meeting of shareholders to be held in 2009.
A classified board of directors may have the effect of deterring or delaying any attempt by any person or group to obtain control of us by a proxy contest since such third-party would be required to have its nominees elected at two separate annual meetings of our board
of directors in order to elect a majority of the members of our board of directors. See "Risk Factors—Anti-takeover provisions of Pennsylvania law and our articles of incorporation and bylaws could delay and discourage takeover attempts that shareholders may consider to be
favorable."
Our board of directors will observe all applicable criteria for independence established by the NASDAQ Global Market and other governing laws and applicable regulations. No director will be deemed to be independent unless our board of directors determines that the
director has no relationship which would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
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Upon the consummation of this offering, Class I will consist of                            , Class II will consist of                             and Class III will consist of                                         . At each annual meeting of our shareholders after the initial classification, the successors to directors whose
terms will then expire shall serve from the time of election and qualification until the third annual meeting following election and until their successors are duly elected and qualified. A resolution of our board of directors may change the authorized number of directors. Any
additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one third of the directors.
Committees of the Board of Directors
Upon the consummation of this offering, the standing committees of our board of directors will consist of the audit committee, compensation committee and nominating and corporate governance committee. These committees will have the composition and
responsibilities as described below as of the consummation of this offering. Our board of directors may also establish various other committees to assist the board of directors in its responsibilities from time to time.
Audit Committee
Our audit committee oversees our corporate accounting and financial reporting process. Our audit committee:
•
evaluates the qualifications, independence and performance of our independent auditors;
•
determines the engagement of our independent auditors;
•
approves the retention of our independent auditors to perform any proposed permissible non-audit services;
•
ensures the rotation of the partners of our independent auditors on our engagement team as required by law;
•
review our financial reports and other financial information that we prepare;
•
reviews our systems of internal controls established for finance, accounting, legal compliance and ethics;
•
reviews our accounting and financial reporting processes;
•
provides for effective communication between our board of directors, our senior and financial management and our independent auditors;
•
discusses with management and our independent auditors the results of our annual audit and the review of our quarterly financial statements;
•
reviews the audits of our financial statements;
•
reviews legal matters that may have a material impact on our financial statements; and
•
implements a pre-approval policy for certain audit and non-audit services performed by our independent auditors.
Upon the consummation of this offering, the audit committee will be comprised of Messrs.      ,       and       (chair). Our board of directors has determined that Mr.       is an "audit committee financial expert" as currently defined under the Securities and Exchange Commission rules implementing Section 407 of the Sarbanes-Oxley Act of 2002. We believe that the
composition and functioning of our audit committee complies with all applicable requirements of the Sarbanes-Oxley Act of 2002, the NASDAQ Global Market and Securities and Exchange Commission rules and regulations, including those regarding the independence of our
audit committee members. We intend to comply with future requirements to the extent that they become applicable to us.
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Compensation Committee
Our compensation committee reviews and recommends policy relating to the compensation and benefits of our executive officers. Our compensation committee:
•
reviews and approves corporate goals and objectives relevant to the compensation and the benefits of our Chief Executive Officer and our other executive officers;
•
evaluates the performance of these officers in light of those goals and objectives; and
•
sets compensation of these officers based on such evaluations.
Our compensation committee also administers the issuance of stock options and other awards under our 2006 Equity Incentive Plan and our Amended and Restated Stock Option Plan. Upon the consummation of this offering, the compensation committee will be
comprised of Messrs.      ,       and       (chair). We believe that the composition and functioning of our compensation committee complies with all applicable requirements of the Sarbanes-Oxley Act of 2002, the NASDAQ Global Market and Securities and Exchange Commission
rules and regulations, including those regarding the independence of our compensation committee members. We intend to comply with future requirements to the extent that they become applicable to us.
Nominating and Corporate Governance Committee
The nominating and corporate governance committee's responsibilities include the selection of potential candidates for our board of directors. It also makes recommendations to our board of directors concerning the structure and membership of the other board of
directors committees. The nominating and corporate governance committee is responsible for implementing policies and procedures with regard to consideration of any director candidates recommended by our shareholders. The nominating and corporate governance committee
is comprised of Messrs.      ,       and       (chair). We believe that the composition of our nominating and corporate governance committee complies with any applicable requirements of the Sarbanes-Oxley Act of 2002, the NASDAQ Global Market and Securities and Exchange
Commission rules and regulations, including those regarding the independence of our nominating and corporate governance committee members. We intend to comply with future requirements to the extent that they become applicable to us.
Compensation Committee Interlocks and Insider Participation
Upon the consummation of this offering, the members of our compensation committee will be Messrs. ______, ______ and ______ (chair). None of these individuals was at any time during fiscal year 2005 an officer or employee of ours. In addition, none of our
executive officers serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our board of directors or compensation committee.
Director Compensation
Following the completion of this offering, we intend to compensate each member of our board of directors, other than those who are our employees or affiliates of our affiliates, with an annual retainer of $15,000 for service on the board of directors. The chair of the
compensation committee will receive an additional annual fee of $4,000 while each other member of the compensation committee will receive an annual fee of $2,000. In addition, the audit committee chair will receive an additional annual fee of $5,000 and each other member
of the audit committee will receive an additional annual fee of $3,000. The chair of the nominating and corporate governance committee will receive an additional $3,000 while each other member of the nominating and corporate governance committee will receive an
additional fee of $1,500. In addition, those members of our board of directors who are not our employees or affiliates of our affiliates will receive an annual grant of 10,000 shares of common stock.
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Executive Compensation
The following table sets forth summary information concerning compensation of our Chief Executive Officer and each of the next four most highly compensated current executive officers whose total annual salary and bonus exceeded $100,000 during our fiscal year
ended December 31, 2005. We refer to these persons as our named executive officers.
SUMMARY COMPENSATION TABLE
Annual
          Compensation
Long-Term
Compensation
Awards
Name and Principal Position
Year
Salary
Bonus
(4)
Other
Compensation
Shares
Underlying
Options
David St. Clair
2005
$
300,000
$
30,280
—
175,000
Chairman and Chief
2004
287,500
—
—
250,000
Executive Officer
2003
275,000
—
—
—
John H. Capobianco
2005
$
260,427
—
$
107,572
(1)
175,000
President and Chief
2004
250,000
$
20,000
81,202
(1)
260,000
Operating Officer
2003
250,000
—
—
7,000
Carl E. Smith
2005
$
208,333
—
—
160,000
Executive Vice President,
2004
191,666
—
—
60,000
Chief Financial Officer and
2003
148,333
—
—
109,000
Secretary
Henry A. DePhillips, III, M.D.
2005
$
310,000
—
—
100,000
Executive Vice President and
2004
234,231
(2)
—
—
150,000
Chief Medical Officer
2003
—
—
—
—
Danielle Russella Bantivoglio
2005
$
185,418
—
$
391,291
(3)
—
Executive Vice President,
2004
160,338
—
403,856
(3)
—
Client Solutions
2003
151,250
—
90,740
(3)
—
(1)
Represents the annual incentive under Mr. Capobianco's employment agreement based upon the annual net increase in our revenue.
(2)
Dr. DePhillips' 2004 compensation is based on a partial year of employment, as he joined us in March 2004.
(3)
Represents commissions earned in each period under the commission plan with Ms. Bantivoglio.
(4)
Does not include amounts
          pursuant to a special incentive bonus pool approved by the compensation
           committee of our board of directors based on our 2005 performance.
          The payments to be made to our executive officers pursuant to this
          special incentive bonus pool have not been allocated. For more information,
          see "Certain Relationships and Related Party Transactions."
Option Grants in Last Fiscal Year
The following table sets forth information regarding grants of stock options to purchase shares of our common stock to each of the named executive officers during the year ended December 31, 2005. All options included on the table have an exercise price equal to no
less than the fair market value of our common stock, as determined by our board of directors, on the date of grant.
Potential realizable value is based upon an assumed initial public offering price of our common stock of $           per share, the midpoint of the range set forth on the cover page of this prospectus. Potential realizable values are net of exercise prices, but before taxes
associated with exercise. Amounts representing hypothetical gains are those that could be achieved if options are exercised at the end of the option term. The assumed 5% and 10% rates of stock price appreciation are provided in accordance with the rules of the Securities and
Exchange Commission based on the assumed initial offering price of $          , the midpoint of the range set forth on the cover page of this prospectus, and do not represent our estimate or projection of our future stock price. We cannot assure you that any of the values in the
table will be achieved. Actual gains, if any, on stock option exercises will depend on the future performance of our common stock and overall stock market conditions.
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The percentage of total options granted
    to our employees in 2005 is based on options to purchase an aggregate of
    1,097,000 shares of common stock granted under our equity incentive plans
  to our employees in 2005.
Individual Grants
Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation for
Option Term
(1)
Name
Number of
Securities
Underlying
Options/
SARs
Granted (#)
Percentage
of Total
Options/
SARs
Granted
To
Employees
In Fiscal
Year
Exercise
of Base
Price
($/Sh)
Fair
Market
Value
On Date
of Grant
($/Sh)
(2)
Expiration
Date
5%
10%
David St. Clair
175,000
15.95
%
$
0.275
$
1.01
5/3/2010
$
$
John H. Capobianco
175,000
15.95
%
$
0.250
$
1.01
5/3/2015
$
$
Carl E. Smith
160,000
14.59
%
$
0.250
$
2.26
8/23/2015
$
$
Henry A, DePhillips, III, M.D.
100,000
9.12
%
$
0.250
$
2.26
8/23/2015
$
$
Danielle Russella Bantivoglio
—
—
—
—
—
—
—
(1)
Potential net realizable values are net of exercise price, but before any applicable taxes associated with the exercise. The assumed rates of stock appreciation are provided in accordance with the Securities and Exchange Commission rules based upon an assumed initial public
offering price of $                per share, the midpoint of the range set forth on the cover page of this prospectus, and do not represent our estimate or projection of future stock price.
(2)
Represents the fair market
          value, based upon an independent appraisal of the value of our common
          stock.
Aggregate Option Exercises in 2005 and Option Values
The following table sets forth information concerning the number and value of unexercised options held by each of our named executive officers on December 31, 2005. The value of "in-the-money" options to purchase our common stock represents the positive spread
between the exercise price of options to purchase our common stock and the assumed initial public offering price of $                per share, the midpoint of the range on the front cover of this prospectus.
Number of Securities
Underlying Unexercised
Options/SARs at
December
31, 2005
(1)
Value of Unexercised In-the-
Money Options/SARs at
December
31, 2005
(2)
Name
Shares
Acquired on
Exercise (#)
Value
Realized ($)
Exercisable/
Unexercisable
Exercisable/
Unexercisable
David St. Clair
—
—
207,500/387,500
$/$
John H. Capobianco
—
—
1,162,000/480,000
$/$
Carl E. Smith
—
—
187,750/221,250
$/$
Henry A. DePhillips, III, M.D.
—
—
37,500/212,500
$/$
Danielle Russella Bantivoglio
—
—
37,500/12,500
$/$
(1)
The number of shares underlying options reflected in the table includes shares of common stock into which the Series C preferred stock underlying the Series C preferred stock options will be converted upon the consummation of this offering. See "Conversion and Exercise
Transactions" elsewhere in this prospectus.
(2)
There was no public trading market for our common stock on December 31, 2005. Accordingly, these values are based upon an estimated initial public offering price of $           per share, the midpoint of the range on the front cover of this prospectus, less the applicable exercise
price.
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Employment Agreement with David St. Clair
We entered into an employment agreement with David St. Clair, our Chairman and Chief Executive Officer, on January 1, 2003, which was amended on July 18, 2006. The agreement is for a term of three years and thereafter, the agreement automatically extends for
successive one year periods. Pursuant to the agreement, Mr. St. Clair's yearly base salary for 2006 is $300,000 and is reviewed at least yearly by the compensation committee of our board of directors and may be increased by the committee from time to time. In addition to
his base salary, Mr. St. Clair is eligible to receive annual bonuses with respect to each fiscal year that ends during his employment with us. The amount of each such bonus, and the criteria for Mr. St. Clair's eligibility to receive such amount, are to be determined by the
compensation committee. Under the agreement, Mr. St. Clair is also eligible to receive equity incentive awards (for example, a grant of stock options or restricted stock). The type and size of award, the vesting provisions of such award and all other terms and conditions of
such award will be determined by the compensation committee. Mr. St. Clair is eligible to participate in any and all plans providing general benefits to our employees, subject to the provisions, rules and regulations applicable to each such plan.
Pursuant to the agreement, we may terminate Mr. St. Clair with or without "cause" and Mr. St. Clair may resign at any time. If Mr. St. Clair's employment with us is terminated due to his death or disability, he or his estate will be entitled to receive his base salary
accrued through the date of termination, any annual bonus earned but not yet paid with respect to a calendar year ending prior to the date of the termination and any life or disability benefits payable under our employee benefit plans.
If we terminate Mr. St. Clair without "cause," we will pay Mr. St. Clair his base salary accrued through the date of termination, any annual bonus earned but not yet paid with respect to a calendar year ending prior to the date of the termination and an aggregate
amount equal to his annual base salary at the time of termination paid the following 12 months.
If Mr. St. Clair's employment with us terminates within 18 months after a "change in control" as a result of an "involuntary termination" or a termination by us without "cause" we will pay Mr. St. Clair his base salary accrued through the date of termination, any
annual bonus earned but not yet paid with respect to a calendar year ending prior to the date of the termination, waiver of all applicable premiums to be paid for statutory post-employment healthcare insurance for a period of 12 months and a lump sum equal to 1.5 multiplied
by the greater of (i) his base salary at the time of such termination or (ii) his base salary at the time of the "change in control." In addition, in such case, all of Mr. St. Clair's stock options will become exercisable and all forfeiture conditions on Mr. St. Clair's restricted
stock will lapse.
Under the agreement, all payments to Mr. St. Clair are subject to reduction to the extent that the reduction would avoid the imposition of certain "golden parachute" excise taxes and thereby increase his net after-tax proceeds. In addition, to the extent necessary to
comply with Section 409A of the Internal Revenue Code, any of the severance payments due under the agreement within the first six months following Mr. St. Clair's separation from service will be deferred (without interest) and paid to Mr. St. Clair in a lump sum
immediately following that six-month period.
The payment of any severance benefits under the agreement is conditioned upon the execution by Mr. St. Clair of a release. In addition, Mr. St. Clair is subject to confidentiality and proprietary information covenants following termination of employment.
For purposes of the agreement, "cause" means any of: (i) commission of a felony or an act of fraud, theft, embezzlement or other gross misconduct; (ii) misuse, misappropriation or disclosure of any of our confidential information, directly or indirectly, or use of it in
any way, except as required or permitted in the course of Mr. St. Clair's employment; (iii) willful or reckless conduct which endangers the safety of other persons or property during the course of his employment or while on premises leased or owned by us; (iv) conviction of
alcohol abuse or the use of illegal drugs; (v) material breach by Mr. St. Clair of the employment agreement or of any duty owed to us or our shareholders, which breach is not cured within ten (10) days following delivery to Mr. St. Clair of written notice identifying the
actions, omissions or occurrences constituting such breach; or (vi) material refusal by Mr. St. Clair to perform his duties under the
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agreement, which refusal is not cured within 30 days following delivery to Mr. St. Clair of written notice identifying the actions, omissions or occurrences constituting such failure or refusal.
For purposes of the agreement, "involuntary termination" means any of (i) the assignment to Mr. St. Clair of duties or responsibilities materially inconsistent with his status as our Chief Executive Officer; (ii) a material, adverse change in Mr. St. Clair's title or
authority; (iii) a material reduction in Mr. St. Clair's base salary; or (iv) the relocation of Mr. St. Clair to a facility or a location more than 50 miles from Mr. St. Clair's then present worksite, without Mr. St. Clair's express written consent.
In addition, for purposes of this agreement, "change in control" means any of (i) any person (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, but excluding certain of our shareholders and the affiliates of such
shareholders) becoming the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of our securities representing fifty percent (50%) or more of the total voting power represented by our then outstanding voting securities; (ii) our consummation of a
merger or consolidation with any other corporation, other than a merger or consolidation which would result in our voting securities outstanding immediately prior to such transaction continuing to represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least fifty percent (50%) of the total voting power represented by our voting securities or such surviving entity outstanding immediately after such transaction; (iii) our liquidation; or (iv) our sale or disposition of all or substantially all of our
assets.
Pursuant to the agreement, Mr. St. Clair must devote his entire working time to our business and affairs. Additionally, during the term of the agreement and for the two year period thereafter, Mr. St. Clair is prohibited from directly or indirectly, engaging or
participating, within the United States, in any business engaging in the provision of integrated medical management services or technology-based clinical decision support or transaction management services to payers or in any other activity in which we engage. Mr. St. Clair
has also agreed, during the term of his employment and for the two year period thereafter, not to, directly or indirectly, (i) solicit, divert or appropriate any of our customers or clients, (ii) influence or attempt to influence any person to terminate or modify any employment,
consulting, agency, distributorship or other arrangement with us, or (iii) without our express written consent, employ or retain any individual who has been employed or engaged by us within the preceding twelve months.
Employment Agreement with John H. Capobianco
We entered into an employment agreement with John H. Capobianco, our President, Chief Operating Officer and a member of our board of directors on September 4, 2002, which was amended on July 18, 2006. The agreement is for a term of two years and thereafter,
the agreement automatically extends for successive one year periods. Pursuant to the agreement, Mr. Capobianco's yearly base salary for 2006 is $260,427 and is reviewed at least yearly by the compensation committee of our board of directors and may be increased by the
compensation committee from time to time. In addition to his base salary, Mr. Capobianco is eligible to receive annual bonuses with respect to each fiscal year that ends during his employment with us, including a revenue bonus and a management incentive bonus. The
amount of the annual revenue bonus is to be equal to 1% of the net increase in our consolidated revenue for such year. The amount of each management incentive bonus, and the criteria for Mr. Capobianco's eligibility to receive such amount, are to be determined by the
compensation committee. Under the agreement, Mr. Capobianco is also eligible to receive equity incentive awards (for example, a grant of stock options or restricted stock) with respect to each calendar year ending during the term of the agreement. The type and size of
award, the vesting provisions of such award and all other terms and conditions of such award will be determined by the compensation committee. Mr. Capobianco is eligible to participate in any and all plans providing general benefits to our employees, subject to the
provisions, rules and regulations applicable to each such plan.
Pursuant to the agreement, we may terminate Mr. Capobianco with or without "cause" and Mr. Capobianco may resign at any time. If Mr. Capobianco's employment with us is terminated due to his death or disability, he or his estate will be entitled to receive his
base salary accrued through the date of termination, any bonuses earned but not yet paid with respect to any period ending prior to the date of the termination and any life or disability benefits payable under our employee benefit plans. In addition, in that
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case Mr. Capobianco or his estate may retain any revenue bonus advances previously paid, whether or not earned.
If we terminate Mr. Capobianco without "cause," we will pay Mr. Capobianco his base salary accrued through the date of termination, any bonuses earned but not yet paid with respect to any period ending prior to the date of the termination and an aggregate amount
equal to one-half his annual base salary at the time of termination paid over the following six months.
If Mr. Capobianco's employment with us terminates within 18 months after a "change in control" as a result of an "involuntary termination" or a termination by us without "cause" we will pay Mr. Capobianco his base salary accrued through the date of termination,
any bonuses earned but not yet paid with respect to a calendar year ending prior to the date of the termination, waiver of all applicable premiums to be paid for statutory post-employment healthcare insurance for a period of six months and a lump sum equal to the greater of
(i) his base salary at the time of such termination or (ii) his base salary at the time of the "change in control." In addition, in such case, all of Mr. Capobianco's stock options will become exercisable and all forfeiture conditions on Mr. Capobianco's restricted stock will fully
lapse.
Under the agreement, all payments to Mr. Capobianco are subject to reduction to the extent that the reduction would avoid the imposition of certain "golden parachute" excise taxes and thereby increase his net after-tax proceeds. In addition, to the extent necessary to
comply with Section 409A of the Internal Revenue Code, any of the severance payments due under the agreement within the first six months following Mr. Capobianco's separation from service will be deferred (without interest) and paid to Mr. Capobianco in a lump sum
immediately following that six-month period.
The payment of any severance benefits is conditioned upon the execution by Mr. Capobianco of a release. In addition, Mr.  Capobianco is subject to confidentiality and proprietary information covenants following termination of employment.
For purposes of the agreement, "involuntary termination" means any of (i) the assignment to Mr. Capobianco of duties or the significant reduction of Mr. Capobianco's authority that are, in either case, materially inconsistent with his status as our President and Chief
Operating Officer; (ii) the removal of Mr. Capobianco from such position for a reason other than for "cause" or misconduct; (iii) a material reduction in Mr. Capobianco's base salary or annual bonus opportunities without his express written consent; or (iv) the relocation of
Mr. Capobianco to a facility or a location more than 50 miles from Mr. Capobianco's then present worksite, without Mr. Capobianco's express written consent. In addition, for purposes of this agreement, the definitions "change in control" and "cause" are substantially
identical to the definitions of those terms in Mr. St. Clair's employment agreement, as described above.
Pursuant to the agreement, Mr. Capobianco must devote his entire working time to our business and affairs. Additionally, during the term of the agreement and for the two year period thereafter, Mr. Capobianco is prohibited from directly or indirectly, engaging or
participating, within the United States, in any business engaging in the provision of technology-based clinical decision support or transaction management services to managed care payers. Mr. Capobianco has also agreed, during the term of his employment and for the one
year period thereafter, not to, directly or indirectly, (i) solicit, divert or appropriate any of our customers or clients; (ii) influence or attempt to influence any person to terminate or modify any employment, consulting, agency, distributorship or other arrangement with us; or (iii)
without our express written consent, employ or retain any individual who has been employed or engaged by us within the preceding 12 months.
Employee Benefit Plans
We believe that our ability to grant equity-based awards is a valuable and necessary compensation tool that aligns the long-term financial interests of our employees and directors with the financial interests of our shareholders. In addition, we believe that our ability to
grant options and other equity-based awards helps us to attract, retain and motivate qualified employees, and encourages them to devote their best efforts to our business and financial success. The material terms of our equity incentive plans are described below.
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2006 Equity Incentive Plan
In                                          2006, we adopted (and our shareholders approved) the 2006 Equity Incentive Plan, which will become effective immediately prior to when we become subject to the reporting requirements of the Securities Exchange Act of 1934. We refer to the 2006
Equity Incentive Plan as the 2006 Plan. The 2006 Plan provides for the award of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units performance awards and other stock-based awards.
Employees, directors, consultants and other individuals who provide services to us or our affiliates are eligible to be granted awards under the 2006 Plan; provided however, that only employees are eligible to be granted incentive stock options. The principal features of
the 2006 Plan are summarized below, but the summary is qualified in its entirety by reference to the 2006 Plan, which is filed as an exhibit to the registration statement of which this prospectus is a part.
Number of Shares of Our
              Common Stock Available Under the 2006 Plan
We have reserved a total of            shares of our common stock for issuance pursuant to the 2006 Plan. Shares subject to forfeited, cancelled, or expired awards will become available for grant again under the 2006 Plan. Similarly, shares tendered or withheld in
satisfaction of the exercise price of any option or tax withholding obligation associated with any award will become available for grant under the 2006 Plan. Finally, the shares subject to any award settled in cash will again become available for grant under the 2006 Plan.
Administration of the
              Plan
Our board of directors, or a committee of the board of directors, administers the 2006 Plan and determines which individuals will be granted awards, the type of awards to be granted, the number of shares subject to each award and the other terms and conditions thereof.
To administer the 2006 Plan, a committee of the board of directors must consist of at least two members of our board of directors, each of whom is a "non-employee director" for purposes of Rule 16b-3 under the Securities Exchange Act of 1934, and, with respect to awards
that are intended to constitute performance-based compensation under Section 162(m) of the Internal Revenue Code of 1986, an "outside director" for the purposes of Section 162(m). Our board of directors may amend or modify the 2006 Plan at any time, provided that to
the extent that any such amendment purports to alter the class of persons eligible to receive incentive stock options or increase the maximum number of shares as to which awards may be granted, such purported amendment must receive the approval of a majority of our
shareholders to be effective.
The 2006 Plan will continue in effect until terminated by us in accordance with its terms, although incentive stock options may not be granted more than 10 years after the adoption of the 2006 Plan.
Stock Options Under the
              Plan
The 2006 Plan permits the grant of incentive stock options and non-qualified stock options. The exercise price of any option granted under the 2006 Plan may not be less than 100% of the fair market value per share of our common stock on the date of grant. In the case
of any incentive stock option granted to a participant who owns at least 10% of the total combined voting power of all classes of our capital stock, the 2006 Plan provides that the exercise price must be at least 110% of the fair market value of our common stock on the date
of the grant. In addition, the aggregate fair market value of shares of our common stock for which incentive stock options are first exercisable in any calendar year may not exceed $100,000 (determined with reference to the fair market value of those shares on the date of
grant). The exercise price of any option granted under the 2006 Plan may be paid in cash, previously acquired shares or by such other means as the board of directors may accept.
Under the 2006 Plan, each option will vest and be exercisable at such time and to such extent as specified in the pertinent option agreement. However, no incentive stock option award will be exercisable with respect to any shares of our common stock more than 10
years after the date of such award (or five years from the date of grant if the optionee owns at least 10% of the total combined voting power of all
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classes of our capital stock). Unless otherwise specified by our board of directors with respect to a particular option, all options are non-transferable except upon death.
Stock Appreciation Rights
The 2006 Plan permits the grant of stock appreciation rights, which we refer to as SARs, that give the holder the right to receive the appreciation in value of shares subject to the SAR. Unless otherwise specified in the award agreement, the term of a SAR will be 10
years. SARs vest and become exercisable subject to such terms and conditions as determined by the board of directors at the time of grant. Upon exercise, the holder will be entitled to receive in either cash and/or shares (as determined by the board of directors) an amount
equal to the excess of (i) the fair market value of the shares covered by the SAR on the date of exercise over (ii) the fair market value of the shares covered as of the date the SAR was granted. Unless otherwise specified by our board of directors with respect to a particular
SARs, all SARs are non-transferable except upon death.
Termination of Options
              and SARs
If a participant's service with us terminates due to death or disability, any vested option or SAR held by the participant may be exercised until (i) such time specified by our board of directors; (ii) if not specified by our board of directors, one year from termination of
service; or (iii) if earlier than the foregoing, the expiration of the stated term of the option or SAR. If a participant's service with us is terminated for cause, any unexercised option or SAR will be automatically forfeited. In addition, if a participant's service with us is
terminated for any other reason, any vested option or SAR held by the participant may be exercised until (i) such time specified by our board of directors; (ii) if not specified by our board of directors, ninety days from termination of service; or (iii) if earlier than the foregoing,
the expiration of the stated term of the option or SAR.
Restricted Stock
The 2006 Plan permits the grant of restricted stock. All restricted stock is non-transferable until vested. The board of directors may condition the vesting of restricted stock upon the continued employment of the recipient, the attainment of specified individual or
corporate performance goals or such other factors as the board of directors may determine. Unless otherwise specified by the board of directors, if a participant's service with us terminates prior to the expiration of the restriction period, all the participant's restricted stock that
remains subject to forfeiture will be forfeited automatically.
Restricted Stock Units
The 2006 Plan permits the grant of restricted stock units. Each restricted stock unit will entitle the recipient to a payment from us equal to the fair market value of one share of our common stock at a specified time or upon the occurrence of a specified event. Such
payments may be made in cash, stock or a combination thereof. The terms governing restricted stock units, such as vesting, time and form of payment and termination of units, will be set forth in the applicable award agreement.
Performance Awards
The 2006 Plan permits performance awards to be granted which become payable on account of the attainment of one or more performance goals established by the board of directors. Performance awards may be paid by the delivery of stock, cash or any combination
thereof.
Other Stock Based Awards
The board of directors may also from time to time grant other stock-based awards under the 2006 Plan in such amounts and on such terms and conditions as it shall determine.
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Adjustments upon Certain
              Events
In the event of any recapitalization, reorganization, merger, consolidation, stock split or combination, stock dividend or other similar event or transaction affecting our shares, equitable substitutions or adjustments will be made by the board of directors, in its discretion,
to: (i) the aggregate number, class and/or issuer of the securities reserved for issuance under the 2006 Plan; (ii) the number, class and/or issuer of shares subject to outstanding awards; and (iii) the exercise price of options and SARs then outstanding under the 2006 Plan.
Effect
              of Change in Control
Upon or in anticipation of any change in control (as defined in the 2006 Plan), the 2006 Plan provides that the board of directors may, in its discretion and without the need for the consent of any award holder, take one or more of the following actions contingent upon
the occurrence of that change in control: (i) cause any or all outstanding options or SARs to become vested and/or immediately exercisable, in whole or in part; (ii) cause any or all outstanding restricted stock, restricted stock unit or other stock based award to become non-
forfeitable, in whole or in part; (iii) cancel any option, restricted stock, restricted stock unit, SAR or other stock based award in exchange for a similar award in respect of the capital stock of a successor corporation or its parent; (iv) cause any outstanding option or SAR to
become fully vested and exercisable for a reasonable period in advance of the change in control and, to the extent not exercised prior to that change in control, cancel that option or SAR upon closing of the change in control; (v) cancel any option or SAR in exchange for cash
and/or other substitute consideration with a value equal to the number of shares subject to that option or SAR, multiplied by the difference, if any, between the fair market value per share on the date of the change in control and the exercise price of that option or SAR; or (vi)
redeem any share of restricted stock or any restricted stock unit in exchange for cash and/or other substitute consideration with a value equal to the fair market value per share on the date of the change in control. In the discretion of the board of directors, any cash or substitute
consideration payable upon cancellation or redemption of an award may be subjected to vesting terms substantially identical to those that applied to the cancelled or redeemed award prior to the change in control.
Amended and Restated Stock Option Plan
In January 1993, we adopted our amended and restated stock option plan that had been approved by our shareholders. The plan has been extended from time to time and provides for the award of incentive stock options and non-qualified stock options. Our board of
directors has resolved to make no further grants of awards pursuant to the Amended and Restated Stock Option Plan after the consummation of this offering.
Grants of non-qualified stock options can be made to our employees, directors, consultants and other individuals who perform services for us. Grants of incentive stock options may only be made to our employees. The principal features of the plan are summarized
below, but the summary is qualified in its entirety by reference to the plan, which is filed as an exhibit to the registration statement of which this prospectus is a part.
Number
              of Shares of Our Common Stock Available Under the Plan
As of August 10, 2006, there are
    options outstanding under the plan with respect to 5,900,163 shares of our
    common
    stock. No additional
    grants will be made under the plan after the consummation of this offering.
    In connection with any change affecting our common stock by reason of stock
    split, stock dividend, stock combination or reclassification, recapitalization
    or merger, or similar event, our board of directors may adjust appropriately
    the number of shares subject to outstanding options, the share prices of
    outstanding options, and any other revisions
to outstanding options as our board of directors deems are equitably required.
Administration
              of the Plan
The compensation committee of the board of directors administers the plan. Our compensation committee, among other things, interprets the plan, selects award recipients, determines the type of awards to be granted to such recipients and determines the number of
shares subject to each award and the terms and conditions thereof. Our compensation committee may amend or modify the plan at any time, provided that to the extent that any such amendment purports to alter the class of persons eligible to receive incentive stock
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options, extend the expiration date of the plan, decrease the minimum option price of an incentive stock option under the plan or increase the maximum number of shares as to which stock
options may be granted, such purported amendment must receive the approval of our shareholders to be effective.
Stock
              Options Under the Plan
Grants of both incentive stock options and non-qualified stock options have been made under the plan.
Under the plan, each option will vest and be exercisable at such time and to such extent as specified in the pertinent option agreement between us and the option recipient. However, no award will be exercisable with respect to any shares of our common stock more than
10 years after the date of such award. All options are nontransferable except by will or the laws of descent and distribution or, with respect to nonstatutory stock options, pursuant to a qualified domestic relations order. If a participant's service with us terminates due to death
or disability, any options held by the participant may be exercised until (i) such time specified by our board of directors; (ii) if not specified by our board of directors, one year from termination of service; or (iii) if earlier than the foregoing, the expiration for the stated term of
the option. If a participant's service with us is terminated for cause or if our board of directors finds that a participant has breached any confidentiality or non-competition agreements with us, any unexercised options will be automatically forfeited. In addition, if a participant's
service with us is terminated for any other reason, any option held by the participant may be exercised until (i) such time specified by our board of directors; (ii) if not specified by our board of directors, three months from termination of service; or (iii) if earlier than the
foregoing, the expiration of the stated term of the option.
Series C Stock Equity Incentive Plan
In December 2001, we adopted our Series C Stock Equity Incentive Plan. Upon consummation of this offering, we will substitute shares of common stock for shares of Series C preferred stock subject to options based on the conversion price at the time of this offering.
Our board of directors has resolved to make no further grants of awards pursuant to the Series C Stock Equity Incentive Plan after the consummation of this offering. The plan provides for the award of stock options or restricted shares, but our board of directors has not
approved the use of this plan for incentive stock options. Consequently, our board of directors has not presented this plan to our shareholders for approval.
Grants of non-qualified stock options can be made to our employees, directors, consultants, and other individuals who perform services for us. The principal applicable features of the plan are summarized below, but the summary is qualified in its entirety by reference to
the plan, which is filed as an exhibit to the registration statement of which this prospectus is a part.
Upon the conversion of the outstanding
    shares of our Series C preferred stock to common stock immediately prior
    to the consummation of this offering, our board of directors intends, and
    has the discretion to do so under the plan, to substitute each currently
    outstanding  option to purchase a share of our Series C preferred stock with
    an option to purchase a share of our common stock on a one-for-one basis.
    All of the information concerning the Series C Stock Equity Incentive Plan
    in
    this
    prospectus
    assumes
    this conversion upon the consummation of this offering.
In connection with recapitalizations, stock splits, combinations, stock dividends and other events affecting our common stock, our board of directors may make adjustments or equitable substitutions it deems appropriate in its sole discretion to the maximum number, type
and issuer of shares of our common stock subject to outstanding options, to the exercise price of the options and to the number, type and issuer of restricted shares.
Administration
              of the Plan
The compensation committee administers the plan and, among other things, interprets the plan, selects award recipients, determines the type of awards to be granted to such recipients and determines the number of shares subject to each award and the terms and
conditions thereof. Our compensation committee may amend or modify the plan at any time, provided no amendment can impair the rights of a participant with respect to an existing award without such participant's consent. In addition, to the extent that any such
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amendment purports to alter the class of persons eligible to receive awards or increase the maximum number of shares as to which stock options may be granted, such purported amendment
must receive the approval of our shareholders to be effective. In addition, our board of directors is also authorized to adopt, alter and repeal any rules relating to the administration of the plan
and to rescind the authority of the compensation committee and thereafter directly administer the plan.
Stock
              Options Under the Plan
The only awards currently outstanding under the plan are non-qualified stock options with respect to 110,000 shares of our Series C preferred stock.
Under the plan, each option will
    vest and be exercisable at such time and to such extent as specified in the
    pertinent option agreement between us and the option recipient. However,
    no award is exercisable with respect to any shares issuable pursuant to the
    Series C Stock Equity Incentive Plan more than five years after the date
    of such award. Unless otherwise specified by our board of directors with
    respect
    to a particular
    option,
    all options
    are non-transferable, except upon death. If a participant's service
    with us terminates due to death or disability, any options held by the  participant
    may be exercised until (i) such time specified by our board of directors;
    (ii) if not specified by our board of directors, ninety days from termination
    of service; or (iii) if earlier than the foregoing, the expiration for the
    stated term of the option. If a participant's
service with us is terminated for cause, any unexercised options will be automatically
    forfeited. In addition, if a participant's service with us is terminated
    for any other reason, any option held by the participant may be exercised
    until (i) such time specified by our board of  directors; (ii) if not specified
    by our board of directors, thirty days from termination of service; or (iii)
    if earlier than the foregoing, the expiration of the stated term of the option.
Upon or in anticipation of our change in control, our board of directors may, in its discretion:
•
cause outstanding options to become immediately and fully vested and exercisable;
•
cancel any outstanding option in exchange for an option to purchase common stock of any successor corporation; or
•
cancel outstanding options in exchange for cash and/or other consideration equal to the amount by which the fair market value of the shares of stock subject to the option exceeds the option exercise price.
Indemnification and Limitation of Director and Officer Liability
Our second amended and restated bylaws limit the personal liability of our directors to us or our shareholders for monetary damages for breaches of fiduciary duty as a director to the fullest extent permitted by the Pennsylvania Business Corporation Law of 1988. In
general, the Pennsylvania Business Corporation Law of 1988 provides that our bylaws may not limit or eliminate the liability of our directors for any breach or failure to perform their duties as directors if such breach or failure constitutes self-dealing, willful misconduct or
recklessness.
Our second amended and restated bylaws also include provisions for indemnification of our directors and officers to the fullest extent permitted by the Pennsylvania Business Corporation Law of 1988. We maintain directors and officers liability insurance to provide
directors and officers with insurance coverage for losses arising from claims based on breaches of duty, negligence, error and other wrongful acts. Prior to the completion of this offering, we will amend our policy to include coverage against liabilities with respect to the
Securities Act.
In addition to the indemnification provided for in our second amended and restated bylaws, we also intend to enter into agreements to indemnify our directors and executive officers. We believe that these agreements are necessary to attract and retain qualified directors
and executive officers.
In so far as indemnification for liability arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that in the opinion of the Securities and Exchange Commission, this
indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Other than compensation agreements and other arrangements which are described in the "Management" section of this prospectus and the transactions described below, since January 1, 2003, there has not been, and there is not currently proposed, any transaction or
series of similar transactions to which we were or will be a party in which the amount involved exceeded or will exceed $60,000 and in which any of our directors, executive officers, holders of more than five percent of any class of our voting securities or any member of the
immediate family of the foregoing persons had or will have a direct or indirect material interest.
We believe that all of the transactions set forth below are on terms no less favorable to us than we could have obtained from unaffiliated third-parties. It is our intention to ensure that all future transactions between us and our directors, officers, principal shareholders and
their affiliates are approved by a majority of our board of directors, including a majority of the independent and disinterested members of our board of directors, and are on terms no less favorable to us than those that we could obtain from unaffiliated third-parties.
Third Amended and Restated Shareholders Agreement
We are party to a Third Amended and Restated Shareholders Agreement, which we refer to as the Shareholders Agreement dated January 11, 2002 among MEDecision, Inc. and the shareholders party thereto. The shareholders include holders of our Series A preferred
stock, holders of our Series B preferred stock, certain holders of our Series C preferred stock and certain holders of our common stock. Under the Shareholders Agreement, the holders of preferred stock who are party thereto have the right to designate an aggregate of five
individuals for nomination and election to the board of directors, two of which may be neither employees or shareholders of MEDecision nor shareholders, limited partners, employees, general partners or managers of any shareholder. David St. Clair, our Chairman of the board
of directors and Chief Executive Officer, may nominate three individuals for nomination and election to the board of directors, one of which may be neither an employee or shareholder of MEDecision nor a shareholder, limited partner, employee, general partner or manager of
any shareholder.
In addition, the Shareholders Agreement provides rights to certain parties to the Shareholders Agreement with respect to our capital stock, including rights of first refusal, preemptive rights, co-sale rights and participation rights in the sale of shares of our capital stock.
The preemptive rights do not apply to issuances by us in an initial public offering of our common stock, including this offering, in which the aggregate proceeds exceed $30 million and immediately after which our outstanding capital stock will have an aggregate public
market value of not less than $150 million.
Pursuant to the terms of the Shareholders Agreement, all of the rights of the shareholders under the agreement will terminate upon the consummation of this offering.
Second Amended and Restated Registration Rights Agreement
Pursuant to the provisions of the Second Amended and Restated Registration Rights Agreement dated as of September 25, 2001 by and among MEDecision, Inc. and the holders party thereto, the holders, who will collectively hold           % of our common stock
outstanding after the completion of this offering, are entitled to certain registration rights with respect to the registration of those shares under the Securities Act. The holders who are entitled to such rights include Carl E. Smith, our Executive Vice President and Chief
Financial Officer, funds affiliated with Grotech Capital Partners and a fund affiliated with Liberty Venture Partners, each of which is an affiliate of the Company by virtue of beneficial ownership of our common stock or their affiliation with a member of our board of directors.
For more information, see "Description of Capital Stock—Registration Rights" elsewhere in this prospectus.
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Option Grants Under Amended and Restated Stock Option Plan
Since January 1, 2003, we have issued to Danielle Russella Bantivoglio, options to purchase shares of our common stock pursuant to our Amended and Restated Stock Option Plan, on the dates, in the amounts and at the exercise price per underlying share listed within
the following chart:
Date
Underlying Shares
Exercise Price
per Underlying
Share
4/26/06
25,000
$
11.00
Since January 1, 2003, we have issued to John H. Capobianco, options to purchase shares of our common stock pursuant to our Amended and Restated Stock Option Plan, on the dates, in the amounts and at the exercise price per underlying share listed within the
following chart:
Date
Underlying Shares
Exercise Price
per Underlying
Share
4/27/04
260,000
$
0.25
5/3/05
175,000
$
0.25
4/26/06
250,000
$
11.00
Since January 1, 2003, we have issued to Henry A. DePhillips, III, M.D., options to purchase shares of our common stock pursuant to our Amended and Restated Stock Option Plan, on the dates, in the amounts and at the exercise price per underlying share listed within
the following chart:
Date
Underlying Shares
Exercise Price
per Underlying
Share
4/27/04
150,000
$
0.25
8/23/05
100,000
$
0.25
Since January 1, 2003, we have issued to Ronald D. Nall, options to purchase shares of our common stock pursuant to our Amended and Restated Stock Option Plan, on the dates, in the amounts and at the exercise price per underlying share listed within the following
chart:
Date
Underlying Shares
Exercise Price
per Underlying
Share
4/26/06
300,000
$
11.00
Since January 1, 2003, we have issued to Kristel L. Schimmoller, options to purchase shares of our common stock pursuant to our Amended and Restated Stock Option Plan, on the dates, in the amounts and at the exercise price per underlying share listed within the
following chart:
Date
Underlying Shares
Exercise Price
per Underlying
Share
5/3/05
90,000
$
0.25
Since January 1, 2003, we have issued to Carl E. Smith, options to purchase shares of our common stock pursuant to our Amended and Restated Stock Option Plan, on the dates, in the amounts and at the exercise price per underlying share listed within the following
chart:
Date
Underlying Shares
Exercise Price
per Underlying
Share
4/25/03
100,000
$
0.25
8/5/04
60,000
$
0.25
8/23/05
160,000
$
0.25
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Since January 1, 2003, we have issued to David St. Clair, options to purchase shares of our common stock pursuant to our Amended and Restated Stock Option Plan, on the dates, in the amounts and at the exercise price per underlying share listed within the following
chart:
Date
Underlying Shares
Exercise Price
per Underlying
Share
10/26/04
250,000
$
0.275
5/3/05
175,000
$
0.275
7/18/06
250,000
$
11.00
Since January 1, 2003, we have issued to Mary Jo Timlin-Hoag, options to purchase shares of our common stock pursuant to our Amended and Restated Stock Option Plan, on the dates, in the amounts and at the exercise price per underlying share listed within the
following chart:
Date
Underlying Shares
Exercise Price
per Underlying
Share
12/17/04
10,000
$
0.25
5/3/05
15,000
$
0.25
Series C Stock Grants Under Series C Stock Equity Incentive Plan
On April 25, 2003, we granted to David St. Clair and Carl E. Smith 73,000 and 18,000 shares, respectively, of Series C preferred stock pursuant to the Series C Stock Equity Incentive Plan. The shares granted pursuant to this Plan relate to each recipient's respective
performance in 2002 as an employee of the Company.
Series C Option Grants Under Series C Stock Equity Incentive Plan
Since January 1, 2003, we have issued options to purchase shares of our Series C preferred stock pursuant to our Series C Stock Equity Incentive Plan, to the following directors and executive officers, on the dates, in the amounts and at the exercise price per underlying
share listed within the following chart (the amount of shares and the exercise price assumes the conversion of such options to options to purchase common shares at the current Series C preferred stock conversion price):
Name
Date
Underlying Shares
(Common Stock)
Exercise Price
per Underlying
Share
John H. Capobianco
5/2/03
7,000
$
1.13
Carl E. Smith
5/2/03
9,000
$
1.13
Conversion Agreements
We entered into conversion agreements with certain of the holders of our outstanding Series B and Series C preferred stock. Eight of these holders, Britannia Holdings Limited, Carl E. Smith, David St. Clair, Grotech Partners V, L.P. (affiliated with Grotech Capital
Partners), Grotech V Maryland Fund, L.P. (affiliated with Grotech Capital Partners), Liberty Ventures I, L.P. (affiliated with Liberty Ventures Partners), Liberty Ventures II, L.P. (affiliated with Liberty Ventures Partners) and Stockwell Fund, L.P. are our affiliates by virtue of
their positions with the Company, membership on our board of directors and/or the beneficial ownership of our common stock and their affiliation with a member of our board of directors.
Under the terms of each conversion agreement, each holder was entitled to elect prior to July 12, 2006 to convert up to 31.5% of such holder's outstanding shares of Series B and Series C preferred stock into shares of our common stock. As part of this conversion,
the accrued but unpaid dividends on the converted shares were taken into account in calculating the number of shares of common stock issuable upon conversion of the shares of Series B and Series C preferred stock. The provisions of the conversion agreements became
effective upon the filing of the Registration Statement on Form S-1 of which this prospectus is a part.
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Under such arrangements:
•
Britannia Holdings Limited converted 199,788 shares and 165,318 shares of Series B and Series C preferred stock, respectively, into 391,228 shares and 244,398 shares of our common stock, which included 139,229 shares and 79,080 shares of our common stock,
respectively, on account of accrued dividends;
•
Carl E. Smith converted 19,726 shares of Series C preferred stock into 28,061 shares of our common stock, which included 8,335 shares of our common stock on account of accrued dividends;
•
David St. Clair converted 19,978 shares and 68,502 shares of Series B and Series C preferred stock, respectively, into 39,120 shares and 96,544 shares of our common stock, which included 13,922 shares and 28,042 shares of our common stock, respectively, on account of
accrued dividends;
•
Grotech Partners V, L.P. converted 655,306 shares and 850,332 shares of Series B and Series C preferred stock, respectively, into 1,283,233 shares and 1,257,087 shares of our common stock, which included 456,674 shares and 406,755 shares of our common stock,
respectively, on account of accrued dividends;
•
Grotech V Maryland Fund, L.P. converted 10,655 shares and 13,825 shares of Series B and Series C preferred stock, respectively, into 20,864 shares and 20,438 shares of our common stock, which included 7,425 shares and 6,613 shares of our common stock, respectively,
on account of accrued dividends;
•
Liberty Ventures I, L.P. converted 79,915 shares and 66,117 shares of Series B and Series C preferred stock, respectively, into 156,490 shares and 97,744 shares of our common stock, which included 55,691 shares and 31,627 shares of our common stock, respectively, on
account of accrued dividends;
•
Liberty Ventures II, L.P. converted 86,574 shares and 71,644 shares of Series B and Series C preferred stock, respectively, into 169,530 shares and 105,914 shares of our common stock, which included 60,332 shares and 34,270 shares of our common stock, respectively,
on account of accrued dividends; and
•
Stockwell Fund, L.P. converted 173,150 shares and 143,288 shares of Series B and Series C preferred stock, respectively, into 339,064 shares and 211,829 shares of our common stock, which included 120,665 shares and 68,541 shares of our common stock, respectively,
on account of accrued dividends.
Relatives of Directors and Executive Officers Employed by the Company
While we encourage employees at all levels to refer people they know, including relatives, for employment at the Company, we have adopted a policy limiting the employment of relatives. The policy provides that in no situation will relatives work in positions in which
one directly manages the other, and only under special circumstances will a relative be given the authority to influence, directly or indirectly, any term or condition of employment of the other. The Company currently employs Robert Capobianco, the son of John Capobianco,
our President and Chief Operating Officer, as a Product Market Analyst. Pursuant to the terms of his employment with the Company, Robert Capobianco is to receive $65,000 in annual cash compensation during 2006 (excluding fringe benefits and bonus opportunities). Both
Robert Capobianco and John Capobianco have provided written acknowledgements to the Company
confirming that John Capobianco will not have any influence or involvement in the decisions regarding
 Robert Capobianco's employment with the Company.
Incentive Bonus Pool
The compensation committee of our
    board of directors has approved a special incentive bonus pool in an aggregate
    amount of $0.6 million. This pool will be allocated amongst certain of our
    employees based on our 2005 performance as well as the performance of such
    employees. All of our executive officers who were our employees as of December
    31, 2005 will be eligible to receive awards, including David St. Clair, John
    H. Capobianco, Carl E. Smith, Henry A. DePhillips, III, M.D. and Danielle
    Russella Bantivoglio.
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PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information known to us with respect to beneficial ownership of our common stock as of August 10, 2006 by:
•
each person, or group of affiliated persons, known by us to own beneficially more than 5% of our outstanding common stock;
•
each of our directors;
•
each of our named executive officers;
•
all of our current executive officers and directors as a group; and
•
each selling shareholder.
In the table, the number of shares of our common stock beneficially owned before this offering assumes the following events, which are described in "Conversion and Exercise Transactions" elsewhere in this prospectus:
•
the conversion of all outstanding shares of our Series A preferred stock, including the accrued and unpaid dividends thereon, into 4,686,247 shares of our common stock, which will automatically occur immediately prior to the consummation of this offering;
•
the conversion, upon the filing of the Registration Statement on Form S-1 of which this prospectus is a part, of 1,266,991 shares and 1,528,199 shares of Series B and Series C preferred stock (including accrued and unpaid dividends thereon) into 2,480,476 and 2,243,861
shares of common stock pursuant to the conversion agreements discussed in "Conversion and Exercise Transactions" elsewhere in this prospectus;
•
the conversion of all of the then outstanding shares of our Series B preferred stock and Series C preferred stock into 6,798,640 shares of our common stock, which will automatically occur immediately prior to the consummation of this offering;
•
the conversion of all outstanding options to purchase shares of Series C preferred stock into options to purchase common stock at the then applicable conversion rate of the Series C preferred stock in effect upon the completion of this offering; and
•
the issuance of 435,000 shares of our common stock at a weighted average exercise price of $1.31 per share upon the exercise of outstanding warrants that would otherwise terminate upon the consummation of this offering.
Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. Shares of our common stock subject to options or warrants currently exercisable or exercisable within 60 days of August 10, 2006 are deemed to be
outstanding for calculating the percentage of outstanding shares of the person holding these options or warrants, but are not deemed outstanding for calculating the percentage of any other person. Percentage of beneficial ownership is based upon 23,201,425 shares of our
common stock outstanding as of August 10, 2006, and       shares of our common stock outstanding upon completion of this offering. To our knowledge, except as set forth in the footnotes to this table and subject to applicable community property laws, each person named in
the table has sole voting and investment power with respect to the shares set forth opposite such person's name. Except as otherwise indicated, the address of each of the persons in this table is as follows: c/o MEDecision, Inc., 601 Lee Road, Chesterbrook Corporate Center,
Wayne, Pennsylvania 19087.
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Percentage of Shares
Outstanding
Name of Beneficial Owner
Number of
Shares
Beneficially
Owned
Number of
Shares to be
Sold in this
Offering
Number of
Shares to be
Sold if
Overallotment
Option is
Exercised
in Full
Before this
Offering
After this
Offering
After this
Offering if
Overallotment
Option is
Exercised
in Full
Five percent shareholders:
Funds Affiliated with Grotech Capital Group
(1)
6,287,495
27.1
%
Stockwell Fund, L.P.
(2)
4,165,279
17.8
%
Funds Affiliated with Liberty Ventures
(3)
3,456,315
14.8
%
DWS Investment GmbH
(4)
1,931,721
8.3
%
Britannia Holdings Limited
(5)
1,543,132
6.7
%
Directors and named executive officers:
David St. Clair
(6)
3,960,687
16.8
%
John H. Capobianco
(7)
1,510,750
6.1
%
Carl E. Smith
(8)
332,459
1.4
%
Henry A. DePhillips, III, M.D.
(9)
90,625
*
Danielle Russella Bantivoglio
(10)
37,500
*
Ronald D. Nall
—
—
Kristel L. Schimmoller
(11)
200,000
*
Mary Jo Timlin-Hoag
(12)
6,250
*
Frank A. Adams
(1)(13)
6,287,495
27.1
%
Charles P. Cullen
(1)(14)
6,287,495
27.1
%
Thomas R. Morse
(3)
3,456,315
14.8
%
Timothy W. Wallace
(15)
50,000
*
All directors and named executive officers
15,932,081
61.6
%
Other selling shareholders:
David R. Bohn
(16)
5,010
*
Leonard Brooks, III
(17)
9,005
*
Cap
          Gemini Ernst & Young US, LLC
(18)
677,589
2.9
%
E. Galey Clarke
(19)
25,665
*
J. Allen Dougherty, IRA
(20)
12,829
*
J. Allen Dougherty TTEE UTD 12/22/97
FBO Peter Wetherill
(21)
38,497
*
Frank Drazka
(22)
4,271
*
Kevin Gilbert
(23)
48,017
*
Janney Montgomery Scott LLC
(24)
32,735
*
Anne Kavanagh
(25)
5,010
*
Phillip K. Keating
(26)
6,035
*
Martin Magida
(27)
1,389
*
Mark
          O'Neill
(28)
7,692
*
Terri Moffa Paramito and
Albert J. Paramito, JT Ten
(29)
25,664
*
The Peregrine Equity Fund, LLP
(30)
25,665
*
John Torrence
(31)
2,562
*
Stephen Todd Walker
(32)
10,255
*
Samuel D. Weaver
(33)
51,337
*
Elizabeth Gross Weese Trust,
Brian D. Weese, Trustee
(34)
51,327
*
Harrison Wehner, III
(35)
5,010
*
Peter Zurkow
(36)
14,378
*
*
Indicates beneficial ownership of less than 1% of the total outstanding common stock.
(1)
Represents 100,597 shares of common stock held by Grotech V Maryland Fund, L.P. and 6,186,898 shares of common stock held by Grotech Partners V, L.P. Grotech Capital Group, LLC is the general partner of each of Grotech V Maryland Fund, L.P. and Grotech Partners V,
L.P. Voting and investment power over the [          ] shares beneficially owned by Grotech Capital Group, LLC is [shared by      ]. The address of Grotech Capital Group, LLC is 9690 Deereco Road, Suite 800, Timonium, MD 21093.
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(2)
Includes 150,000 shares of common stock issuable upon exercise of warrants that are immediately exercisable held by Stockwell Fund, L.P. The Stockwell Fund, L.P. is a _____ limited partnership, the general partner of which is Stockwell Managers, LLC. Voting and
investment power over the [          ] shares beneficially owned by Stockwell Fund, L.P. is [held by _____]. The address of Stockwell Fund, L.P. is 222 West Adams Street, Suite 1000, Chicago, IL 60606.
(3)
Includes 2,156,982 shares of common stock held by Liberty Ventures I, L.P., 162,000 shares of common stock issuable upon exercise of warrants that are immediately exercisable by Liberty Ventures I, L.P., 668,709 shares of common stock held by Liberty Ventures II, L.P.
and 468,624 shares of common stock held by Commonwealth Venture Partners II, L.P. Thomas R. Morse is the president and sole stockholder of Liberty Ventures, Inc., which is the general partner of Liberty Ventures I, L.P. Mr. Morse is also a managing director of the
general partner of Liberty Ventures II, L.P. Mr. Morse is a general partner of Commonwealth Venture Partners II, L.P. Voting and investment power over the shares beneficially owned by Liberty Ventures I, L.P., Liberty Ventures II, L.P. and Commonwealth Venture Partners
II, L.P. is held by Mr. Morse. Mr. Morse disclaims beneficial ownership of these shares, except to the extent of his pecuniary interest in the named funds. The address of Mr. Morse and each of the funds is c/o Liberty Venture Partners, One Commerce Square, 2005 Market
St., Suite 2040, Philadelphia, PA 19103-7012.
(4)
Includes 48,000 shares of common stock issuable upon exercise of warrants that are immediately exercisable held by DWS Investments GmbH. The address of DWS Investment GmbH is Mainzer Lanstr. 178-190, 60612 Frankfurt, Germany.
(5)
The address of Britannia Holdings Limited is Tudor House, Le Bordage, First Floor, St. Peter Port, Guernsey GY1 1DB.
(6)
Includes options to purchase 206,250 shares of common stock and options to purchase 70,000 shares of Series C preferred stock, which will be converted into options to purchase 70,000 shares of common stock, held by Mr. St. Clair that are exercisable within 60 days of
August 10, 2006. Also includes 75,000 shares of common stock issuable upon exercise of warrants that are immediately exercisable held by Mr. St. Clair, and 270,000 shares of common stock for which Mr. St. Clair has voting power pursuant to pledge agreements with
certain holders of record of such shares.
(7)
Includes options to purchase 1,503,750 shares of our common stock and options to purchase 7,000 shares of Series C preferred stock, which will be converted into options to purchase 7,000 shares of common stock, held by Mr. Capobianco that are exercisable within 60 days
of August 10, 2006.
(8)
Includes options to purchase 252,500 shares of common stock and options to purchase 9,000 shares of Series C preferred stock, which will be converted into options to purchase 9,000 shares of common stock, held by Mr. Smith that are exercisable within 60 days of
August 10, 2006.
(9)
Includes options to purchase 90,625 shares of common stock held by Dr. DePhillips that are exercisable within 60 days of August 10, 2006.
(10)
Includes options to purchase 37,500 shares of common stock held by Ms. Russella Bantivoglio that are exercisable within 60 days of August 10, 2006.
(11)
Includes options to purchase 100,000 shares of common stock held by Ms. Schimmoller that are exercisable within 60 days of August 10, 2006.
(12)
Includes options to purchase 6,250 shares of common stock held by Ms. Timlin-Hoag that are exercisable within 60 days of August 10, 2006.
(13)
Frank A. Adams is the managing director of Grotech Capital Group, LLC. As such, Mr. Adams may be deemed to have shared voting and investment power with respect to shares held by funds affiliated with Grotech Capital Group. Mr. Adams disclaims beneficial ownership
of the securities held by funds affiliated with Grotech Capital Group, except to the extent of his pecuniary interests therein, if any.
(14)
Charles P. Cullen is the Chief Financial Officer of Grotech Management Company, which provides services to funds affiliated with Grotech Capital Group. As such, Mr. Cullen may be deemed to have shared voting and investment power with respect to shares held by funds
affiliated with Grotech Capital Group. Mr. Cullen disclaims beneficial ownership of the securities held by funds affiliated with Grotech Capital Group, except to the extent of his pecuniary interests therein, if any.
(15)
Includes options to purchase 50,000 shares of common stock held by Mr. Wallace that are exercisable within 60 days of August 10, 2006.
(16)
The address of David R. Bohn is 11 South Drive, Larchmont, New York 10538.
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(17)
The address of Leonard Brooks, III is 119 Noe Avenue, Chatham, New Jersey 07928.
(18)
The address of Cap Gemini
          Ernst & Young US, LLC is 600 Memorial Drive, Suite 100 Cambridge,
          Massachusetts 02139.
(19)
The address of E. Galey Clarke is 12 Winding Lane, Greenwich, Connecticut 06831.
(20)
The address of J. Allen Dougherty, IRA is 6 The Green, Woodstock, Vermont 05091.
(21)
The address of J. Allen Dougherty TTEE UTD 12/22/97 FBO Peter Wetherill is 6 The Green, Woodstock, Vermont 05091.
(22)
The address of Frank Drazka is 136 East 55th Street, New York, New York 10022.
(23)
The address of Kevin Gilbert is [                           ].
(24)
The address of Janney Montgomery Scott LLC is 1801 Market Street, Philadelphia, Pennsylvania 19103.
(25)
The address of Anne Kavanagh
    is [                           ].
(26)
The address of Phillip K. Keating is 30 Green Avenue, Rye, New York 10580.
(27)
The address of Martin Magida is 59 Raymond Street, Darien, Connecticut 06820.
(28)
The address of Mark O'Neill is 6 Gladstone Road, Wallingford, Pennsylvania 19086.
(29)
The address of Terri Moffa Paramito and Albert J. Paramito, JT Ten is 772 Riverton Road, Moorestown, New Jersey 08057.
(30)
The address of The Peregrine Equity Fund, LLP is 3000 Two Logan Square, Eighteenth and Arch Streets, Philadelphia, Pennsylvania, 19103.
(31)
The address of John Torrence is 402 Harrier Row, Marlton, New Jersey 08053.
(32)
The address of Stephen Todd Walker is 611 Rose Lane, Bryn Mawr, Pennsylvania 19010.
(33)
The address of Samuel D. Weaver is 12 Winding Lane, Greenwich, Connecticut 06831.
(34)
The address of Elizabeth Gross Weese Trust, Brian D. Weese, Trustee is 6413 Pratt Avenue, Baltimore, Maryland 21212.
(35)
The address of Harrison Wehner, III is 322 King Caesar Road, Duxbury, Massachusetts 02332.
(36)
The address of Peter Zurkow is 6 Rectory Lane, Scarsdale, New York 10583.
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DESCRIPTION OF CAPITAL STOCK
General
Upon the consummation of this offering, our amended and restated articles of incorporation will authorize the issuance of up to                            shares of common stock, par value $          per share and                            shares of preferred stock, par value $          per share, the rights and preferences of which may be established from time to time by our board of directors.
As of August 10, 2006, not taking into consideration the effect of the conversion agreements discussed in "Conversion and Exercise Transactions" elsewhere in this prospectus, we had outstanding:
•
2,333,333 shares of Series A preferred stock held by three shareholders;
•
4,022,252 shares of Series B preferred stock held by 29 shareholders;
•
4,851,549 shares of Series C preferred stock held by 36 shareholders; and
•
6,557,201 shares of common stock held by 91 shareholders.
Upon the consummation of this offering, we will convert all of the outstanding shares of (i) Series A preferred stock into 4,686,247 shares of our common stock; (ii) Series B preferred stock into 3,475,290 shares of our common stock; and (iii) Series C preferred stock
into 3,323,350 shares of our common stock, assuming an initial public offering price of $      , the midpoint of the range set forth on the cover page of this prospectus. Accordingly, upon the consummation of this offering, we will have shares of common stock issued and
outstanding, and no shares of Series A preferred stock, Series B preferred stock or Series C preferred stock will be outstanding.
The following description summarizes some of the key terms of our capital stock. For a complete description of these terms, you should refer to our amended and restated articles of incorporation and our second amended and restated bylaws, each of which will be in
effect upon the consummation of this offering, and by the provisions of applicable law. Copies of our amended and restated articles of incorporation and second amended and restated bylaws are included as exhibits to the registration statement of which this prospectus is a part.
Common Stock
Holders of common stock are entitled to one vote for each share for the election of directors and on all other matters submitted to a vote of shareholders, and do not have cumulative voting rights in the election of directors. Whenever corporate action is to be taken by
vote of the shareholders, it becomes authorized upon receiving the affirmative vote of a majority of the votes cast by all shareholders entitled to vote on the matter. Holders of common stock are entitled to receive, as, when and if declared by our board of directors from time to
time, such dividends and other distributions in cash, stock or property from our assets or funds legally available for such purposes.
No preemptive rights, liquidation rights or sinking fund provisions apply to our common stock. All outstanding shares of common stock are fully paid and non-assessable. In the event of our liquidation, dissolution or winding up, holders of our common stock are entitled
to share ratably in the assets available for distribution.
The rights, preferences and privileges of holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future.
Preferred Stock
Our board of directors has the authority, without action by our shareholders, to designate and issue preferred stock in one or more series and to designate the rights, preferences and privileges of each series, including voting rights, dividend rights, conversion rights, and
redemption and liquidation preferences. The purpose of authorizing our board of directors to issue preferred stock and determine its rights and preferences
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is to eliminate delays associated with a shareholder vote on specific issuances. The issuance of preferred stock will affect, and may adversely affect, the rights of holders of our common stock. It
is not possible to state the actual effect of the issuance of any shares of preferred stock upon the rights of holders of our common stock until our board of directors determines the specific rights
of the holders of such preferred stock. However, the effects might include, among other things:
•
restricting dividends on our common stock;
•
diluting the voting power of our common stock;
•
impairing the liquidation rights of our common stock; or
•
delaying or preventing a change in our control without further action by the shareholders.
Upon the consummation of this offering, no shares of preferred stock will be outstanding, and we have no present plans to issue any shares of preferred stock.
Options to Purchase Common Stock
As of August 10, 2006, there were outstanding options to purchase a total of 6,010,163 shares of our common stock, at a weighted average exercise price of $2.12 per share, of which 3,459,389 underlying shares were vested on such date. The foregoing assumes that the
options to purchase Series C preferred stock are converted into options to purchase shares of our common stock upon consummation of this offering. After the consummation of this offering, no additional awards will be granted pursuant to our Amended and Restated Stock
Option Plan or our Series C Stock Equity Incentive Plan. After this offering,            shares of our common stock will be available for issuance under our 2006 Equity Incentive Plan.
Warrants to Purchase Common Stock
As of August 10, 2006, there
    were warrants to purchase a total of 1,298,720 shares of our common stock
    outstanding at a weighted average exercise price of $1.38 per share, warrants
    to purchase 435,000 shares of our common stock will terminate upon the  consummation
    of this offering.
Registration Rights
Pursuant to the provisions of the Second Amended and Restated Registration Rights Agreement dated as of September 25, 2001 by and among MEDecision, Inc. and the Holders party thereto (as such term is defined therein), the Holders, which will collectively hold% of our common stock outstanding after the consummation of this offering, will be entitled to certain registration rights with respect to the registration of those shares under the Securities Act. The Second Amended and Restated Registration Rights Agreement provides
that if we determine to register any of our securities under the Securities Act, either for our own account or for the account of a security holder or holders, including in connection with this offering, the Holders are entitled to written notice of the registration and are entitled to
include their shares of our common stock in such registration. In addition, the Holders have the right, at any time, to demand that we use all reasonable best efforts to effect the registration of their shares of our common stock on up to two occasions. If we qualify for
registration on Form S-3, such Holders each have unlimited rights to request registrations on Form S-3, but not more than one such registration in any 12 month period. All of these registration rights are subject to certain conditions and limitations, including the right of the
underwriters to limit the number of shares included in an offering, including in this offering. We are required to pay all registration expenses except any underwriting discounts or commissions or transfer taxes of the Holders related to such registrations pursuant to the Second
Amended and Restated Registration Rights Agreement. In addition, in the event that any shares owned by a Holder are proposed to be offered by means of a registration statement pursuant to this agreement, we have agreed to indemnify and hold harmless such Holder, any
underwriter participating in such offering, each officer, partner, manager and director of such person, each person, if any, who may control such Holder or underwriter and each representative of any Holder serving on our board of directors from and against all demands, claims,
actions, assessments, losses, damages, liabilities, costs and expenses imposed upon any breach of representation or warranty made by us in
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any underwriting agreement or any untrue statement of a material fact contained in the registration statement or any omission of a material fact.
Pursuant to the provisions of a Warrant Purchase Agreement dated June 15, 2001, PNC Bank, National Association, which holds a warrant to purchase shares of common stock equal to           % of our common stock outstanding after the consummation of this offering,
will be entitled to certain registration rights with respect to the registration of those shares under the Securities Act after the consummation of this offering. The agreement provides that if we determine to register any of our securities under the Securities Act, then PNC Bank is
entitled to written notice of the registration and to include its shares of our common stock issuable upon exercise of the warrants in such registration. These registration rights are subject to certain conditions and limitations, including the right of the underwriters to limit the
number of shares included in an offering. PNC Bank agreed in the Warrant Purchase Agreement not to sell or otherwise transfer our equity securities during the 10 days prior to and during the 180-day period beginning on the effective date of the registration statement for the
initial public offering or during the 90-day period beginning on the effective date of the registration statement for any subsequent offering in which it participates, unless otherwise permitted by the underwriters.
Anti-Takeover Effects of Provisions of Our Articles of Incorporation, Our Bylaws and Pennsylvania Law
Our amended and restated articles of incorporation and second amended and restated bylaws, each of which shall be effective upon the consummation of this offering, as well as laws of the Commonwealth of Pennsylvania contain various provisions intended to promote
stability of our shareholder base and render more difficult certain unsolicited or hostile attempts to take us over which could disrupt us, divert the attention of our directors, executive officers and employees and adversely affect the independence and integrity of our business. A
summary of these provisions of our amended and restated articles of incorporation and second amended and restated bylaws, each as in effect upon the consummation of this offering, and Pennsylvania law is set forth below.
Classified Board of Directors; Removal of Directors.
Pursuant to our amended and restated articles of incorporation, the number of directors on our board of directors shall not be less than one or greater than                 as determined by a majority vote of our board of
directors. The directors will be divided into three classes, each class to consist as nearly as possible of one-third of the directors. Directors elected by our shareholders at an annual meeting of shareholders will be elected by a plurality of all votes cast at such annual meeting.
Initially, the terms of office of the three classes of directors will expire, respectively, at the annual meeting of shareholders in 2007, 2008 and 2009. After the expiration of the terms of the initial classified board of directors, the terms of the successors of each of the three
classes of directors will expire three years from the year of their respective election. See "Management—Composition of Board of Directors" elsewhere in this prospectus.
Our second amended and restated bylaws provide that except as otherwise provided for or fixed by or pursuant to an amendment to the second amended and restated bylaws setting forth the rights of the holders of any class or series of preferred stock, newly created
directorships resulting from any increase in the number of directors and any vacancies on our board of directors resulting from death, resignation, disqualification, removal or other cause will be filled by the affirmative vote of a majority of the remaining directors then in office,
even though less than a quorum of the members of the board of directors, or by a sole remaining director. Any director elected in accordance with the preceding sentence will hold office for the full term of the class of directors in which the new directorship was created or the
vacancy occurred and until such director's successor shall have been duly elected and qualified. No decrease in the number of directors constituting our board of directors will shorten the term of any incumbent director. Subject to the rights of holders of any preferred stock,
any director may be removed from office only for cause by the affirmative vote of the holders of at least 80% of the voting power of all of our outstanding capital stock entitled to vote generally in the election of directors, voting together as a single class.
These provisions of our second amended and restated bylaws would preclude a third-party from removing incumbent directors and simultaneously gaining control of our board of directors by filling the
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vacancies created by removal with its own nominees. Under the classified board of directors provisions described above, it would take at least two elections of directors for any individual or
group to gain control of our board of directors. Accordingly, these provisions could discourage a third-party from initiating a proxy contest, making a tender offer or otherwise attempting to gain
control of us.
Special Shareholders' Meetings and Right to Act by Written Consent.
Our second amended and restated bylaws provide that a special meeting of shareholders may be called only by the chairman of our board of directors or our Chief Executive Officer or upon a
resolution adopted by a majority of our entire board of directors. Our shareholders are not generally permitted to call, or to require that the board of directors call, a special meeting of shareholders pursuant to the terms of our amended and restated articles of incorporation.
Moreover, the business permitted to be conducted at any special meeting of shareholders is limited to the business brought before the meeting pursuant to the notice of the meeting given by us. Our second amended and restated bylaws provide that any action of shareholders
may be taken only at a meeting of the shareholders or a class of shareholders and may not be taken without a meeting through the execution of a consent or consents thereto by the shareholders.
Procedures for Shareholder Nominations and Proposals.
Our second amended and restated bylaws establish an advance notice procedure for shareholders to nominate candidates for election as directors and to propose any new business at any annual meeting. With
respect to shareholder nominations and proposals, only persons nominated in accordance with this procedure are eligible to serve as directors, and only business brought before the annual meeting in accordance with this procedure may be conducted at the annual meeting.
Under this procedure, notice of shareholder nominations and proposals for new business at the annual meeting must be received by our secretary not later than 60 days nor earlier than 90 days before the first anniversary of the previous year's annual meeting; provided,
however, that if the annual meeting date is more than 30 days before or more than 60 days after the anniversary date, notice must be received no more than 90 days before or later than the later of 60 days before the annual meeting date or the 15
th
day following the day on
which we first publicly announced the annual meeting. For nominations and proposals for any special meetings, our second amended and restated bylaws require notice not more than 90 days nor less than 60 days before the special meeting or the 15
th
day following the day on
which we first publicly announced the special meeting. Our second amended and restated bylaws provide that notice to our secretary with respect to any shareholder nomination or proposal must include certain information regarding the nominee, the proposal and the
shareholder nominating a director or proposing business.
By requiring advance notice of nominations by our shareholders, this procedure will afford our board of directors an opportunity to consider the qualifications of the proposed nominees and, to the extent deemed necessary or desirable by our board of directors, to inform
shareholders about such qualifications. By requiring advance notice of other proposed business, this shareholder notice procedure will provide a more orderly procedure for conducting annual meetings of our shareholders and, to the extent deemed necessary or desirable by our
board of directors, will provide our board of directors with an opportunity to inform our shareholders, prior to such meetings, of the board of directors' position regarding action to be taken with respect to such business, so that our shareholders can better decide whether to
attend such a meeting or to grant a proxy regarding the disposition of any such business.
Although our second amended and restated bylaws do not give the board of directors any power to approve or disapprove shareholder nominations for the election of directors or proposals for action, our Chairman of the board of directors has the power to determine
compliance with the shareholder notice procedure described above. Our second amended and restated bylaws also may have the effect of precluding a contest for the election of directors or the consideration of shareholder proposals if the proper procedures are not followed,
and of discouraging or deterring a third-party from conducting a solicitation of proxies to elect its own slate of directors or to approve its own proposal, without regard to whether consideration of such nominees or proposals might be harmful or beneficial to us and our
shareholders.
Authorized but Unissued Shares.
The authorized but unissued shares of our common stock and preferred stock are available for future issuance without shareholder approval, subject to various limitations imposed by the NASDAQ Global Market. These additional
shares may be used for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee
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benefit plans. The existence of authorized but unissued shares of common stock and preferred stock could make it more difficult or discourage an attempt to obtain control of us by means of a
proxy contest, tender offer, merger or otherwise.
Amendment of Our Articles of Incorporation and Bylaws.
Our amended and restated articles of incorporation, which shall be effective upon the consummation of this offering, provide that, unless previously approved by our board of directors, the affirmative vote of at
least 80% of the voting power of all of our outstanding capital stock entitled to vote generally in the election of directors, voting together as a single class, would be required to:
•
amend or repeal the provisions of our amended and restated articles of incorporation with respect to the election of directors;
•
amend or repeal the provisions of our amended and restated articles of incorporation with respect to amendments to our amended and restated articles of incorporation; and
•
adopt any provision inconsistent with such provisions.
In addition, our second amended and restated bylaws, which shall be effective upon the consummation of this offering, provide that the amendment or repeal by our shareholders of any bylaws made by our board of directors would require the affirmative vote of at least
80% of the voting power of all of our outstanding capital stock entitled to vote generally in the election of directors.
Pennsylvania Anti-Takeover Law.
We are subject to the following anti-takeover provisions under Pennsylvania law.
Subchapter F of the Pennsylvania Business Corporation Law generally prohibits a "business combination" with a shareholder or group of shareholders (and affiliates and associates of such shareholders) who beneficially own(s) at least 20% of the voting power of a
public corporation, or an interested shareholder, for a five-year period following the date on which the holder became an interested shareholder unless this business combination or the acquisition by the shareholder or group of shareholders of at least 20% of the voting power
of the corporation is approved in advance by our board of directors or approved by certain majority of those shareholders who are not an interested shareholders nor affiliates or associates thereof. This provision may discourage open market purchases of our stock or a non-
negotiated tender or exchange offer for our stock and, accordingly, may be considered disadvantageous by a shareholder who would desire to participate in any such transaction.
Under Section 1715 of the Pennsylvania Business Corporation Law, our directors are not required to regard the interests of any particular group, including those of the shareholders, as being dominant or controlling in considering our best interests. The directors may
consider, to the extent they deem appropriate, such factors as:
•
the effects of any action upon any group affected by such action, including our shareholders, employees, suppliers, customers and creditors, and communities in which we have stores, offices or other establishments;
•
our short-term and long-term interests, including benefits that may accrue to us from our long-term plans and the possibility that these interests may be best served by our continued independence;
•
the resources, intent and conduct of any person seeking to acquire control of us; and
•
all other pertinent factors.
Section 1715 further provides that any act of our board of directors, a committee of the board of directors or an individual director relating to or affecting an acquisition or potential or proposed acquisition of control to which a majority of our disinterested directors
have assented will be presumed to satisfy the standard of care set forth in the Pennsylvania Business Corporation Law, unless it is proven by clear and convincing evidence that our disinterested directors did not consent to such act in good faith after reasonable investigation.
As a result of this and the other provisions of Section 1715, our directors are provided with
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broad discretion with respect to actions that may be taken in response to acquisitions or proposed acquisitions of corporate control.
The rights and limitations provided by Section 1715 may discourage open market purchases of our common stock or a non-negotiated tender or exchange offer for our common stock and, accordingly, may be considered disadvantageous by a shareholder who would
desire to participate in any such transaction. As a result, the rights and limitations provided by Section 1715 may have a depressive effect on the price of our common stock.
The NASDAQ Global Market Listing
We have applied to have our common stock approved for quotation on the NASDAQ Global Market under the symbol "MEDE."
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is                                                      . Its address is                                                      , and its telephone number is (      )               .
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has
    been no public market for our common stock, and we cannot assure you that
    a significant public market for our common stock will develop or be sustained
    after the consummation of this offering. Future sales of substantial amounts
    of our  common stock in the public market, or the possibility of those sales,
    could reduce prevailing market prices. Some shares will not be available
    for sale shortly after this offering because of contractual and legal restrictions
    on resale as described below. Sales of substantial
amounts of our common stock in the public market after any of these restrictions
    on sale lapse, or the perception that those sales may occur, could adversely
    affect the prevailing market price of our common stock and impair our ability
    to raise equity capital in the future.
Upon the consummation of this offering,            shares
    of our common stock will be outstanding. If the underwriters exercise their
    overallotment option in full,            shares
    of our common stock will be outstanding. The shares of common stock being
    sold in this offering,  other than shares sold in our directed share program,
    will be freely tradable, other than by any of our "affiliates" as
    defined in Rule 144(a) under the Securities Act, without restriction
    or registration under the Securities Act. All remaining shares were issued
    and sold by us in
private transactions and are "restricted securities" as that term is
defined under Rule 144 of the Securities Act. These remaining securities
are eligible for public sale if registered under the Securities Act or sold in
accordance with Rule 144 or Rule 701 under the Securities
Act, which are summarized below, or another applicable exemption from registration.
As a result of contractual lock-up agreements with us or the underwriters as described below, and subject to the provisions of Rules 144, 144(k) and 701 summarized below, these securities will be available for sale in the public market as follows:
Eligibility of Restricted Shares For Sale in Public Market
Days after Date of this Prospectus
Shares Eligible
for Sale
Comment
As of the date of this prospectus
Shares not locked up and eligible for sale subject to Rule 144
90 days after the date of this prospectus
Shares not locked up and eligible for sale subject to Rule 144
180 days after the date of this prospectus
Lock-up terminates (unless extended); shares eligible for sale
subject to Rule 144 and Rule 701 (including options
exercisable for shares of our common stock that will
be vested and eligible for sale 180 days after the date of this
prospectus
Thereafter
Some of the shares in the table above, including shares held by executive officers and directors, listed as not being saleable until 180 days after the date of this prospectus may become saleable at a sooner date, as described under "Lock-up Agreements" below.
Lock-Up Agreements
All of our directors and officers,
    and certain of our shareholders, holding in the aggregate 29,539,057 shares
    of our common stock, or securities convertible into shares of our common
    stock
    outstanding before this offering, have signed contractual lock-up agreements
    pursuant to which they have agreed with the underwriters that, subject to
    certain exceptions, for a period of 180 days following the date of this prospectus,
    they will not offer, sell, assign, transfer, pledge or contract to sell or
    otherwise dispose of or hedge any shares of our
common stock or any securities convertible into or exchangeable for shares of
    our common stock without the prior written consent of Cowen and Company,
    LLC. In addition, if we issue an earnings release or material news or a material
    event relating to us occurs during the last 17 days of the lock-up period
  or if,
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prior to the expiration of the 180 days, we announce that we will release earnings results during the 16-day period beginning on the 180
th
day, the restrictions imposed by the underwriters' lock-
up agreements may be extended until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event for all such
shares. See the description of lock-up agreements in the "Underwriting" section of this prospectus.
Rule
144
In general, under Rule 144 as currently in effect, beginning 90 days after the effective date of this offering, a person who has beneficially owned restricted securities for at least one year, including the holding period of any prior owner other than one of our affiliates, is
entitled to sell a number of restricted shares within any three-month period that does not exceed the greater of:
•
one percent of the number
          of shares of our common stock then outstanding, which will equal shares
          immediately after this offering; and
•
the average weekly trading volume of our common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale.
Sales of restricted shares under Rule 144 are also subject to requirements regarding the manner of sale, notice, and the availability of current public information about us. Rule 144 also provides that affiliates that sell shares of our common stock that are not restricted
shares must nonetheless comply with the same restrictions applicable to restricted shares, other than the holding period requirement.
Rule
144(k)
Under Rule 144(k), a person who is not deemed to have been our affiliate at any time during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least two years, including the holding period of any prior owner other than
an affiliate, may sell those shares without complying with the manner-of-sale, public information, volume limitation or notice provisions of Rule 144.
Rule
701
Under Rule 701, shares of our common stock acquired upon the exercise of currently outstanding options or pursuant to other rights granted under written compensatory plans or contracts may be resold, to the extent not subject to the lock-up agreements:
•
by persons other than affiliates, beginning 90 days after the effective date of this offering, subject only to the manner-of-sale provisions of Rule 144; and
•
by affiliates, subject to the manner-of-sale, current public information and filing requirements of Rule 144, in each case, without compliance with the one-year holding period requirement of Rule 144.
Form
S-8 Registration Statements
We intend to file one or more registration statements on Form S-8 under the Securities Act following this offering to register the shares of our common stock that are issuable pursuant to our 2006 Equity Incentive Plan, our Series C Stock Equity Incentive Plan and our
Amended and Restated Stock Option Plan. These registration statements are expected to become effective upon filing. Shares covered by these registration statements will then be eligible for sale in the public markets, subject to the lock-up agreements and, to the extent that it
applies, to Rule 144 limitations applicable to affiliates.
Registration Rights
Pursuant to the provisions of a Second Amended and Restated Registration Rights Agreement dated as of September 25, 2001 by and among MEDecision, Inc. and the holders party thereto, the holders, which will collectively hold           % of our common stock
outstanding after the consummation of this offering, will be entitled to certain registration rights with respect to the registration of those shares under the Securities Act.
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Pursuant to the provisions of a warrant purchase agreement dated June 15, 2001, PNC Bank, National Association, which holds a warrant to purchase shares of common stock equal to           % of our common stock outstanding after the consummation of this offering,
will be entitled to certain registration rights with respect to the registration of those shares under the Securities Act. For more information, see "Description of Capital Stock—Registration Rights" elsewhere in this prospectus. After such registration, these shares of our common
stock will become freely tradable without restriction under the Securities Act. These sales could have a material adverse effect on the prevailing market price of our common stock.
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CERTAIN MATERIAL U.S. FEDERAL INCOME TAX
CONSIDERATIONS FOR NON-U.S. HOLDERS
The following is a general discussion of material U.S. federal income and estate tax considerations with respect to the acquisition, ownership and disposition of shares of our common stock applicable to non-U.S. holders. In general, a "non-U.S. holder" is any holder
other than:
•
a citizen or resident of the United States;
•
a corporation created or organized in or under the laws of the United States or any political subdivision thereof;
•
an estate, the income of which is includable in gross income for U.S. federal income tax purposes regardless of its source; or
•
a trust if (i) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (ii) it has a valid election in effect under applicable
Treasury regulations to be treated as a United States person.
Generally, an individual may be treated as a resident of the United States in any calendar year for U.S. federal income tax purposes by, among other ways, being present in the United States for at least 31 days in that calendar year and for an aggregate of at least 183
days during a three-year period ending in the current calendar year. For purposes of this calculation, such individual would count all of the days in which he or she was present in the current year, one-third of the days present in the immediately preceding year, and one-sixth of
the days present in the second preceding year. Residents are taxed for U.S. federal income tax purposes as if they were citizens of the United States.
This discussion is based on current provisions of the Internal Revenue Code of 1986, as amended, final, temporary or proposed Treasury regulations promulgated thereunder, judicial opinions, published positions of the Internal Revenue Service and all other applicable
authorities, all of which are subject to change (possibly with retroactive effect). We assume in this discussion that a non-U.S. holder holds shares of our common stock as a capital asset (generally property held for investment).
This discussion does not address all aspects of U.S. federal income and estate taxation that may be important to a particular non-U.S. holder in light of that non-U.S. holder's individual circumstances, nor does it address any aspects of U.S. state, local or non-U.S. taxes.
This discussion also does not consider any specific facts or circumstances that may apply to a non-U.S. holder subject to special treatment under the U.S. federal income tax laws, including without limitation:
•
banks, insurance companies or other financial institutions;
•
partnerships;
•
tax-exempt organizations;
•
tax-qualified retirement plans;
•
dealers in securities or currencies;
•
traders in securities that elect to use a mark-to-market method of accounting for their securities holdings;
•
certain U.S. expatriates; and
•
persons that will hold common stock as a position in a hedging transaction, "straddle" or "conversion transaction" for tax purposes.
Accordingly, we urge prospective investors to consult with their own tax advisors regarding the U.S. federal, state, local and non-U.S. income and other tax considerations of acquiring, holding and disposing of shares of our common stock.
If a partnership holds shares of our common stock, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. Any partner in a partnership holding shares of our common stock should consult its own tax
advisors.
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Dividends
In general, distributions made to a non-U.S. holder are treated as dividends if they are paid out of our current or accumulated earnings and profits. To the extent distributions exceed our current and accumulated profits, they are treated as a return of capital which reduces
the basis of the non-U.S. holder in our common stock, and to the extent in excess of such basis, they are treated as capital gain from the sale of our common stock. Dividends we pay, if any, to a non-U.S. holder will be subject to U.S. withholding tax at a rate of 30% on the
gross amount of the dividend. The withholding tax might not apply or might apply at a reduced rate if the non-U.S. holder can claim the benefits of an applicable income tax treaty between the United States and the non-U.S. holder's country of residence. A non-U.S. holder
must demonstrate its entitlement to treaty benefits by providing an Internal Revenue Service Form W-8BEN or appropriate substitute form to us or our paying agent. Also, special rules apply if the dividends are effectively connected with a trade or business carried on by the
non-U.S. holder within the United States and, if a treaty applies, are attributable to a permanent establishment of the non-U.S. holder within the United States. Dividends effectively connected with a U.S. trade or business, and, if a treaty applies, attributable to a permanent
establishment of a non-U.S. holder, generally will not be subject to U.S. withholding tax if the non-U.S. holder files certain forms, including Internal Revenue Service Form W-8ECI (or any successor form), with the payor of the dividend, and generally will be subject to U.S.
federal income tax on a net basis, in the same manner as if the non-U.S. holder were a resident of the United States. A non-U.S. holder that is a corporation may be subject to an additional "branch profits tax" at a rate of 30% (or a reduced rate as may be specified by an
applicable income tax treaty) on the repatriation from the United States of its "effectively connected earnings and profits," subject to certain adjustments. A non-U.S. holder of shares of our common stock eligible for a reduced rate of U.S. withholding tax pursuant to an
income tax treaty may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund with the Internal Revenue Service.
Gain on Sale or Other Disposition of Common Stock
In general, a non-U.S. holder will not be subject to U.S. federal income tax on any gain realized upon the sale or other disposition of the holder's shares of our common stock unless:
•
the gain is effectively connected with a trade or business carried on by the non-U.S. holder within the United States and, if required by an applicable income tax treaty as a condition to subjecting a non-U.S. holder to United States income tax on a net basis, the gain is
attributable to a permanent establishment of the non-U.S. holder maintained in the United States, in which case a non-U.S. holder will be subject to U.S. federal income tax on any gain realized upon the sale or other disposition on a net basis, in the same manner as if the
non-U.S. holder were a resident of the United States. Furthermore, the branch profits tax discussed above may also apply if the non-U.S. holder is a corporation;
•
the non-U.S. holder is an individual and is present in the United States for 183 days or more in the taxable year of disposition and certain other tests are met, in which case a non-U.S. holder will be subject to a flat 30% tax on any gain realized upon the sale or other
disposition, which tax may be offset by United States source capital losses (even though the individual is not considered a resident of the United States);
•
the non-U.S. holder is subject to tax pursuant to the provisions of the Internal Revenue Code regarding the taxation of U.S. expatriates; or
•
we are or have been a U.S. real property holding corporation (a USRPHC) for U.S. federal income tax purposes at any time within the shorter of the five-year period preceding the disposition and the non-U.S. holder's holding period. We do not believe that we are or have
been a USRPHC, and we do not anticipate becoming a USRPHC. If we have in the past or were to become a USRPHC at any time during this period, generally gains realized upon a disposition of shares of our common stock by a non-U.S. holder that did not directly or
indirectly own more than 5% of our common stock during this period would not be subject to U.S. federal income tax, provided that our common stock is "regularly traded on an established securities market" (within the meaning of Section 897(c)(3) of the Internal
Revenue Code). Our common stock will be treated as regularly traded on an established securities market during any period in which it is listed on a registered national securities exchange or any over-the-counter market, including the NASDAQ Global Market.
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U.S. Federal Estate Tax
Shares of our common stock that are owned or treated as owned by an individual who is not a citizen or resident (as defined for U.S. federal estate tax purposes) of the United States at the time of death will be includible in the individual's gross estate for U.S. federal
estate tax purposes, unless an applicable estate tax treaty provides otherwise, and therefore may be subject to U.S. federal estate tax.
Backup Withholding, Information Reporting and Other Reporting Requirements
Generally, we must report annually to the Internal Revenue Service and to each non-U.S. holder the amount of dividends paid to, and the tax withheld with respect to, each non-U.S. holder. These reporting requirements apply regardless of whether withholding was
reduced or eliminated by an applicable tax treaty. Copies of this information also may be made available under the provisions of a specific treaty or agreement with the tax authorities in the country in which the non-U.S. holder resides or is established.
U.S. backup withholding tax is imposed (at a current rate of 28%) on certain payments to persons that fail to furnish the information required under the U.S. information reporting requirements. A non-U.S. holder of shares of our common stock will be subject to this
backup withholding tax on dividends we pay unless the holder certifies, under penalties of perjury, among other things, its status as a non-U.S. holder (and we or our paying agent do not have actual knowledge or reason to know the holder is a United States person) or
otherwise establishes an exemption.
Under the Treasury regulations, the payment of proceeds from the disposition of shares of our common stock by a non-U.S. holder made to or through a U.S. office of a broker generally will be subject to information reporting and backup withholding unless the
beneficial owner certifies, under penalties of perjury, among other things, its status as a non-U.S. holder (and we or our paying agent do not have actual knowledge or reason to know the holder is a United States person) or otherwise establishes an exemption. The payment of
proceeds from the disposition of shares of our common stock by a non-U.S. holder made to or through a non-U.S. office of a broker generally will not be subject to backup withholding and information reporting, except as noted below. In the case of proceeds from a
disposition of shares of our common stock by a non-U.S. holder made to or through a non-U.S. office of a broker that is:
•
a U.S. person;
•
a "controlled foreign corporation" for U.S. federal income tax purposes;
•
a foreign person 50% or more of whose gross income from certain periods is effectively connected with a U.S. trade or business; or
•
a foreign partnership if at any time during its tax year (i) one or more of its partners are U.S. persons who, in the aggregate, hold more than 50% of the income or capital interests of the partnership or (ii) the foreign partnership is engaged in a U.S. trade or business.
Information reporting (but not backup withholding) will apply unless the broker has documentary evidence in its files that the owner is a non-U.S. holder and certain other conditions are satisfied, or the beneficial owner otherwise establishes an exemption (and the broker
has no actual knowledge or reason to know to the contrary).
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment to a non-U.S. holder can be refunded or credited against the non-U.S. holder's U.S. federal income tax liability, if any, provided that the required
information is furnished to the Internal Revenue Service in a timely manner.
THE FOREGOING DISCUSSION OF CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH PROSPECTIVE HOLDER OF SHARES OF
OUR COMMON STOCK SHOULD CONSULT HIS, HER OR ITS OWN TAX ADVISER WITH RESPECT TO THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF
COMMON STOCK.
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UNDERWRITING
We, the selling shareholders and
    the underwriters for this offering named below have entered into an underwriting
    agreement with respect to our common stock being offered. Subject to the
    terms and conditions of the underwriting agreement, each underwriter has
     severally agreed to purchase from us and the selling shareholders the number
    of shares of our common stock set forth opposite its name below. Cowen and
    Company, LLC, Wachovia Capital Markets, LLC, CIBC World Markets Corp. and
    Pacific Growth Equities, LLC are the
representatives of the underwriters.
Underwriters
Number of
Shares
Cowen and Company, LLC
Wachovia Capital Markets, LLC
CIBC World Markets Corp.
Pacific Growth Equities, LLC
Total
The underwriting agreement provides that the obligations of the underwriters are conditional and may be terminated at their discretion based on their assessment of the state of the financial markets. The obligations of the underwriters may also be terminated upon the
occurrence of the events specified in the underwriting agreement. The underwriters have agreed, severally and not jointly, to purchase all of the shares sold under the underwriting agreement if any of these shares are purchased, other than those shares covered by the
overallotment option described below. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the non-defaulting underwriters may be increased or the underwriting agreement may be terminated.
We and the selling shareholders have agreed to indemnify the underwriters against specified liabilities, including liabilities under the Securities Act of 1933, and to contribute to payments the underwriters may be required to make in respect thereof.
The underwriters are offering the shares, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel and other conditions specified in the underwriting agreement. The underwriters reserve the right to
withdraw, cancel or modify offers to the public and to reject orders in whole or in part.
Overallotment Option to Purchase Additional Shares.
The selling shareholders have granted to the underwriters an option to purchase up to                            additional shares of common stock at the public offering price, less the underwriting discount. This option is
exercisable for a period of 30 days. The underwriters may exercise this option solely for the purpose of covering overallotments, if any, made in connection with the sale of common stock offered hereby. To the extent that the underwriters exercise this option, the underwriters
will purchase additional shares from the selling shareholders in approximately the same proportion as shown in the table above.
Discounts and Commissions.
The following table shows the public offering price, underwriting discount and proceeds, before expenses to us and the selling shareholders. These amounts are shown assuming both no exercise and full exercise of the underwriters' option
to purchase additional shares.
We estimate that the total expenses of this offering, excluding underwriting discount, will be approximately $           and are payable by us.
Total
Per Share
Without
Overallotment
With
Overallotment
Public offering price
Underwriting discount
Proceeds, before expenses, to us
Proceeds, before expenses, to selling shareholders
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The underwriters propose to offer the shares of common stock to the public at the public offering price set forth on the cover of this prospectus. The underwriters may offer the shares of common stock to securities dealers at the public offering price less a concession
not in excess of $               per share. The underwriters may allow, and the dealers may reallow, a discount not in excess of $           per share to other dealers. If all of the shares are not sold at the public offering price, the underwriters may change the offering price and other
selling terms.
Discretionary Accounts.
The underwriters do not intend to confirm sales of the shares to any accounts over which they have discretionary authority.
Market Information.
Prior to this offering, there has been no public market for shares of our common stock. The initial public offering price will be determined by negotiations between us and the representatives of the underwriters.
An active trading market for the shares may not develop. It is also possible that after this offering the shares will not trade in the public market at or above the initial public offering price.
We have applied for the quotation of our common stock on the NASDAQ Global Market under the symbol "MEDE."
Stabilization.
In connection with this offering, the underwriters may engage in stabilizing transactions, overallotment transactions, syndicate covering transactions, penalty bids and purchases to cover positions created by short sales.
•
Stabilizing transactions permit bids to purchase shares of common stock so long as the stabilizing bids do not exceed a specified maximum, and are engaged in for the purpose of preventing or retarding a decline in the market price of our common stock while this offering
is in progress.
•
Overallotment transactions involve sales by the underwriters of shares of common stock in excess of the number of shares the underwriters are obligated to purchase. This creates a syndicate short position which may be either a covered short position or a naked short
position. In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number of shares that they may purchase in the overallotment option. In a naked short position, the number of shares involved is greater than the number of
shares in the overallotment option. The underwriters may close out any short position by exercising their overallotment option and/or purchasing shares in the open market.
•
Syndicate covering transactions involve purchases of common stock in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider,
among other things, the price of shares available for purchase in the open market as compared with the price at which they may purchase shares through exercise of the overallotment option. If the underwriters sell more shares than could be covered by exercise of the
overallotment option and, therefore, have a naked short position, the position can be closed out only by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that after pricing there could be downward
pressure on the price of the shares in the open market that could adversely affect investors who purchase in this offering.
•
Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when our common stock originally sold by that syndicate member is purchased in stabilizing or syndicate covering transactions to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of our common stock. As a result, the price of
our common stock in the open market may be higher than it would otherwise be in the absence of these transactions. Neither we nor the underwriters make any representation or prediction as to the effect that the transactions described above may have on the price of our
common stock. These transactions may be effected on the NASDAQ Global Market, in the over-the-counter market or otherwise and, if commenced, may be discontinued at any time.
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Lock-Up Agreements.
Pursuant to certain "lock-up" agreements, we and our executive officers, directors and certain of our other shareholders, have agreed, subject to certain exceptions, not to offer, sell, contract to sell, announce any intention to sell, pledge or
otherwise dispose of, enter into any swap or other agreement that transfers, in whole or in part, the economic consequence of ownership of, directly or indirectly, or file with the Securities and Exchange Commission a registration statement under the Securities Act relating to,
and common stock or securities convertible into or exchangeable or exercisable for any common stock without the prior written consent of Cowen and Company, LLC, for a period of 180 days after the date of the pricing of this offering. The 180-day restricted period will be
automatically extended if (i) during the last 17 days of the 180-day restricted period we issue an earnings release or material news or a material event relating to us occurs or (ii) prior to the expiration of the 180-day restricted period, we announce that we will release earnings
results or become aware that material news or a material event will occur during the 16-day period beginning on the last day of the 180-day restricted period, in either of which case the restrictions described above will continue to apply until the expiration of the 18-day period
beginning on the issuance of the earnings release or the occurrence of the material news or material event.
This lock-up provision applies to common stock and to securities convertible into or exchangeable or exercisable for or replaceable with common stock. It also applies to common stock owned now or acquired later by the person executing the agreement or for which the
person executing the agreement later acquires the power of disposition. The exceptions permit us, among other things and subject to restrictions, to (i) issue common stock or options pursuant to employee benefit plans; (ii) issue common stock upon exercise of outstanding
options or warrants; or (iii) file registration statements on Form S-8. The exceptions permit parties to the "lock-up" agreements, among other things and subject to restrictions, to (i) participate in transfers or exchanges involving common stock or securities convertible into
common stock or (ii) make certain gifts. In addition, the lock-up provision will not restrict broker-dealers from engaging in market making and similar activities conducted in the ordinary course of their business.
Directed Share Program.
At our request, the underwriters have reserved up to      shares of our common stock for sale, at the initial public offering price, through a directed share program to our business associates, employees and friends and family members of our
employees. There can be no assurance that any of the reserved shares will be so purchased. The number of shares available for sale to the general public in this offering will be reduced to the extent the reserved shares are purchased in the directed share program. Any reserved
shares of common stock not purchased through the directed share program will be offered to the general public on the same basis as the other common stock offered hereby.
Electronic Offer, Sale and Distribution of Shares.
A prospectus in electronic format may be made available on the websites maintained by one or more of the underwriters or selling group members, if any, participating in this offering and one or more of the
underwriters participating in this offering may distribute prospectuses electronically. The representatives may agree to allocate a number of shares to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be
allocated by the underwriters and selling group members in a manner that will make internet distributions on the same basis as other allocations. Other than the prospectus in the electronic format, the information on these websites is not part of this prospectus or the
registration statement of which this prospectus forms a part, has not been approved or endorsed by us or any underwriter in its capacity as underwriter, and should not be relied upon by investors.
Other Relationships.
Certain of the underwriters and their affiliates may in the future provide various investment banking, commercial banking and other financial services for us and our affiliates for which they may in the future receive customary fees.
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LEGAL MATTERS
The validity of the shares of our common stock offered hereby will be passed upon for us by Pepper Hamilton LLP, Philadelphia, Pennsylvania. Pepper Hamilton LLP has provided legal services to us since 1999. Certain current and former partners of Pepper Hamilton
LLP are partners in The Peregrine Equity Fund, LLP, which owns 7,241 shares of Series B preferred stock, 5,983 shares of Series C preferred stock and 10,549 shares of common stock. Certain legal matters in connection with this offering will be passed upon for the
underwriters by Wilson Sonsini Goodrich & Rosati, Professional Corporation, New York, New York.
EXPERTS
The financial statements included
    in this prospectus and elsewhere in the registration statement have been
    audited by Grant Thornton LLP, an independent registered public accounting
    firm, as indicated in their reports with respect thereto, and are included
    herein in reliance upon the authority of said firm as experts in auditing
  and accounting in giving such reports.
WHERE YOU CAN FIND MORE INFORMATION
We filed with the Securities and Exchange Commission a registration statement on Form S-1 under the Securities Act for the shares of our common stock to be sold in this offering. This prospectus, which forms a part of the registration statement, does not contain all
of the information in the registration statement and the exhibits that were filed with the registration statement. For further information with respect to us and our common stock, we refer you to the registration statement and the exhibits that were filed with the registration
statement. Statements contained in this prospectus about the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and we refer you to the full text of the contract or other document filed as an exhibit
to the registration statement. A copy of the registration statement and the exhibits that were filed with the registration statement may be inspected without charge at the public reference facilities maintained by the Securities and Exchange Commission Room 1580, 100 F Street,
N.E., Washington, D.C. 20549, and copies of all or any part of the registration statement may be obtained from the Securities and Exchange Commission upon payment of the prescribed fee. Information on the operation of the public reference facilities may be obtained by
calling the Securities and Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission maintains a website that contains reports, proxy and information statements, and other information regarding registrants that file electronically with the Securities
and Exchange Commission. The address of the site is http://www.sec.gov. You may also request copies of these filings, at no cost, by telephone at (610) 540-0202 or by mail to: 601 Lee Road, Chesterbrook Corporate Center, Wayne, Pennsylvania 19087, Attention: Investor
Relations.
We maintain an Internet website at http://www.medecision.com (which is not intended to be an active hyperlink in this prospectus). The information contained on, connected to or that can be accessed via our website is not part of this prospectus.
Upon the consummation of this offering,
    we will become subject to the information and periodic reporting requirements
    of the Exchange Act, and, in accordance with such requirements, will file
    periodic reports, proxy statements, and other information with the  Securities
    and Exchange Commission. These periodic reports, proxy statements and other
    information will be available for inspection and copying at the regional
    offices, public reference facilities and website of the Securities and Exchange
    Commission referred to above. We
intend to furnish our shareholders with annual reports containing financial statements
    audited by our independent accountants.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
F-2
Consolidated Statements of Operations for the three months ended March 31, 2006 and 2005 (unaudited) and the years ended December 31, 2005, 2004 and 2003
F-3
Consolidated Balance Sheets as of March 31, 2006 (unaudited) and December 31, 2005 and 2004
F-4
Consolidated Statements of Convertible Preferred Stock, Redeemable Convertible Preferred Stock and Stockholders' Deficiency for the three months ended March 31, 2006 (unaudited) and the years ended December 31, 2005, 2004 and 2003
F-5
Consolidated Statements of Cash Flows for the three months ended March 31, 2006 and 2005 (unaudited) and the years ended December 31, 2005, 2004 and 2003
F-6
Notes to Consolidated Financial Statements
F-7
F-1
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Report of Independent Registered Public Accounting Firm
The Board of Directors
MEDecision, Inc.:
We have audited the accompanying
    consolidated balance sheets of MEDecision, Inc. and Subsidiaries as of December 31,
    2005 and 2004, and the related consolidated statements of operations, convertible
    preferred stock, redeemable convertible preferred stock and
stockholders' deficiency and cash flows for each of the three years in the
period ended December 31, 2005. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal
control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of MEDecision, Inc. and Subsidiaries as of December 31, 2005 and 2004, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America.
As disclosed in footnote 2 to the financial statements, the Company restated its financial statements as of and for the years ended December 31, 2004 and 2003.
/s/
  Grant Thornton LLP
Philadelphia, Pennsylvania
July 19, 2006 (except for footnote 13,
Subsequent Events
,
as to which the date is August 1, 2006)
F-2
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MEDECISION, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except share and per share data)
Three Months Ended March
31,
Year Ended December
31,
2006
2005
2005
2004
2003
(unaudited)
(as restated)
Revenue
Term license revenue
$
415
$
652
$
9,729
$
6,260
$
2,439
Subscription, maintenance and transaction fees
5,308
3,542
17,187
14,666
12,600
Professional services
3,103
1,786
11,680
7,102
5,488
Total revenue
8,826
5,980
38,596
28,028
20,527
Cost of revenue
3,555
3,268
15,315
13,072
9,331
Gross margin
5,271
2,712
23,281
14,956
11,196
Operating expenses
Sales and marketing
2,205
1,250
7,778
4,668
3,211
Research and development
1,561
600
2,627
3,243
3,903
General and administrative
2,475
1,804
9,707
6,320
4,343
Total operating expenses
6,241
3,654
20,112
14,231
11,457
(Loss) income from operations
(970
)
(942
)
3,169
725
(261
)
(Gain) loss on change in fair value of redeemable convertible preferred stock conversion options
(158
)
(118
)
4,334
1,850
(42
)
Interest
          expense, net
60
41
274
175
249
Loss before benefit for income taxes
(872
)
(865
)
(1,439
)
(1,300
)
(468
)
Benefit for income taxes
416
386
6,491
—
—
Net (loss) income
$
(456
)
$
(479
)
$
5,052
$
(1,300
)
$
(468
)
Accretion of convertible preferred shares and redeemable convertible preferred shares
(821
)
(644
)
(6,226
)
(2,983
)
(3,275
)
Loss available to common shareholders
$
(1,277
)
$
(1,123
)
$
(1,174
)
$
(4,283
)
$
(3,743
)
Loss per share available to common shareholders, basic and diluted
$
(0.19
)
$
(0.17
)
$
(0.18
)
$
(0.67
)
$
(0.60
)
Weighted average shares used to compute loss available to common shareholders per common share, basic and diluted
6,549,699
6,441,869
6,458,129
6,378,732
6,215,840
The accompanying notes are an integral part of these consolidated financial statements.
F-3
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MEDECISION, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share and per share data)
March
31,
2006
December
31,
2005
2004
(unaudited)
(as restated)
Assets
Current assets
Cash and cash equivalents
$
4,612
$
2,447
$
431
Accounts receivable, net of allowances for doubtful accounts of $28 (unaudited), $55 and $98
6,992
10,363
4,401
Prepaid expenses
1,760
553
383
Other current assets
145
227
621
Deferred income taxes
3,192
2,776
—
Total current assets
16,701
16,366
5,836
Property and equipment
Computer equipment and software
10,859
10,434
7,707
Leasehold improvements
2,034
2,032
1,514
Office equipment and furniture
1,491
1,363
924
14,384
13,829
10,145
Less accumulated depreciation and amortization
(7,662
)
(7,216
)
(5,892
)
Net property and equipment
6,722
6,613
4,253
Capitalized
          software, net of accumulated amortization of $6,168 (unaudited), $6,091
          and $5,297
3,546
3,274
1,664
Other assets
367
341
466
Deferred income taxes
5,689
5,689
—
Total assets
$
33,025
$
32,283
$
12,219
Liabilities, Convertible Preferred Stock,
Redeemable Convertible Preferred Stock and Stockholders' Deficiency
Current liabilities
Current portion of capital lease obligations
$
1,337
$
1,162
$
552
Current portion of long-term note payable
100
100
—
Accounts payable
2,110
2,006
1,237
Accrued payroll and related costs
1,734
1,803
534
Other accrued expenses
1,318
1,826
1,459
Conversion option on the convertible preferred stock and the convertible redeemable preferred stock
6,071
6,229
1,895
Deferred revenue
11,227
9,617
5,885
Total current liabilities
23,897
22,743
11,562
Long-term liabilities
Capital lease obligations
2,429
2,440
1,180
Note payable
50
75
—
Deferred rent
1,482
1,510
994
Deferred
          tax liability
1,720
1,720
—
Other long-term liabilities
22
22
28
Total long-term liabilities
5,703
5,767
2,202
Commitments and contingencies
—
—
—
Series
          A convertible preferred stock, no par value; authorized 2,333,333 shares;
          issued and outstanding 2,333,333 shares at December 31, 2004
—
—
5,983
Series B redeemable convertible preferred stock, no par value; authorized 7,500,000 shares; issued and outstanding 4,022,252 shares at March 31, 2006 (unaudited), December 31, 2005 and December 31, 2004
28,973
28,545
26,833
Series C redeemable convertible preferred stock, no par value; authorized 7,500,000 shares; issued and outstanding 4,851,549 shares at March 31, 2006 (unaudited), December 31, 2005 and December 31, 2004
7,692
7,555
7,006
Stockholders' deficiency
Series
          A convertible preferred stock no par value; authorized 2,333,333 shares;
          issued and outstanding 2,333,333 shares at March 31, 2006 and
          December 31,
    2005
6,377
6,298
—
Common
          stock, no par value; authorized 50,000,000 shares; issued and outstanding
          6,549,954 shares at March 31, 2006 (unaudited), 6,549,454 shares at
          December 31, 2005 and 6,438,242 shares at December 31, 2004
13,739
13,631
13,365
Additional
          paid in capital-beneficial conversion feature
3,827
3,650
—
Accumulated deficit
(57,183
)
(55,906
)
(54,732
)
Total stockholders' deficiency
(33,240
)
(32,327
)
(41,367
)
Total liabilities, convertible preferred stock, redeemable convertible preferred stock and stockholders' deficiency
$
33,025
$
32,283
$
12,219
The accompanying notes are an integral part of these consolidated financial statements.
F-4
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MEDECISION, INC. AND SUBSIDIARIES
Consolidated Statements of Convertible Preferred Stock,
Redeemable Convertible Preferred Stock and Stockholders' Deficiency
(in thousands, except per share data)
Stockholders' Deficiency
Series
          A
redeemable
convertible
preferred
stock
Series B
redeemable
convertible
preferred
stock
Series C
redeemable
convertible
preferred
stock
Series A
convertible
preferred
stock
Common Stock
Additional
Paid-in
Capital
—
Beneficial
Conversion Feature
Accumulated
Deficit
Total
Shares
Amount
Balance at December 31, 2002 (restated)
$
5,353
$
22,368
$
5,491
$
—
6,208
$
13,317
$
—
$
(46,706
)
$
(33,389
)
Net loss
—
—
—
—
—
—
(468
)
(468
)
Accretion of convertible preferred stock and redeemable convertible preferred stock issuance costs
—
659
43
—
—
—
(704
)
(704
)
Accretion of convertible preferred stock and redeemable convertible preferred stock dividends
315
1,712
544
—
(2,571
)
(2,571
)
Shares issued for acquisition
—
—
198
—
—
—
—
—
Issuance of Series C redeemable convertible preferred stock as compensation
—
—
156
—
—
—
—
—
Exercise of stock options
—
—
—
—
14
11
—
—
11
Balance as of December 31, 2003 (restated)
5,668
24,739
6,432
—
6,222
13,328
—
(50,449
)
(37,121
)
Net income
—
—
—
—
—
(1,300
)
(1,300
)
Accretion of convertible preferred stock and redeemable convertible preferred stock issuance costs
—
382
25
—
—
(407
)
(407
)
Accretion of convertible preferred stock and redeemable convertible preferred stock dividends
315
1,712
549
—
—
(2,576
)
(2,576
)
Issuance of stock options below fair market value
—
—
—
—
21
—
21
Exercise of stock options
—
—
—
—
216
16
—
16
Balance at December 31, 2004 (restated)
5,983
26,833
7,006
—
6,438
13,365
—
(54,732
)
(41,367
)
Net income
—
—
—
—
—
5,052
5,052
Accretion of convertible preferred stock and redeemable convertible preferred stock dividends
36
1,712
549
279
—
3,650
(6,226
)
(2,297
)
Reclassification
(6,019
)
—
—
6,019
—
—
6,019
Issuance of stock options below fair market value
—
—
—
—
256
—
256
Exercise of stock options
—
—
—
—
111
10
—
10
Balance at December 31, 2005
—
28,545
7,555
6,298
6,549
13,631
3,650
(55,906
)
(32,327
)
Net loss (unaudited)
—
—
—
—
—
(456
)
(456
)
Issuance of stock options (unaudited)
—
—
—
—
108
—
108
Accretion of convertible preferred stock and redeemable convertible preferred stock dividends (unaudited)
—
428
137
79
1
—
177
(821
)
(565
)
Balance at March 31, 2006 (unaudited)
$
—
$
28,973
$
7,692
$
6,377
6,550
$
13,739
$
3,827
$
(57,183
)
$
(33,240
)
The accompanying notes are an integral part of these consolidated financial statements.
F-5
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MEDECISION, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
Three Months Ended
March
31,
Year Ended December
31,
2006
2005
2005
2004
2003
(unaudited)
(as restated)
Cash flows from operating activities
Net (loss) income
$
(456
)
$
(479
)
$
5,052
$
(1,300
)
$
(468
)
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization
446
322
1,324
1,173
1,112
(Gain) loss on change in fair value of redeemble convertible preferred stock conversion options
(158
)
(118
)
4,334
1,850
(42
)
Amortization of capitalized software
77
197
793
701
949
Stock compensation expense
108
24
256
21
156
Stock
          issued as consideration for acquisition
—
—
—
—
198
Amortization of deferred financing cost
5
5
20
22
72
(Recovery of) provision for doubtful accounts
(27
)
(53
)
(43
)
5
(137
)
Deferred income tax benefit
(416
)
(386
)
(6,491
)
—
—
Decrease (increase) in assets
Accounts receivable
3,398
845
(5,919
)
(2,393
)
884
Prepaid expenses and other assets
(1,155
)
248
329
(214
)
(943
)
Increase (decrease) in liabilities
Accounts payable
104
36
769
(85
)
(249
)
Accrued payroll and related costs
(69
)
(324
)
1,269
(158
)
(16
)
Other accrued expenses
(536
)
(539
)
252
859
(300
)
Deferred revenue
1,610
2,436
3,732
2,024
2,038
Net cash provided by operating activities
2,931
2,214
5,677
2,505
3,254
Cash flows from investing activities
Capitalized software
(350
)
(453
)
(2,403
)
(1,158
)
(82
)
Purchase of property and equipment
(129
)
(64
)
(764
)
(860
)
(696
)
Net cash used in investing activities
(479
)
(517
)
(3,167
)
(2,018
)
(778
)
Cash flows from financing activities
Proceeds from exercise of common stock options
—
4
10
16
11
Repayment of capital lease obligations
(262
)
(129
)
(679
)
(412
)
(350
)
Net borrowings on line of credit
—
—
—
(424
)
(873
)
Repayment of subordinated note payable
—
—
—
—
(500
)
Borrowings on equipment note payable, bank
—
250
250
—
—
Repayment on equipment note payable, bank
(25
)
—
(75
)
—
—
Net cash (used in) provided by financing activities
(287
)
125
(494
)
(820
)
(1,712
)
Net increase (decrease) in cash and cash equivalents
2,165
1,822
2,016
(333
)
764
Cash and cash equivalents, beginning of period
2,447
431
431
764
—
Cash and cash equivalents, end of period
$
4,612
$
2,253
$
2,447
$
431
$
764
Supplemental disclosures of cash flow information:
Cash paid during the period for interest
$
55
$
36
$
253
$
155
$
184
Supplemental disclosures of noncash investing and financing activities:
Property and equipment acquired under capital leases
$
426
$
104
$
2,549
$
1,695
$
144
Tenant improvement allowance received under operating lease
$
—
$
—
$
371
$
982
$
—
The accompanying notes are an integral part of these consolidated financial statements.
F-6
Back to Contents
MEDECISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
(1)
Business
MEDecision, Inc. (Parent) and its wholly-owned subsidiaries, Optimed Medical Systems, LLC (Optimed), and Collaborative Care Consortium (C3), collectively, the Company, provide technology-based clinical decision support and transaction management solutions
to managed care payers in the healthcare industry located in the United States. The Parent began operations in 1988, Optimed began operations in 2003 and C3 began operations in 2005. The Parent, Optimed and C3 are all incorporated in the Commonwealth of
Pennsylvania. The consolidated financial statements include the accounts of the Parent, Optimed and C3. All material intercompany balances and transactions have been eliminated. The Company operates in one business segment, namely the healthcare information
technology industry.
(2)
Restatement of Financial Statements
Subsequent to the issuance of the Company's financial statements for the year ended December 31, 2004, management reviewed the revenue recognition accounting policies and concluded that certain modifications were necessary to correct its method of accounting
for reimbursable expenses billed to, and paid by, its customers. The Company previously netted amounts received against the related expenses included in cost of revenue. The restated results reflect an increase in revenue and cost of revenue of approximately $531 and
$308 for the year ended December 31, 2004 and $1,609 and $178 for the year ended December 31, 2003.
In addition, the Company
          determined that it had not accounted for the conversion options embedded
          in its Series C redeemable convertible preferred stock and Series B redeemable
          convertible preferred stock. The restated results include the value of the conversion options on
          the Series C redeemable convertible preferred stock and the Series
          B redeemable convertible preferred stock using the fair value method
          at the end of each quarter with the change in fair value recorded against
          earnings.
The restated results also include the value
        of the beneficial conversion option for the Series C redeemable convertible
        preferred stock and the Series A convertible preferred stock using the
        intrinsic value method at the end of each quarter, with the resultant
        gains or loss recognition recorded against accumulated deficit.
The Company granted stock options to employees in 2004 at an exercise price determined by the board of directors at the grant dates to approximate the fair market value of the common stock. In 2006, management engaged the services of an independent appraiser to
value the common stock. As a result of that valuation, the fair market value of the stock increased by $0.76 per share in 2004. Consequently, the exercise price of stock options granted in 2004 was less than the revised fair market value and, in accordance with
Statement of Financial Accounting Standards No. 123,
Stock Based Compensation
, the Company recorded $21 in expense in the year ended December 31, 2004 for the excess of fair market value over the exercise price of the options.
F-7
Back to Contents
MEDECISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
The following is a summary of the significant effects of the restatement on the Company's consolidated balance sheet at December 31, 2004 and 2003 and the Company's consolidated statements of operations and cash flows for the periods then ended.
December
          31, 2004
December
          31, 2003
As restated
As previously
reported
As restated
As previously
reported
Balance sheet
          data:
Cash and cash equivalents
431
426
764
764
Accounts receivable
4,401
5,178
2,013
2,870
Prepaid expenses
383
408
180
253
Other current assets
621
611
1,071
1,071
Total current assets
5,836
6,623
4,028
4,958
Computer equipment
        and software
7,707
7,707
6,058
5,118
Leasehold improvements
1,514
1,472
60
—
Office equipment
        and furniture
924
966
490
496
Accumulated depreciation
        and amortization
(5,892
)
(5,890
)
(4,719
)
(4,719
)
Net property and
        equipment
4,253
4,255
1,889
1,892
Capitalized software
1,664
1,762
1,207
1,346
Other assets
466
479
26
28
Total assets
12,219
13,119
7,150
8,236
Current portion
        of capital lease obligations
552
548
275
275
Current portion
        of long-term note payable
—
—
424
424
Accounts payable
1,237
1,248
1,322
1,421
Accrued payroll
        and related taxes
534
538
692
812
Other accrued expenses
1,459
1,270
485
512
Conversion option
        on the convertible preferred stock
1,895
—
45
—
Deferred revenue
5,885
6,666
3,861
4,553
Total current liabilities
11,562
10,270
7,104
7,996
Capital lease obligations
1,180
1,194
174
171
Deferred rent
994
1,022
81
81
Other long-term
        liabilities
28
—
74
20
Total long-term
        liabilities
2,202
2,216
329
272
Series A convertible
        preferred stock
5,983
5,981
5,668
5,666
Series B redeemable
        convertible preferred stock
26,833
26,773
24,739
24,783
Series C redeemable
        convertible preferred stock
7,006
7,158
6,431
6,588
Common stock
13,365
13,288
13,328
13,272
Accumulated deficit
(54,732
)
(52,567
)
(50,449
)
(50,342
)
Total stockholders'
        deficiency (equity)
(41,367
)
633
(37,121
)
(32,485
)
Total liabilities,
        convertible preferred stock,
redeemable convertible
        preferred stock and
stockholders' deficiency
12,219
13,119
7,150
8,236
Statement of
          operations data:
Term license revenue
6,260
8,035
2,439
2,679
Subscription, maintenance
        and transaction fees
14,666
12,748
12,600
11,054
Professional services
7,102
6,714
5,488
5,185
Total revenue
28,028
27,497
20,527
18,918
Cost of revenue
13,072
12,764
9,331
9,153
Gross margin
14,956
14,733
11,196
9,765
Sales and marketing
4,668
4,665
3,211
3,194
Research and development
3,243
3,243
3,903
3,903
General and administrative
6,320
6,009
4,343
4,624
Total operating
        expenses
14,231
13,917
11,457
11,721
Income (loss) from
        operations
725
816
(261
)
(1,957
)
Change in fair
        value of conversion options
1,850
—
(42
)
—
Interest expense
175
167
249
246
(Loss) income before
        benefit for income taxes
(1,300
)
649
(468
)
(2,203
)
Net (loss) income
(1,300
)
649
(468
)
(2,203
)
Accretion of convertible
        preferred shares
and redeemable
        convertible preferred shares
(2,983
)
—
(3,275
)
—
(Loss) income available
        to common shareholders
(4,283
)
649
(3,743
)
(2,203
)
Statement of
          cash flows data:
Net (loss) income
(1,300
)
649
(468
)
(2,203
)
Depreciation and
        amortization
1,173
1,171
1,112
1,113
(Gain)
          loss on change in fair value of redeemable convertible preferred stock
    conversion options
1,850
—
38
—
Amortization of
        capitalized software
701
742
949
992
Stock compensation
        expense
21
—
156
—
Shares issued as consideration for acquisition
—
—
198
—
Amortization of
        deferred financing cost
22
22
72
72
(Recovery of) provision
        for doubtful accounts
5
(11
)
(137
)
(13
)
(Decrease) increase in accounts receivable
(2,393
)
(2,297
)
884
1,865
(Decrease) increase in prepaid expenses and other assets
(214
)
(156
)
(943
)
(1,075
)
Increase (decrease)
        in accounts payable
(85
)
(172
)
(249
)
(137
)
Increase (decrease)
        in accrued payroll and related costs
(158
)
(274
)
16
89
Increase (decrease)
        in other accrued expenses
859
1,679
(304
)
172
Increase in deferred revenue
2,024
2,113
2,038
2,390
Net cash provided
        by operating activities
2,505
3,446
3,254
3,259
Capitalized software
(1,158
)
(1,158
)
(82
)
(82
)
Purchase of property
        and equipment
(860
)
(1,839
)
(696
)
(699
)
Net cash used in
        investing activities
(2,018
)
(2,997
)
(778
)
(781
)
Proceeds from exercise of common stock options
16
16
11
11
Repayment of capital lease obligation
(412
)
(399
)
(350
)
(352
)
Net borrowings on line of credit
(424
)
(424
)
(873
)
(873
)
Net cash used in
        financing activities
(820
)
(807
)
(1,712
)
(1,712
)
Cash
        paid for interest
155
171
184
180
F-8
Back to Contents
MEDECISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
(3)
Summary of Significant Accounting Policies and Practices
(a)
Basis of presentation
The accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. The interim consolidated
financial statements have been prepared using the interim basis of reporting and, as such, reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the results for the periods
presented. The nature of our business is such that the results of any interim period are not necessarily indicative of the results for a full year.
(b)
Use of Estimates
The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, which require management to make assumptions and estimates that affect the reported amounts of assets and liabilities in
the financial statements, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting periods. Management believes that the estimates used are reasonable, although
actual amounts could differ from those estimates and the differences could have a material impact on the consolidated financial statements.
(c)
Revenue Recognition
The Company derives its revenue primarily from three sources: (i) initial term and renewal license fees for its Advanced Medical Management Clinical Rules and Processes modules; (ii) recurring revenue consisting of annual recurring fees for its Analytics and
Disease Management, Transactions and Information Exchange modules, transaction revenue associated with member eligibility verification, clinical adjudication of treatment requests and access of on-demand member health information and technical and clinical
maintenance and support fees; and (iii) fees for discrete professional services. The Company's standard license agreement typically provides a time-based license, five years in duration, to use its solutions. The Company may license its software in multiple element
arrangements if the customer purchases any combination of maintenance, consulting, training or hosting services in conjunction with the software product license.
The Company recognizes revenue pursuant to the requirements of AICPA Statement of Position (SOP) 97-2,
Software Revenue Recognition
; as amended by SOP 98-9,
Software Revenue Recognition,
With Respect to Certain Transactions; SOP 81-1,
Accounting for
Performance of Construction-type and Certain Production-type Contracts
; the Securities and Exchange Commission's (SEC) Staff Accounting Bulletin (SAB) No. 104,
Revenue Recognition
; Emerging Issues Task Force (EITF) Issue No. 00-21,
Revenue
Arrangements with Multiple Deliverables
; EITF Issue No. 00-03,
Application of AICPA Statement of Position 97-2,
to
Arrangements That Include the Right to Use Software Stored on Another Entity's Hardware
; EITF Issue No. 03-05,
Applicability of AICPA
Statement of Position 97-2, Software Revenue Recognition, to Non-Software Deliverables in an Arrangement Containing More-Than Incidental Software
; and other authoritative accounting guidance.
The Company recognizes revenue using the residual method when vendor-specific objective evidence (VSOE) of fair value exists for all of the undelivered elements in the arrangement, but does not exist for one or more delivered elements and all revenue recognition
criteria in SOP 97-2 other than the requirement for VSOE of fair value of each delivered element of the
F-9
Back to Contents
MEDECISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
arrangement are satisfied. The Company allocates revenue to each undelivered element based on its respective fair value determined by the price charged when that element is sold
separately or, for elements not yet sold separately, the price is established by management if it is probable that the price will not change before the element is sold separately. The
Company defers revenue for the undelivered elements and recognizes the residual amount of the arrangement fee, if any, when the basic criteria in SOP 97-2 have been met.
Provided that the customer's contract does not require significant production, modification or customization of the software under SOP 97-2, the Company recognizes revenue when the following four criteria have been met:
•
persuasive evidence of an arrangement exists;
•
delivery of our basic software code has occurred;
•
the license fee is fixed or determinable; and
•
collection of the license fee is probable.
For contracts where the Company provides software hosting services, when all other revenue recognition criteria have been met, the Company recognizes transaction fee revenue upon delivery of the software and hosting revenue over the hosting period unless:
•
the customer cannot take possession of the software at any time during the hosting period without significant penalty; or
•
the customer cannot contract with another hosting provider without significant effort or expenditure; or
•
the software's functionality is compromised by the termination of the Company's hosting services.
Under these circumstances, the Company recognizes all revenue under the arrangement ratably over the longer of the hosting period or the maintenance period.
If at the outset of an arrangement the Company determines that the arrangement fee is not fixed or determinable, then revenue is deferred until the arrangement fee becomes due and payable by the customer, assuming all other revenue recognition criteria have been
met. If at the outset of an arrangement the Company determines that collectibility is not probable, then revenue is deferred until payment is received. The Company's license agreements typically do not provide for a right of return other than during the standard
warranty period of 90 days. Historically, we have not incurred warranty expense or experienced returns of our products. If an arrangement allows for customer acceptance of the software or services, then the Company defers revenue recognition until the earlier of
customer acceptance or when the acceptance rights lapse.
The Company also licenses software under short-term time-based licenses, which generally include maintenance during the license period. License and maintenance revenue related to these arrangements is recognized ratably over the license term. Revenue for
multiyear time-based licenses and the provision of maintenance, whether separately priced or not, is recognized ratably over the license term unless a substantive maintenance renewal rate exists, in which case the residual amount is recognized as software revenue
when the basic criteria in SOP 97-2 have been met.
The Company's initial maintenance term is generally in the range of one to five years, renewable by the customer on an annual basis thereafter. The Company's customers typically prepay maintenance for periods of one to 12 months. Maintenance revenue is deferred
and recognized
F-10
Back to Contents
MEDECISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
ratably over the term of the maintenance contract. If a customer on maintenance is specifically identified as a bad debtor, then the Company would cease recognizing maintenance
revenue except to the extent that maintenance fees have already been collected.
While the statements of work with customers may specify multiple elements, the Company believes that the services elements included in its contractual arrangements with customers are not essential to the functionality of its software, which can operate in a
standalone fashion upon installation. These services elements do not include significant modification or customization of its software, but may include configuring, designing and implementing simple interfaces with other customer software, installation and
configuration of third-party software, and training in the use of company and third-party software. The timing of payments for software is independent of the payment terms for the services elements in its contractual arrangements with customers. In multi-element
arrangements involving software and consulting, training or other services that are not essential to the functionality of the software, the services revenue is accounted for separately from the software revenue. VSOE for services did not exist during 2004 and prior years.
As a result, revenue attributable to all elements in a multi-element arrangement, including services, in 2004 and 2003 were deferred until the related services were completed and only then recognized as revenue, assuming VSOE exists for all other undelivered
elements. In situations when revenue is deferred as a result of ongoing services, the costs associated with all delivered elements are also deferred and recognized as expense when the services are completed. As of March 31, 2006 (unaudited) and December 31, 2005,
2004 and 2003, $0, $0, $543 and $1,001, respectively, of deferred costs were included within prepaid expenses and other current assets for such periods. In late 2004, the Company introduced package pricing for the various service elements of its contractual
arrangements with customers, and now recognizes VSOE for services elements based on that pricing. Accordingly, beginning in 2005, the Company recognized revenue for delivered elements and undelivered elements in a multiple element arrangement based on
VSOE.
Consulting, training and other services are typically sold under fixed-price arrangements and are recognized using the percentage-of-completion method based on direct labor costs incurred to date as a percentage of total estimated project costs required to complete the
project. Consulting services primarily comprise implementation support related to the installation and configuration of the Company's products and do not typically require significant production, modification or customization of the software. In arrangements that
require significant production, modification or customization of the software and where services are not available from third-party suppliers, the consulting and license fees are recognized concurrently. When total cost estimates exceed revenue in a fixed-price
arrangement, the estimated losses are recognized immediately in cost of revenue.
The assumptions, risks and uncertainties inherent with the application of the percentage-of-completion method affect the timing and amounts of revenue and expenses reported. Numerous internal and external factors can affect estimates, including direct labor rates,
utilization and efficiency variances.
Where contractual arrangements with customers include the sale of third-party software, revenue is recognized for the sale of the third-party software, and the related expense is included in cost of revenue.
In accordance with EITF Issue No. 01-14,
Income Statement Characterization of Reimbursements Received for "Out of Pocket Expenses Incurred,"
the Company accounts for out-of-pocket expenses rebilled to customers as maintenance, consulting and training
revenue, with the related costs included in cost of revenue. For the three months ended March 31, 2006 and 2005 (unaudited) and the years ended December 31, 2005, 2004 and 2003, reimbursed expenses totaled $123, $146, $427, $367 and $251, respectively.
F-11
Back to Contents
MEDECISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
The Company also generates revenue from transactions that flow through its Web portal. Fees from these transactions are billed to customers in arrears on a monthly basis and are recognized in the period in which the transactions occur.
(d)
Cost of Revenue
Our cost of revenue primarily consists of:
•
compensation and related employee benefits for our professional services, product support and product hosting staff;
•
amortization of internally developed and purchased capitalized software;
•
third-party licence and
          maintenance fees primarily for third-party software incorporated in
          our Advanced Medical Management module;
•
solution hosting costs associated with a third-party secured facility;
•
costs of independent contractors that provide consulting and professional services to our customers; and
•
travel, lodging and other
          out-of-pocket expenses for our staff and independent consultants to
          perform work at a customer's site for which we receive reimbursement.
(e)
Cash and cash equivalents
Cash equivalents are highly liquid investments with original maturities of 90 days or less. Such investments are stated at cost, which approximates for value.
(f)
Accounts Receivable
Trade accounts receivable
          are recorded at the invoiced amount and do not bear interest. The majority
          of the Company's accounts receivable are due from trade customers.
          Credit is extended based on evaluation of the customer's financial
          condition. Collateral is not  required. Accounts receivable payment
          terms are typically 30 days and are stated in the financial statements
          at amounts due from customers net of an allowance for doubtful accounts.
          Accounts outstanding longer than the payment terms are considered past
          due. The
Company determines the allowance by considering a number of factors, including
          the length of time trade accounts receivable are past due, previous
          loss history, the customer's current ability to pay its obligations
          and the condition of the general economy and the  industry as a whole.
          The allowance for doubtful accounts is the Company's best estimate
          of the amount of probable credit losses in the Company's existing
          accounts receivable. Account balances are charged off against the allowance
          after all means of collection have  been exhausted and the potential
          for recovery is considered remote. Payments subsequently received on
          such receivables are credited to the allowance for doubtful accounts.
          The Company does not have any off-balance-sheet credit exposure related
          to its customers.
Period Ended
Balance at
Beginning of
Period
Charged
Write-Offs
Balance at
End of Period
March 31, 2006 (unaudited)
$
55
$
(27
)
—
$
28
December 31, 2005
98
(25
)
$
(18
)
55
December 31, 2004
93
16
(11
)
98
December 31, 2003
230
(124
)
(13
)
93
Accounts receivable include unbilled revenue for services performed but not billed. Unbilled revenue as of March 31, 2006 (unaudited) and December 31, 2005, and 2004 was $1,121, $1,324 and $888, respectively.
F-12
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MEDECISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
(g)
Prepaid expenses
Prepaid expenses consist primarily of amounts paid for annual software maintenance contracts.
(h)
Property and Equipment
Property and equipment are stated at cost. Property and equipment under capital leases are stated at the present value of future minimum lease payments at the inception of the lease.
In 2005 and 2004, the Company received lease incentives of $371 and $982, respectively, relating to tenant improvement allowances in conjunction with entering into an operating lease for its corporate headquarters. Such tenant improvement allowances have been
recorded as leasehold improvements and are being amortized over the life of the lease. These tenant improvement allowances are not included as collateral under the Company's borrowing agreement with a bank since title to such asset is deemed to be held by the
landlord. See also Note 3(p) below.
Depreciation and amortization
          on property and equipment are calculated on the straight-line method
          over the estimated useful lives of the assets. The estimated useful
          life of computer equipment and software is three to five years,
          while office equipment and furniture is four to seven years. Property
          and
          equipment held under capital leases and leasehold improvements are
          amortized on a straight-line basis over the shorter of the lease term
          or estimated useful life of the asset. Total depreciation and amortization
          expense for the three
months ended March 31, 2006 and 2005 (unaudited) and for the years ended
December 31, 2005, 2004 and 2003 was $446, $322, $1,324, $1,173 and $1,112,
respectively, which is included in general and administrative expense in the
accompanying statements of
operations.
(i)
Capitalized Software Costs
Capitalized software costs are stated on the balance sheet at the lower of unamortized capitalized costs or net realizable value.
The Company capitalizes purchased and internally developed software in accordance with Statement of Financial Accounting Standards (SFAS) No. 86,
Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed.
The capitalization of
costs of internally developed software begins when technological feasibility is established. Amortization begins and capitalization ends when the product is available for general release to customers. Annual amortization of capitalized software costs is the greater of the
amount computed using a) the ratio that the current gross revenue for a product bears to the total of current and anticipated future gross revenue for that product or (b) on a straight-line basis over the estimated economic life of the product, which ranges from three to
five years. The company performs quarterly reviews to ensure that the estimated future gross revenue from each product exceeds the unamortized costs.
During the three months
          ended March 31, 2006 and 2005 (unaudited) and the years ended
          December 31,
          2005, 2004 and 2003, the Company capitalized $318, $333, $2,002, $869
          and $0, respectively, related to internally developed software costs
          and $32, $121, $401, $289 and $82, respectively, of purchased software
          from third-parties. Amortization of capitalized software costs amounted
          to $77, $197, $794, $700 and $949 for the three months ended March 31,
          2006 and 2005 (unaudited) and the years ended December 31,
2005, 2004 and 2003, respectively, which was recorded in cost of revenue.
(j)
Other Assets
Other current assets and other assets consist of deferred financing costs and refundable deposits. Deferred financing costs are amortized over the life of the borrowing. Deferred costs represent
F-13
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MEDECISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
internal payroll and other
          costs incurred in connection with software installation and customization.
          These costs are deferred until delivered or until recognized under
          the percentage-  of-completion method. In addition, other assets includes
          items such as prepaid insurance, miscellaneous receivables, prepaid
          rent and the long term portion of prepaid expenses.
December
31,
March
31, 2006
2005
2004
(unaudited)
Other current assets:
Deferred costs
—
—
$
543
Prepaid insurance
$
63
$
77
64
Deferred financing fees
55
60
10
Deferred rent
—
64
—
Miscellaneous receivables
27
26
4
$
145
$
227
$
621
Other assets:
Refundable deposits
$
230
$
214
$
320
Long-term portion of prepaid expenses
137
127
146
$
367
$
341
$
466
(k)
Research and Development
Research and development costs other than software costs capitalized in accordance with SFAS No. 86 are expensed as incurred. Research and development costs expensed were $1,561, $600, $2,627, $3,243 and $3,903 in the three months ended March 31, 2006 and
2005 (unaudited) and the years ended December 31, 2005, 2004 and 2003, respectively.
(l)
Advertising
Advertising costs are expensed as incurred and amounted to $49, $77, $356, $144 and $108 in the three months ended March 31, 2006 and 2005 (unaudited) and the years ended December 31, 2005, 2004 and 2003, respectively. These costs are included in sales and
marketing expense in the accompanying statements of operations.
(m)
Income Taxes
Income taxes are accounted for in accordance with SFAS No. 109,
Accounting for Income Taxes
, under the asset-and-liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded against deferred tax
assets if it is more likely than not that such assets will not be realized. The factors used to assess the likelihood of realization are the forecast of future taxable income the remaining time period to utilize any tax operating losses and tax credits, and available tax planning
strategies that could be implemented to realize deferred tax assets.
(n)
Stock-Based Compensation
Through the end of 2005, the Company measured stock-based compensation arrangements in accordance with the provisions of SFAS No. 123,
Accounting for Stock-Based Compensation
,
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MEDECISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
which permitted companies
          to continue to apply the provisions of Accounting Principles Board
          (APB) Opinion No. 25,
Accounting for Stock
            Issued to Employees
, and related
interpretations. Under APB Opinion No. 25, the Company did not record compensation
expense when stock options were granted to eligible participants as long as the
exercise price  was not less that the fair market value of the stock when the
option was granted. In accordance with, SFAS No. 123 and SFAS No. 148,
Accounting
for Stock-Based Compensation -
Transition and Disclosure
, the Company disclosed pro forma results of operations,
including per share data as if the minimum value-based method had been applied
in measuring  compensation expense for stock-based incentive awards. Although
the Company's board of directors used its best estimate of the fair value
of the Company's stock price and made
grants of stock options in 2003, 2004 and 2005 with exercise prices equal to
those estimates of fair value, a subsequent independent appraisal of the common
stock's value on the
grant dates resulted in recognizing stock-based compensation expense in the Consolidated
Statement of Operations for the years ended December 31, 2005, 2004 and
2003 in the  amounts of $256, $21 and $0, respectively, for the difference between
the fair market value of the underlying common stock on the date of grant and
the option exercise price for
options granted under the Company's stock option plan. As a result, the
Company recorded expense for the intrinsic value.
The Company accounts for equity instruments issued to non-employees in accordance with the provisions of SFAS No. 123, EITF Issue No. 96-18,
Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services
and FASB Interpretation No. 28,
Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans—an interpretation of APB Opinions No.
15 and 25.
The following table illustrates
          the effect on results of operations if the fair-value-based method
          had been applied to all outstanding and unvested awards in each period.
Three Months
Ended March
31,
Year Ended December
31,
2005
2005
2004
2003
(unaudited)
Net (loss) income, as reported
$
(479
)
$
5,052
$
(1,300
)
$
(468
)
Add: stock-based compensation included in reported net (loss) income, net of taxes
—
161
21
—
Deduct: total stock-based employee compensation expense determined under fair-value-based method for all awards, net of taxes
(16
)
(303
)
(23
)
—
Pro forma net (loss) income
$
(495
)
$
4,910
$
(1,302
)
$
(468
)
Add:
          Accretion of convertible preferred shares and redeemable convertible
          preferred
    shares
$
(644
)
$
(6,226
)
$
(2,983
)
$
(3,275
)
Pro forma net loss available to common shareholders, basic and diluted
$
(1,139
)
$
(1,316
)
$
(4,285
)
$
(3,743
)
Pro
    forma net loss per share available to common shareholders, basic and diluted
$
(0.18
)
$
(0.20
)
$
(0.67
)
$
(0.60
)
In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123R,
Share Based Payment: An Amendment of FASB Statements No.
123 and 95
. This statement requires that the cost resulting from all share-based payment transactions be
recognized in the Company's consolidated financial statements. In addition, in March 2005 the Securities and Exchange Commission (SEC) released SEC Staff Accounting Bulletin (SAB) No. 107,
Share-Based Payment
. SAB No. 107 provides the SEC staff's position
regarding the application of SFAS No. 123R and certain SEC rules and regulations, and also provides the staff's views regarding the valuation of share-based payment arrangements for public companies. Generally, the approach in SFAS No. 123R
F-15
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MEDECISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
is similar to the approach described in SFAS No. 123. However, SFAS No. 123R requires all share-based payments to employees, including grants of employee stock options, to be
recognized in the statement of operations based on their fair values. Pro forma disclosure of fair value recognition, as prescribed under SFAS No. 123, is no longer an alternative.
Effective January 1, 2006, the Company adopted the calculated value recognition provisions of SFAS No. 123R utilizing the modified-prospective-transition method, as permitted by SFAS No. 123R. Under this transition method, compensation cost was recognized
during the three months ended March 31, 2006 for the portion of outstanding vested awards, based on the grant-date calculated value of those awards.
During the three months
          ended March 31, 2006 (unaudited), 57,500 options were granted.
          For the three months ended March 31, 2006 (unaudited), the Company
          recognized expense of $108 ($0.02 per share) as a result of the adoption
          SFAS No. 123R.
The options were valued using a Black-Scholes model. Under SFAS No. 123R, the Company will continue to utilize the Black-Scholes model to estimate the calculated value related to employee stock options. The Company's assessment of the estimated compensation
charges for these other options is affected by the appraised valuation of its common stock relying on assumptions regarding a number of complex and subjective variables and the related tax impact.
As of March 31, 2006 (unaudited), there was $1,391 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under existing stock option plans. The total calculated measurement value of shares vested during the
three-months ended March 31, 2006 was $103. The Company estimates that the cost for the year ended December 31, 2006 will be $433.
The Black-Scholes option pricing model is used by the Company to determine the weighted average fair value of options. The calculated value of options at date of grant and the assumptions utilized to determine such values are indicated in the following table:
Three Months
Ended
March
31,
Year Ended December
31,
2006
2005
2005
2004
2003
(unaudited)
Weighted average fair value at date of grant for options granted during the period
$
2.26
$
1.01
$
2.26
$
1.01
$
0.07
Risk-free interest rates
3.9
%
3.9
%
4.0
%
4.0
%
5.4
%
Expected stock price volatility
87.9
%
—
—
—
—
Expected dividend yield
—
—
—
—
—
The Company determined its volatility factor through an analysis of peer companies in terms of market capitalization and total assets.
	The Company cannot compute expected volatility due to its lack of historical stock prices.
(o)
Impairment of Long-Lived Assets
In accordance with SFAS No. 144, long-lived assets, such as property and equipment, and other assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash
flows, then an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.
F-16
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MEDECISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
(p)
Deferred Rent and Lease
            Incentives
The Company's operating leases contain predetermined fixed escalations of minimum rentals during the original lease terms. For these leases, the Company recognizes the related rent expense on a straight-line basis over the life of the lease and records the difference
between the amounts charged to operations and amounts paid as deferred rent. The Company also received certain lease incentives in conjunction with entering into operating leases in 2005 and 2004, which includes $371 and $982, respectively, in tenant improvement
allowances. These lease incentives were recorded as deferred rent at the beginning of the lease term and recognized as a reduction of rent expense over the lease term. See Note 3(h) above. As a result of the above, as of March 31, 2006 (unaudited), and December 31,
2005 and 2004, there is a deferred rent balance of $1,483, $1,446 and $1,025, respectively, of which $31 is included in other accrued expenses in current liabilities as of December 31, 2004, and $7 and $64 is included in other current assets at March 31, 2006 (unaudited)
and December 31, 2005, respectively.
(q)
Accounting for Convertible Preferred Stock, Redeemable Convertible Preferred Stock and Derivative Shares
The Company accounts for the preferred stock and related instruments in accordance with EITF Issue No. 00-19,
Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock
; EITF Issue No. 98-5,
Accounting for
Convertible Securities with Beneficial Conversion features or Contingent Adjustable Conversion Ratios
; EITF Issue No. 00-27,
Application of Issue No.
98-5 to Certain Convertible Instruments
; SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities
and other applicable professional standards. Preferred stock issued at a discount from the common fair value at the commitment date, i.e., the difference between the fair value of the common stock and the conversion price multiplied by the number of shares
issuable upon conversion, is recognized as beneficial conversion option in accordance with EITF Issue No. 00-27. The beneficial conversion feature is recorded as a deemed dividend and will be amortized over the period from the issue date to the conversion date. The
conversion option embedded in the preferred stock is accounted in accordance with EITF Issue No. 00-19 and recorded as liabilities and marked-to-market at each reporting period.
(r)
Commitments and Contingencies
In accordance with SFAS No. 5,
Accounting for Contingencies,
the Company records liabilities for loss contingencies when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated.
(s)
Fair Value of Financial Instruments
As of March 31, 2006
          and December 31, 2005 and 2004, the Company has the following
          financial instruments: accounts receivable, accounts payable, accrued
          expenses and capital lease obligations and debt. The carrying value
          of these financial instruments  approximated fair value. Accrued expenses
          are stated at the amounts expected to be paid within the next 12 months,
          and capital lease obligations are stated at the net present value of
          future minimum payments.
(t)
Concentration of Credit Risk
Financial instruments that potentially expose the Company to concentration of credit risk consist primarily of trade accounts receivable. Substantially all of the Company's sales and related accounts receivable are from customers in the health care industry located in North
America. Sales to two customers for the three months ended March 31, 2006 were 43%; sales to three customers for the three months ended March 31, 2005 were 32%; sales to one customer for the year ended December 31, 2005 were 25%; sales to three customers for
the year ended December 31, 2004 were
F-17
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MEDECISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
38% and sales to two customers for the year ended December 31, 2003 were 27%. At March 31, 2006 (unaudited), December 31, 2005 and 2004, trade receivables related to two, two
and three customers were 42%, 60% and 46%, respectively, of net accounts receivable. The Company does not require collateral or other security to support credit sales, but provides
an allowance for bad debts based on historical experience and specifically identified risks.
Cash balances are maintained at one bank. Accounts located in the United States are insured by the Federal Deposit Insurance Corporation (FDIC) up to $100,000. Certain operating cash accounts may exceed the FDIC insurance limits.
(u)
Earnings (Loss) Per Share
The Company follows SFAS No. 128,
Earnings Per Share.
Under SFAS No. 128, companies that are publicly held or have complex capital structures are required to present basic and diluted earnings per share on the face of the statement of operations. Earnings (loss)
per share are based on the weighted average number of shares and common stock equivalents outstanding during the period. Preferred stock issuance costs are accreted to the convertible preferred stock and reduce (increase) the net income (loss) available to common
shareholders. In the calculation of diluted earnings per share, shares outstanding are adjusted to assume conversion of the Company's preferred convertible stock and the exercise of options and warrants if they are dilutive. In the calculation of basic earnings per share,
weighted average numbers of shares outstanding are used as the denominator. The Company had a net loss available to common shareholders for the three months ended March 31, 2006 and 2005 (unaudited) and for the years ended December 31,
2005, 2004 and 2003. As a result, the common stock equivalents of stock options,
warrants and convertible securities issued and outstanding at those dates were
not included in the computation of diluted earnings per share for the years then
ended as they were antidilutive. Net income (loss) per share is computed as follows:
Three Months Ended
March
31,
Year Ended December
31,
2006
2005
2005
2004
2003
(unaudited)
Net (loss) income
$
(456
)
$
(479
)
$
5,052
$
(1,300
)
$
(468
)
Accretion of convertible preferred and redeemable convertible preferred shares
(821
)
(644
)
(6,226
)
(2,983
)
(3,275
)
Net loss available to common shareholders
$
(1,277
)
$
(1,123
)
$
(1,174
)
$
(4,283
)
$
(3,743
)
Weighted average shares used to compute net income (loss) available to common shareholders, basic and diluted
6,549,699
6,441,869
6,458,129
6,378,732
6,215,840
Loss per share available to common shareholders, basic and diluted
$
(0.19
)
$
(0.17
)
$
(0.18
)
$
(0.67
)
$
(0.60
)
(v)
Recently Issued Accounting Standards
In December 2004, the FASB issued SFAS No. 123R,
Share Based Payment: An Amendment of FASB Statements
No.
123 and 95
. This statement requires that the cost resulting from all share-based payment transactions be recognized in the Company's consolidated
financial statements. In addition, in March 2005 the SEC released SAB No. 107,
Share-Based Payment
. SAB No. 107
F-18
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MEDECISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
provides the SEC's staff's position regarding the application of SFAS No. 123R and certain SEC rules and regulations, and also provides the staff's views regarding the valuation of
share-based payment arrangements for public companies. Generally, the approach in SFAS No. 123R is similar to the approach described in SFAS No. 123. However, SFAS
No. 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the statement of operations based on their fair values. Pro
forma disclosure of fair value recognition, as prescribed under SFAS No. 123, is no longer an alternative.
In the first quarter of
          2006, the Company adopted the fair value recognition provisions of
          SFAS No. 123R utilizing the modified-prospective-transition method,
          as prescribed by SFAS No. 123R. Under the transition method, compensation
          cost recognized during the
three months ended March 31, 2006 includes (i) compensation cost for
all share-based payments granted prior to, but not yet vested as of January 1,
2006, based on the grant date fair value estimated in accordance with SFAS No. 123
and (ii) compensation
expense for all share-based payments granted subsequent to January 1, 2006,
based on the grant-date fair value estimated in accordance with the provisions
of SFAS No. 123R.
Under the modified-prospective-transition method, results for the prior periods
have not been restated. The effect of the change in the first quarter of 2006
was to increase net loss by $108 ($0.02 per share).
In May 2005, the FASB issued SFAS No. 154,
Accounting Changes and Error Corrections – a replacement of APB Opinion No.
20 and FASB Statement No.
3
. Among other changes, SFAS No. 154 requires that a voluntary change in accounting principle be
applied retrospectively with all prior period financial statements presented on the new accounting principle, unless it is impracticable to do so. SFAS No. 154 also provides that (i) a change in method of depreciating or amortizing a long-lived nonfinancial asset be
accounted for as a change in estimate (prospectively) that was effected by a change in accounting principle and (ii) correction of errors in previously issued financial statements should be termed a "restatement." The new standard is effective for accounting changes
and correction of errors made in fiscal years beginning after December 15, 2005. The Company does not expect adoption of SFAS No. 154 to have a material effect on its results of operations or financial condition.
In June 2005 the Emerging Issues Task Force, or EITF, reached a consensus on EITF Issue No. 04-10,
Determining Whether to Aggregate Operating Segments That Do Not Meet the Quantitative Thresholds.
This guidance requires that individual operating segments
that do not meet the quantitative thresholds set forth in SFAS No. 131,
Disclosure about Segments of an Enterprise and Related Information
, for separate reporting may be aggregated only if the segments meet certain requirements. These requirements are applicable
for fiscal years ending after October 13, 2004. The adoption of EITF Issue No. 04-10 does not affect the Company because it operates in only one segment.
In September 2005, the EITF reached consensus on Issue 05-02,
The Meaning of "Conventional Convertible Debt Instrument"
in EITF Issue No. 00-19,
Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock.
EITF 05-02 is effective for new instruments entered into and instruments modified in reporting periods beginning after June 29, 2005. The adoption of EITF 05-02 is expected to have no impact on the Company's financial statements.
At the June 15-16, 2005 EITF meeting, the EITF discussed EITF Issue No. 05-04,
The Effect of a Liquidated Damages Clause on a Freestanding Financial Instrument Subject to EITF Issue No.
00-19, Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company's Own Stock
, or EITF 05-04. EITF 05-04 addresses how a liquidated damages clause payable in cash affects the accounting for a freestanding financial instrument subject to the
F-19
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MEDECISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
provisions of EITF Issue 00-19. The EITF discussed (i) whether a registration rights penalty meets the definition of a derivative and (ii) whether the registration rights agreement
and the financial instrument to which it pertains should be considered as a combined instrument or as separate freestanding instruments. At the September 15, 2005 EITF meeting,
the EITF postponed further deliberations on EITF 05-04, and the FASB staff requested that the FASB consider a separate Derivatives Issue Guide, or DIG, issue that addresses
whether a registration rights agreement is a derivative in accordance with FASB Statement No. 133,
Accounting for Derivative Instruments and Hedging.
Following the resolution of
that DIG issue, the FASB staff will request that the EITF reconvene deliberations on EITF 05-04. While EITF 05-04 remains unresolved, the Company has determined that the
liquidated damage clauses contained in its convertible note agreements have been properly considered and accounted for in accordance with the prevailing guidance.
In June 2006, FASB issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No.
109
(FIN 48), which clarifies the accounting for uncertainty in tax positions. This interpretation requires the financial
statement recognition of a tax position taken or expected to be taken in a tax return, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The provisions of FIN 48 are effective for fiscal years beginning after
December 15, 2006. The Company is currently evaluating the impact the adoption of FIN 48 will have on its financial condition and results of operations.
(4)
Financing Arrangements
As of March 31, 2006 and December 31, 2005, the Company had a revolving line of credit for a maximum borrowing limit of $4,000. As of March 31, 2006 (unaudited) and December 31, 2005, the revolving line of credit bore interest at the bank's prime rate (7.75%
and 7.25% as of March 31, 2006 (unaudited) and December 31, 2005, respectively) plus 1.25%. As of March 31, 2006 (unaudited) and December 31, 2005 and 2004, there were no outstanding borrowings under the agreement, and the maximum amount outstanding in
each period was $0, $3,211 and $2,161, respectively. The credit agreement required the Company to maintain compliance with certain financial covenants. The line of credit facility expired on June 30, 2006. On July 3, 2006, the Company executed a term sheet to
extend the revolving line of credit arrangement. Pursuant to the executed term sheet, our borrowings under this facility will be limited to the lesser of $8,000 or 80% of qualified accounts receivable. Borrowings under the credit facility will be collateralized by
substantially all of the assets of the Company.
As of March 31, 2006 and December 31, 2005, the Company also had an equipment line of credit for a maximum borrowing limit of $500. As of March 31, 2006 (unaudited) and December 31, 2005 and 2004, the outstanding balances in each period were $150, $175
and $0, respectively. The line expired on June 30, 2006, at which time the outstanding balance converted to a term note. As of December 31, 2005, $250 had been converted to a 30-month term note bearing interest at a floating rate of prime plus 1.75%. On July 3,
2006, the Company executed a term sheet to extend the equipment line of credit arrangement. Under the terms of the executed term sheet, the line will bear interest at the bank's prime rate plus 1.5%.
The Company incurred interest expense of $97, $41, $274, $175 and $249, respectively, for the three months ended March 31, 2006 and 2005 (unaudited) and the years ended December 31, 2005, 2004 and 2003.
F-20
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MEDECISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
(5)
Leases
The Company is obligated under capital leases covering office furniture and computer hardware and software that expire at various dates through November 2009. At March 31, 2006 (unaudited), December 31, 2005 and 2004, the gross amount of property and
equipment and related accumulated amortization recorded under capital leases were as follows:
March
31,
December
31,
2006
2005
2004
Computer equipment and software
$
4,670
$
4,369
$
2,235
Leasehold improvements
15
15
—
Office equipment and furniture
980
856
456
5,665
5,240
2,691
Less: accumulated amortization
(1,945
)
(1,623
)
(864
)
$
3,720
$
3,617
$
1,827
Amortization of assets held under capital leases is included with depreciation and amortization expense.
The Company leases office space, equipment and a vehicle under various cancelable and noncancelable operating lease agreements that expire on various dates through August 2016. The Company's operating lease for office space allows the Company to terminate the
lease after seven years, provided 12 months' written notice is provided. Upon such termination, the Company must pay a penalty of $1.764 million, reduced by $30 each month subsequent to the 84
th
month of the lease. Rental expense for operating leases was
approximately $267, 226, $970, $688 and $654 for the three months ended March 31, 2006 and 2005 (unaudited) and for the years ended December 31, 2005, 2004 and 2003, respectively.
Future minimum lease payments under noncancelable operating leases and future minimum capital lease payments as of December 31, 2005 are:
Year ending December
31,
Capital Leases
Operating Leases
2006
$
1,428
$
1,136
2007
1,343
1,130
2008
988
1,009
2009
299
1,038
2010
79
1,076
Thereafter through 2016
—
6,874
Total minimum lease payments
4,137
$
12,263
Less: amount representing interest (at rates ranging from 2.0% to 25.6%)
(535
)
Present value of net minimum capital lease payments
3,602
Less: current installments of obligations under capital leases
1,162
Obligations under capital leases, excluding current installments
$
2,440
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MEDECISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
Future minimum lease payments
          under noncancelable operating leases and future minimum capital lease
          payments as of March 31, 2006 (unaudited) are:
Capital
          Leases
Operating
          Leases
2006
$
1,231
$
905
2007
1,537
1,130
2008
1,154
1,009
2009
304
1,038
2010
83
1,076
Thereafter
          through 2016
1
6,874
Total
          minimum lease payments
4,310
$
12,032
Less:
          amount representing interest (at rates ranging from 2.0% to 25.6%)
(544
)
Present
          value of net minimum capital lease payments
3,766
Less:
          current installments of obligations under capital leases
1,337
Obligations
          under capital leases, excluding current installments
$
2,429
(6)
Income Taxes
The income tax benefit for the years ended December 31, 2005, 2004 and 2003 consisted of the following:
Year Ended December
31,
2005
2004
2003
Current:
Federal
$
958
$
—
$
—
State and local
139
—
—
Total current
1,097
—
—
Deferred:
Federal
(6,627
)
—
—
State and local
(961
)
—
—
Total deferred
(7,588
)
—
—
Total
          income tax benefit
$
(6,491
)
$
—
$
—
A reconciliation of the Company's effective income tax rate to the statutory federal income tax rate of 34% for the years ended December 31, 2005, 2004 and 2003 is as follows:
Year Ended December
31,
2005
2004
2003
Statutory federal tax rate
34.0
%
—
—
State income taxes
4.8
—
—
Permanent differences
1.3
—
—
Tax
          credits
(6.7
)
—
—
Adjustments to book income
3.6
—
—
Valuation allowance
(268.0
)
—
—
Total income tax provision
(231.0
)%
—
—
F-22
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MEDECISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
The tax effect of significant temporary differences by component as of December 31, 2005 and 2004 are as follows:
December
31,
2005
2004
Deferred
          tax assets, current:
Net operating loss carryforwards
$
1,013
$
—
Deferred revenue
3,983
2,603
Other accruals
306
341
Total gross deferred tax asset, current
5,302
2,944
Less: valuation allowance
(2,526
)
(2,876
)
Net
          deferred tax asset, current
2,776
68
Deferred
    tax assets, long-term:
Net
    operating loss carryforwards
9,120
11,732
Goodwill
    amortization
51
59
Tax
    credits
1,696
1,372
Total
    gross deferred tax asset, long-term
10,867
13,163
Less: valuation allowance
(5,178
)
(12,858
)
Net
    deferred tax asset, long-term
5,689
305
Deferred
    tax liabilities, long-term:
Plant
          and equipment, principally due to depreciation
498
202
Deferred
          rent
84
9
Capitalized
          software
1,138
162
Total
          gross deferred tax liability, long-term
1,720
373
Net
    deferred tax asset
$
6,745
$
—
At March 31, 2006 (unaudited)
          and December 31, 2005,
          the Company had net operating loss carryforwards for federal and state
          income tax purposes of approximately $39,344 that begin to expire in
          2010 and 2006 for federal and state income taxes,
          respectively.
          Pursuant
          to income tax regulations,  the annual utilization of this carryforward,
          as well as a portion of the carryforward may be limited or impaired
          in certain circumstances.
In assessing the realizability
          of deferred tax assets, management considers whether it is more likely
          than not that some portion or all of the deferred tax assets will not
          be realized. The ultimate realization of deferred tax assets is dependent
          upon the generation of future  taxable income during the periods in
          which those temporary differences become deductible. Management considers
          the scheduled reversal of deferred tax liabilities, projected future
          taxable income and tax planning strategies in making this assessment.
          Accordingly, management's assessment was that it was more likely than
          not that at December 31, 2005, net operating loss carryforwards relating
          to two years of projected taxable income would be realized.
F-23
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MEDECISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
(7)
Convertible Preferred Stock and Redeemable Convertible Preferred Stock
Preferred stock information as of March 31, 2006 (unaudited), December 31, 2005, 2004 and 2003 is as follows:
Rollforward of shares:
Series A
Series B
Series C
Balance, December 31, 2002
2,333,333
4,022,252
4,537,949
Issuance of Series C redeemable convertible preferred stock as compensation
—
—
138,600
Issuance of Series C redeemable convertible preferred stock for acquisition
—
—
175,000
Balance, December 31, 2003
2,333,333
4,022,252
4,851,549
Balance, December 31, 2004
2,333,333
4,022,252
4,851,549
Balance, December 31, 2005
2,333,333
4,022,252
4,851,549
Balance, March 31, 2006 (unaudited)
2,333,333
4,022,252
4,851,549
The terms of the Series B
          and C redeemable convertible preferred stock include certain conversion
          options that represent derivative financial instruments under the provisions
          of SFAS No. 133. Thus the conversion options were separated from the
          Series B and C redeemable convertible preferred stock and valued
          using the Black-Scholes option pricing model. The Series C redeemable
          convertible preferred stock and Series B redeemable convertible
          preferred stock contain redemption features that would result in the
          holder receiving cash that is based on the value of the common stock.
          The Series C redeemable convertible preferred stock and Series B
          redeemable convertible preferred stock redemption features also include
          a clause that the holder can put the shares back at the greater of
          accreted value or fair value (including the value of the conversion
          option). Consistent with the model in EITF Issue No. 00-19, this
          feature meets the definition of net cash settlement associated with
          the conversion option. Therefore, the Company separated the conversion
          option from the preferred instrument and determined the fair value.
          The Company accounts for the conversion options using the fair value
          method at the end of
          each
          quarter
          with
          the change in fair value being recorded against earnings. Actual period
          close common stock prices, applicable volatility rates, and the period
          close risk-free interest rate for the instrument's expected remaining
          life, are the key assumptions used in the valuation calculation. The
          change in fair value for the three months ended March 31, 2006
          and 2005 (unaudited) and for the years-ended December 31, 2005,
          2004 and 2003 were $158, $118, ($4,334), ($1,850) and $42, respectively.
In accordance with the provisions of EITF
        Issue No. 98-5 and EITF Issue No. 00-27, the Company reviewed the value
        of the conversion option for the Series C redeemable convertible
        preferred stock and Series A convertible preferred stock at the
        date of the commitment and determined that they were "in-the-money" for
        the quarters ended March 31, 2006 (unaudited) and December 31,
        2005 (unaudited). The Company accounts for the beneficial conversion
        options using the intrinsic value method at the end of each quarter,
        with the resultant gain or loss recognition recorded against accumulated
        deficit in accordance with EITF Issue No. 00-27.
Information about the significant provisions, conversion and redemption features and liquidation preferences of each series of convertible preferred stock follows:
Series C
The holders of Series C
          redeemable convertible preferred stock are entitled to dividends at
          a rate of 10% per year. Dividends are due and payable semiannually
          and accumulate if not paid. Dividends are payable in cash, or, under
          certain conditions, may be payable in  cash or additional shares of
          Series C preferred stock, or a combination of both. As of March 31,
          2006 (unaudited) and December 31, 2005 and 2004 undeclared unpaid
          dividends of $2,362, $2,225 and $1,676, respectively, have accumulated.
F-24
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MEDECISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
Each share of Series C preferred stock is convertible into one share of common stock, subject to adjustment in certain circumstances, and has a liquidation preference equal to three times its stated value, as defined, plus all accrued and unpaid dividends thereon.
Conversion is at the option of the shareholders (although each holder of Series C preferred stock has agreed not to elect to convert its shares of Series C preferred stock until the earlier of: (i) March 30, 2007 or (ii) the date of the Company's request to the Securities
and Exchange Commission to withdraw the Company's registration statement on Form S-1 covering the initial public offering of its common stock), and is mandatory with the approval of 81% of the shareholders or upon such time, if ever, that the Company
consummates a public offering of at least $150 million and from which the Company receives proceeds of at least $30 million (a qualified public offering, or QIPO), at which time such conversion becomes mandatory. The Series C preferred shareholders may request
redemption beginning on the earlier of (i) March 30, 2007, or (ii) the date that the Company applies to the Securities and Exchange Commission to withdraw the registration statement on Form S-1 covering the initial public offering of its common stock, through
June 20, 2007 (or a later date that is the number of days after June 30, 2007 equal to the number of days between July 17, 2006 and the earlier of: (a) March 30, 2007 or (b) the date of the Company's request to the United States Securities and Exchange Commission
to withdraw the Company's registration statement on Form S-1 covering the initial public offering of its common stock) at the greater of the liquidation value, as defined, plus all accrued and unpaid dividends thereon or fair value as determined by the Company's
board of directors or an independent appraiser, however, the Company is not obligated to redeem shares if doing so would cause it to become insolvent. In the event of sale or merger of the company, the Series C preferred shareholders would be entitled to liquidation
value of their shares. The Series C shareholders have voting rights equal to common shareholders. Series C preferred stock is senior to Series A and B preferred stock and common stock.
The liquidation value of
          Series C preferred stock at March 31, 2006 (unaudited) and December 31,
          2005 and 2004 is $19,181, $19,044 and $18,496, respectively.
The Company has a Series
          C Preferred Stock Equity Incentive Plan whereby the Company may issue
          nonqualified stock options to purchase shares of the Company's
          Series C preferred stock or restricted shares of the Company's
          Series C preferred stock. The
Company's board of directors has not approved the use of this plan for incentive
stock options. The Company has authorized 500,000 shares to be issued under the
plan. At March 31, 2006 (unaudited) and December 31, 2005 and 2004,
there are 110,000 options to  purchase Series C preferred stock outstanding.
These options were issued to certain officers during 2002 and 2003 and vested
immediately. In the event of liquidation, the holders of these options would
be entitled to the liquidation preference equal to three times the
stated value, as defined.
Series B
The holders of Series B
          redeemable convertible preferred stock are entitled to dividends at
          a rate of 9% per year. Series B dividends are due and payable semiannually
          after Series C dividends have been declared and paid and accumulate
          if not paid. Dividends are  payable in cash or, under certain conditions,
          may be payable in cash or additional shares of Series B preferred stock,
          or a combination of both. As of March 31, 2006 (unaudited) and
          December 31, 2005 and 2004, $9,888, $9,460 and $7,747, respectively,
          of
undeclared, unpaid dividends have accumulated.
Each share of Series B preferred stock is convertible into one share of common stock, subject to adjustment in certain circumstances, and has a liquidation preference equal to its stated value, as defined, plus all accrued and unpaid dividends thereon. Conversion is at
the option of the shareholders (although each holder of Series B preferred stock has agreed not to elect to convert
F-25
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MEDECISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
its shares of Series B preferred stock until the earlier of: (i) March 30, 2007 or (ii) the date of the Company's request to the Securities and Exchange Commission to withdraw the
Company's registration statement on Form S-1 covering the initial public offering of its common stock), and is mandatory with the approval of 81% of the shareholders or upon such
time, if ever, that the Company consummates a QIPO, at which time such conversion becomes mandatory. The Series B preferred shareholders may request redemption beginning on
the earlier of (i) March 30, 2007, or (ii) the date that the Company applies to the Securities and Exchange Commission to withdraw the registration statement on Form S-1 covering
the initial public offering of its common stock, through June 20, 2007 (or a later date that is the number of days after June 30, 2007 equal to the number of days between July 17,
2006 and the earlier of: (a) March 30, 2007 or (b) the date of the Company's request to the United States Securities and Exchange Commission to withdraw the Company's
registration statement on Form S-1 covering the initial public offering of its common stock) at the greater of the liquidation value, as defined, plus all accrued and unpaid dividends
thereon or fair value as determined by the Company's board of directors or an independent appraiser, after the Series C preferred stock has been redeemed, however, the Company is
not obligated to redeem shares if doing so would cause it to become insolvent. In the event of sale or merger of the company, the Series B preferred shareholders would be entitled
to liquidation value of their shares. The Series B shareholders have voting rights equal to common shareholders. Series B preferred stock is senior to Series A preferred stock and
common stock.
The liquidation value of
          Series B preferred stock at March 31, 2006 (unaudited) and December 31,
          2005 and 2004 is $28,913, $28,485 and $26,773, respectively.
Series A
The holders of Series A
          convertible preferred stock are entitled to dividends at a rate of
          9% per year. Series A accumulated dividends are due and payable after
          Series C and B dividends are paid. Dividends are payable in cash unless
          the Series A shareholder exercises  the option to receive the dividend
          in shares of common stock based on the "dividend conversion price," as
          defined, which is determined annually. As of March 31, 2006 (unaudited),
          December 31, 2005 and 2004, $2,875, $2,796, and $2,481, respectively,
          of
undeclared, unpaid dividends have accumulated.
Each share of Series A preferred stock is convertible into one share of common stock, subject to adjustment in certain circumstances, and has a liquidation preference equal to its stated value, as defined, plus all accrued and unpaid dividends thereon. Conversion is at
the option of the shareholders until such time, if ever, that the Company completes a QIPO, at which time such conversion becomes mandatory. The Series A preferred shareholders' redemption rights expired in 2005. Series A shareholders have voting rights equal to
common shareholders. Series A preferred stock is senior to common stock.
The liquidation value of
          Series A preferred stock at March 31, 2006 (unaudited) and December 31,
          2005 and 2004 is $6,375, $6,296 and $5,981, respectively. As of December 31,
          2005, the 2,333,333 shares of Series A preferred would be convertible
          into 4,497,364  shares of common stock in the event of a QIPO, if the
          holders of Series A preferred shares elected to receive all accumulated
          undeclared, unpaid dividends in shares of common stock.
F-26
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MEDECISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
(8)
Common Stock, Warrants and Options
(a)
Common Stock
No dividends can be paid to holders of the common stock while any accrued dividends on the Series A, Series B and Series C preferred shares remain unpaid.
(b)
Warrants
In connection with various financing activities, the Company issued warrants to purchase common stock. As of March 31, 2006 (unaudited) and December 31, 2005, warrants to purchase the Company's common stock are as follows:
Date Issued
Warrants
Exercise
Price
Expiration
Date
February 12, 1997
200,000
$
2.00
February 11, 2007
June 1, 1999
100,000
2.00
May 31, 2009
September 15, 1999
150,000
0.90
September 15, 2006(1)
September 30, 1999
37,500
0.90
September 30, 2006(1)
October 28, 1999
60,000
0.90
October 28, 2006(1)
December 17, 1999
52,500
0.90
December 17, 2006(1)
March 10, 2000
45,000
0.90
March 10, 2007(1)
April 13, 2000
30,000
0.90
April 13, 2007(1)
May 25, 2000
60,000
3.88
May 24, 2007(1)
June 15, 2001
283,185
1.13
May 31, 2008
July 2, 2002
165,929
0.90
July 2, 2009
September 26, 2002
70,000
0.90
September 26, 2009
1,254,114
(1)
These warrants expire upon the earlier of the stated expiration date or a qualified public offering, which is defined as the closing of the first public sale of the common stock of the Company pursuant to an effective registration statement under the Securities Act
of 1933, as amended, for the account of the Company resulting in proceeds to the Company of not less than $30 million and as to which the public offering price per share of our common stock multiplied by the number of fully diluted shares of common stock
outstanding immediately prior to closing of the offering shall equal not less than $150 million.
(c)
Stock Options
The Company has a stock option plan, the Amended and Restated Stock Option Plan, whereby the Company may grant either incentive or nonqualified stock options to purchase shares of the Company's common stock. All options vest ratably over four years. The
Company has authorized 8,000,000 shares to be issued under the plan. Stock options may be granted at no less than the fair market value of the shares at the date of the grant, as determined by the Company. Although the Company's board of directors used its best
estimate of the fair value of the Company's stock price and made grants of stock options in 2003, 2004 and 2005 with exercise prices equal to those estimates of fair value, a subsequent independent appraisal of the common stock's value on the grant dates resulted in
recognizing stock-based compensation expense in the Consolidated Statement of Operations for the years ended December 31, 2005, 2004 and 2003 in the amounts of $256, $21 and $0, respectively for the difference between the fair market value of the underlying
common stock on the date of grant and the option exercise price for options granted under the Company's stock option plan.
F-27
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MEDECISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
At March 31, 2006
          (unaudited) and December 31, 2005, there were 2,985,564 and 3,027,814
          additional shares available for grant under the plan.
The following table summarizes
          information about stock options outstanding as of March 31,
          2006 (unaudited):
Options
          Outstanding
Options
          Exercisable
Per
            share prices
Number
          of
Shares
Weighted
Average per
Share Price
Weighted
Average
Remaining
Contractual Life
(Years)
Number
          of
Shares
Weighted
Average per
Share Price
$0.05 – $0.60
4,307,563
$
0.22
6.81
2,374,776
$
0.23
$1.00 – $1.13
586,500
1.05
2.21
529,000
1.03
$2.00 – $3.75
178,100
2.76
3.68
178,100
2.76
5,072,163
$
0.41
6.16
3,081,876
$
0.52
The following table summarizes information about stock options outstanding as of December 31, 2005:
Options Outstanding
Options Exercisable
Per share prices
Number of
Shares
Weighted
Average per
Share Price
Weighted
Average
Remaining
Contractual Life
(Years)
Number of
Shares
Weighted
Average per
Share Price
$0.05 – $0.60
4,323,313
$
0.22
7.06
2,319,952
$
0.23
$1.00 – $1.13
529,000
1.03
1.64
529,000
1.03
$2.00 – $3.75
178,100
2.76
3.93
178,100
2.76
5,030,413
$
0.40
6.38
3,027,052
$
0.52
The following table summarizes information about stock options outstanding as of December 31, 2004:
Options Outstanding
Options Exercisable
Per share prices
Number of
Shares
Weighted
Average per
Share Price
Weighted
Average
Remaining
Contractual Life
(Years)
Number of
Shares
Weighted
Average per
Share Price
$0.03 – $0.60
3,408,115
$
0.22
7.30
1,622,908
$
0.23
$1.00 – $1.13
843,125
1.02
2.36
843,125
1.02
$2.00 – $3.75
196,025
2.74
4.92
194,275
2.73
4,447,265
$
0.48
6.26
2,660,308
$
0.66
The following table summarizes
          information about stock options outstanding as of December 31,
          2003:
Options
          Outstanding
Options
          Exercisable
Per
            share prices
Number
          of
Shares
Weighted
Average per
Share Price
Weighted
Average
Remaining
Contractual Life
(Years)
Number
          of
Shares
Weighted
Average per
Share Price
$0.05 – $0.60
3,648,927
$
0.20
5.51
2,209,014
$
0.18
$1.00 – $1.13
853,125
1.02
3.42
853,125
1.02
$2.00 – $3.75
225,525
2.67
5.89
201,326
2.55
4,727,577
$
0.47
5.15
3,263,465
$
0.54
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MEDECISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
For the three months ended March 31, 2006 (unaudited), 57,500 options were granted at a price of $1.25, with an contract life of 10 years.
Stock option activity for the three months ended March 31, 2006 (unaudited) and the three years ended December 31, 2005 is as follows:
Number of
Shares
Weighted
Average
Exercise Price
Balance at December 31, 2002
4,800,890
$
0.51
Granted
356,000
0.35
Exercised
(14,000
)
0.81
Canceled
(415,313
)
0.82
Balance at December 31, 2003
4,727,577
0.47
Granted
1,032,250
0.26
Exercised
(216,561
)
0.07
Canceled
(1,096,001
)
0.22
Balance at December 31, 2004
4,447,265
0.48
Granted
1,097,000
0.25
Exercised
(111,212
)
0.09
Canceled
(402,640
)
0.94
Balance at December 31, 2005
5,030,413
0.40
Granted (unaudited)
57,500
1.25
Exercised (unaudited)
(500
)
0.25
Canceled (unaudited)
(15,250
)
0.25
Balance at March 31, 2006 (unaudited)
5,072,163
$
0.41
At March 31, 2006 (unaudited) and December 31, 2005, the range of exercise prices and weighted average remaining contractual life of outstanding options was $0.05 to $3.75 and 6.16 years and $0.05 to $3.75 and 6.38 years, respectively and the number of options
exercisable was 3,081,876 and 3,027,052, respectively, and the weighted average exercise price of these options was $0.52 and $0.52, respectively.
The Company also has a Series C preferred stock option plan (Note 7).
(9)
Postretirement Benefits
The Company maintains a 401(k) defined contribution retirement plan that covers substantially all employees. Under this plan, participants may contribute up to 15% of their pretax compensation, subject to current limitations under the Internal Revenue Code. The
Company may elect to make matching contributions at the discretion of the board of directors. The Company currently matches 30% of the participant's deferral, limited to 4% of each participant's pretax compensation. Total employer contributions to the plan were
approximately $37, $128, $110 and $97 for the three months ended March 31, 2006 (unaudited) and for the years ended December 31, 2005, 2004 and 2003.
(10)
Commitments and Contingencies
The Company has entered
          into employment agreements with two officers of the Company, each of
          which was amended on July 18, 2006. The agreements expire in September
          2007 and January 2007 and include an annual base salary and other discretionary
          cash and  stock option bonuses. Scheduled future base compensation
          for the years ending December 31,
2006 and 2007 is approximately $575 and $184.
F-29
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MEDECISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
The Company is party to a contract to purchase third-party licenses from a software vendor. The agreement expired on December 31, 2005; however, the agreement automatically renews on an annual basis, unless terminated by either party. $451 and $451 of expense
was incurred under this agreement in 2005 and 2004 and is included in cost of revenue in the accompanying financial statements. Scheduled future minimum payments as of December 31, 2005 under this contract are $493 in 2006.
The Company is party to
          a contract whereby they are obligated to make minimum royalty payments
          on an annual basis. Total minimum royalty payments under this agreement
          aggregate $500 and are recorded ratably over the four year term of
          the agreement. The  Company recorded $125 and $63 of expense under
          this agreement for the years ended December 31, 2005 and 2004,
          respectively. Scheduled future minimum payments under this contract
          are $445 as of December 31, 2005.
The Company's contracts with its customers provide that customers are responsible for payment of sales and use taxes on the company's licensing and maintenance fees, and, where applicable, professional services. The Company does not customarily collect sales
taxes. In the event that a customer has not paid use tax where and when due, or is otherwise unable to pay, the Company may have a contingent liability for unpaid taxes, interest and penalties. A liability of $644, $644 and $413 has been accrued at March 31, 2006
(unaudited), December 31, 2005, and 2004, respectively against such contingencies.
(11)
Related Parties
An executive of the Company
          is the owner of a consulting firm that, during the years ended December 31,
          2005, 2004 and 2003 provided certain professional services to the Company.
          During the three months ended March 31,2005 (unaudited) and the
          years ended
December 31, 2005, 2004 and 2003, $25, $35 and $40, respectively, was paid
to this firm for services rendered. There were no services provided after 2005.
A member of the board of directors is the owner of a consulting company that, during the year ended December 31, 2004, provided web design services to the company. During the year ended December 31, 2004, approximately $33 was paid to the firm for services
rendered. No services were received by the Company from this consulting company after 2004.
(12)
Industry and Geographic Segment Information
The Company derived all of its revenue from the healthcare industry in the three months ended March 31, 2006 and 2005 (unaudited) and the years ended December 31, 2005, 2004 and 2003. All of the Company's revenue in those periods was derived from United
States customers and all of its assets during these periods were in the United States.
(13)
Subsequent Events
On May 31, 2006, the
          Company entered an operating lease for additional premises. The lease
          runs to August 31, 2016, at an average annual rent of $897, and
          includes a Tenant Improvement Allowance of $901. The Company's
          operating lease for this additional office  space allows the Company
          to terminate the lease after seven years, provided 12 months written
          notice is provided. Upon such termination, the Company must pay a one-time
          penalty of $553. The amount of the penalty is reduced by $17 each month
          subsequent to the
84
th
month of the lease.
On July 3, 2006, the
          Company executed a term sheet to extend its revolving line of credit
          arrangement. Pursuant to the executed term sheet, our borrowings under
          this facility
          will
          be
          limited
          to the
          lesser of $8,000 or 80% of qualified accounts receivable. Borrowings
          under the credit
facility will be
F-30
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MEDECISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
collateralized by 80% of
          eligible accounts receivable, and will be secured by a first priority
          security interest in all personal property of the Company. Pursuant
          to the executed
          term sheet, the Company is required to meet or exceed a specified quarterly
          net income. The Company also executed a term sheet to extend an equipment
          loan facility of up to $1,000 at an
interest rate of prime plus 1.5%. Borrowings under this facility will convert
          to a 30-month term note as of the first day of the subsequent calendar
          quarter.
On July 6, 2006, the
          Company reached an agreement with the holders of its Series B and Series
          C redeemable convertible preferred stock in which the holders agreed
          to convert 31.5% of their preferred shares to common stock at the date
          a registration statement is filed, and the Company agreed to, at the
          same time, convert 31.5% of the accrued unpaid dividends on Series
          B and C preferred stock to common stock.
On August 1, 2006, the Company reached an agreement with the holder of 344,606 warrants to amend the warrants to permit a cashless exercise of the warrants in exchange for the holder giving up its registration rights for the common shares received.
F-31
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Shares
Common Stock
PROSPECTUS
Cowen and Company
Wachovia Securities
CIBC World Markets
Pacific Growth Equities, LLC
, 2006
Until      , 2006, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
Back to Contents
PART II
Information Not Required In Prospectus
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by us in connection with the sale of our common stock being registered hereby. All amounts are estimates except the SEC registration fee, the NASD
filing fee and the NASDAQ Global Market listing fee.
Amount
to be Paid
SEC registration fee
$
10,152
NASD filing fee
$
11,411
The NASDAQ Global Market listing fee
$
100,000
Blue sky fees and expenses
*
Printing and engraving expenses
*
Legal fees and expenses
*
Accounting fees and expenses
*
Transfer agent and registrar fees
*
Miscellaneous
*
Total
$
*To be filed by amendment
Item 14. Indemnification of Directors and Officers.
The Pennsylvania Business Corporation Law of 1988, as amended, and our second amended and restated bylaws, which will be effective upon the consummation of this offering, limit the monetary and personal liability of our directors to us and to our shareholders and
provide for indemnification of our officers and directors for liabilities and expenses that they may incur in such capacities.
Our second amended and restated bylaws provide that no director or officer is to be personally liable for any monetary damages for any action taken, unless:
•
such director has breached or failed to perform the duties of his or her office, and
•
the breach or failure to perform constitutes self-dealing, willful misconduct or recklessness.
In addition, our second amended and restated bylaws provide that we shall indemnify our directors and officers for expenses, attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action,
suit or proceeding if he or she has acted in good faith and in a manner he or she believed to be in our best interest or, in the case of a criminal proceeding, that he or she had no reasonable cause to believe that his or her conduct was unlawful. Such indemnification as to
expenses is mandatory to the extent the individual is successful on the merits or otherwise in defense of the matter or in defense of any claim, issue or matter therein. Our second amended and restated bylaws provide, however, that in the case of an action or suit by or in the
right of the Company, we will not indemnify a director or officer with respect to a matter in which such person has been adjudged to be liable in the performance of his or her duties to us unless a court of common pleas determines that such person is fairly and reasonably
entitled to indemnification. Our second amended and restated bylaws also provide that we may advance expenses to any director or officer upon our receipt of an undertaking by the director or officer to repay those amounts if it is finally determined that he or she is not entitled
to indemnification. Our indemnification obligations set forth in the second amended and restated bylaws extend not only to current directors and officers but to former directors and officers to the extent such persons were directors or officers from and after the time that such
obligations were in force.
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We maintain directors and officers liability insurance to provide directors and officers with insurance coverage for losses arising from claims based on breaches of duty, negligence, error and other wrongful acts. Prior to the consummation of this offering, we will amend
our policy to include coverage against liabilities with respect to the Securities Act.
The underwriting agreement filed as Exhibit 1.1 to this registration statement provides for indemnification by the underwriters of the registrant and its officers and directors severally, but not jointly, for certain liabilities, including liabilities arising under the Securities
Act and affords certain rights of contribution with respect thereto.
Item 15. Recent Sales of Unregistered Securities.
During the three year period preceding the date of filing of this registration statement, we have issued securities in the transactions described below without registration under the Securities Act. These securities were offered and sold by us in reliance upon exemptions
from the registration requirements provided by Section 4(2) of the Securities Act and Regulation D under the Securities Act relating to sales not involving any public offering and/or Rule 701 under the Securities Act relating to transactions occurring under compensatory
benefit plans.
No underwriters were involved in the sales and the certificates representing the securities sold and issued contain legends restricting the transfer of the securities without registration under the Securities Act or an applicable exemption from registration.
•
On August 21, 2003, we granted options to six of our employees to purchase an aggregate of 15,500 shares of our common stock under our Amended and Restated Stock Option Plan at an exercise price of $0.25 per share.
•
On October 1, 2003, we issued 750 shares of our common stock upon the exercise of options granted under our Amended and Restated Stock Option Plan at an exercise price of $0.25 per share.
•
On October 9, 2003, we issued 5,000 shares of our common stock upon the exercise of options granted under our Amended and Restated Stock Option Plan at an exercise price of $0.60 per share.
•
On October 28, 2003, we granted options to ten of our employees to purchase an aggregate of 35,000 shares of our common stock under our Amended and Restated Stock Option Plan at an exercise price of $0.25 per share.
•
On December 4, 2003, we issued 1,000 shares of our common stock upon the exercise of options granted under our Amended and Restated Stock Option Plan at an exercise price of $0.60 per share.
•
On December 19, 2003, we granted options to ten of our employees to purchase an aggregate of 51,500 shares of our common stock under our Amended and Restated Stock Option Plan at an exercise price of $0.25 per share.
•
On January 26, 2004, we issued 562 shares of our common stock upon the exercise of options granted under our Amended and Restated Stock Option Plan at an exercise price of $0.25 per share.
•
On April 27, 2004, we granted options to fourteen of our employees to purchase an aggregate of 509,300 shares of our common stock under our Amended and Restated Stock Option Plan at an exercise price of $0.25 per share.
•
On April 30, 2004, we issued 200,000 shares of our common stock upon the exercise of options granted under our Amended and Restated Stock Option Plan at an exercise price of $0.03 per share.
•
On August 5, 2004, we granted options to seven of our employees to purchase an aggregate of 137,000 shares of our common stock under our Amended and Restated Stock Option Plan at an exercise price of $0.25 per share.
•
On August 16, 2004, we issued 3,000 shares, 3,124 shares and 5,000 shares of our common stock upon the exercise of options granted under our Amended and Restated Stock Option Plan at an exercise price of $0.60 per share, $0.25 per share and $1.00 per share,
respectively.
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•
On September 29, 2004, we issued 875 shares of our common stock upon the exercise of options granted under our Amended and Restated Stock Option Plan at an exercise price of $0.25 per share.
•
On October 26, 2004, we granted options to 12 of our employees to purchase an aggregate of 325,750 shares of our common stock under our Amended and Restated Stock Option Plan at an exercise price of $0.25 per share.
•
On December 1, 2004, we issued 3,000 shares of our common stock upon the exercise of options granted under our Amended and Restated Stock Option Plan at an exercise price of $0.60 per share.
•
On December 6, 2004, we issued 1,000 shares of our common stock upon the exercise of options granted under our Amended and Restated Stock Option Plan at an exercise price of $0.25 per share.
•
On December 17, 2004, we granted options to twelve of our employees to purchase an aggregate of 60,200 shares of our common stock under our Amended and Restated Stock Option Plan at an exercise price of $0.25 per share.
•
On January 19, 2005, we issued 3,000 shares of our common stock upon the exercise of options granted under our Amended and Restated Stock Option Plan at an exercise price of $0.25 per share.
•
On March 8, 2005, we issued 1,500 shares and 2,000 shares of our common stock upon the exercise of options granted under our Amended and Restated Stock Option Plan at an exercise price of $0.25 per share and $1.00 per share, respectively.
•
On April 13, 2005, we issued 400 shares of our common stock upon the exercise of options granted under our Amended and Restated Stock Option Plan at an exercise price of $0.25 per share.
•
On May 3, 2005, we granted options to 36 of our employees to purchase an aggregate of 597,500 shares of our common stock under our Amended and Restated Stock Option Plan at an exercise price of $0.25 per share.
•
On August 23, 2005, we granted options to twenty-three of our employees to purchase an aggregate of 466,500 shares of our common stock under our Amended and Restated Stock Option Plan at an exercise price of $0.25 per share.
•
On October 18, 2005, we issued 2,000 shares of our common stock upon the exercise of options granted under our Amended and Restated Stock Option Plan at an exercise price of $0.25 per share.
•
On October 26, 2005, we granted options to eight of our employees to purchase an aggregate of 31,500 shares of our common stock under our Amended and Restated Stock Option Plan at an exercise price of $0.25 per share.
•
On December 14, 2005, we issued 187 shares of our common stock upon the exercise of options granted under our Amended and Restated Stock Option Plan at an exercise price of $0.25 per share.
•
On December 23, 2005, we issued 100,000 shares of our common stock upon the exercise of options granted under our Amended and Restated Stock Option Plan at an exercise price of $0.03 per share.
•
On December 30, 2005, we issued 1,000 shares and 625 shares of our common stock upon the exercise of options granted under our Amended and Restated Stock Option Plan at an exercise price of $0.60 per share and $3.75 per share, respectively.
•
On January 3, 2006, we granted options to fifteen of our employees to purchase an aggregate of 57,500 shares of our common stock under our Amended and Restated Stock Option Plan at an exercise price of $1.25 per share.
•
On March 7, 2006, we issued 500 shares of our common stock upon the exercise of options granted under our Amended and Restated Stock Option Plan at an exercise price of $0.25 per share.
•
On April 10, 2006, we issued 2,000 shares of our common stock upon the exercise of options granted under our Amended and Restated Stock Option Plan at an exercise price of $1.00 per share.
•
On April 26, 2006,
          we granted options to 38 of our employees to purchase an aggregate
          of 706,750 shares of our common stock under our Amended and Restated
          Stock Option Plan at an exercise price of $11.00 per share.
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•
On May 24, 2006, we issued 1,250 shares of our common stock upon the exercise of options granted under our Amended and Restated Stock Option Plan at an exercise price of $0.25 per share.
•
On June 9, 2006, we issued 1,000 shares of our common stock upon the exercise of options granted under our Amended and Restated Stock Option Plan at an exercise price of $0.25 per share.
•
On July 13, 2006, we issued 3,000 shares of our common stock upon the exercise of options granted under our Amended and Restated Stock Option Plan at an exercise price of $1.00 per share.
•
On July 18, 2006, we granted options to two of our employees to purchase an aggregate of 252,000 shares of our common stock under our Amended and Restated Stock Option Plan at an exercise price of $11.00 per share.
•
On August 10, 2006, we
          issued 2,480,476 shares of our common stock upon the conversion of 1,266,991
          shares of Series B preferred stock pursuant to the terms of certain
conversion agreements that we entered into with certain of the holders of our
outstanding Series B preferred stock.
•
On August 10, 2006, we
          issued 2,243,861 shares of our common stock upon the conversion of 1,528,199
          shares of Series C preferred stock pursuant to the terms of certain
conversion agreements that we entered into with certain of the holders of our
outstanding Series C preferred stock.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
Exhibit Number
Description of Document
1.1
*
Form of Underwriting
        Agreement
3.1
Articles of Incorporation
        of MEDecision, Inc.
3.2
Amended and Restated Bylaws
        of MEDecision, Inc.
3.3
*
Form of Amended and
        Restated Articles of Incorporation of MEDecision, Inc., to be in effect
        upon the consummation of this offering
3.4
*
Form of Second Amended
        and Restated Bylaws of MEDecision, Inc., to be in effect upon the consummation
        of this offering
4.1
*
Specimen Common Stock certificate
4.2(i)
Warrant for the Purchase
        of Common Stock issued to Commerce Bank, N.A. on February 12, 1997
4.2(ii)
Amendment to Warrant for the Purchase of Common Stock dated August 1, 2006
4.3(i)
Warrant for the Purchase of
    Common Stock issued to Commerce Bank, N.A. on June 1, 1999
4.3(ii)
Amendment to Warrant for the Purchase of Common Stock dated August 1, 2006
4.4
Warrant Purchase Agreement
        dated June 15, 2001 in favor of PNC Bank, National Association
4.5
Warrant to Purchase Stock
        dated July 2, 2002 in favor of Silicon Valley Bank
4.6
Warrant to Purchase Stock
        dated September 26, 2002 in favor of Silicon Valley Bank
5.1
*
Opinion of Pepper Hamilton
        LLP
10.1
MEDecision, Inc. Amended
        and Restated Stock Option Plan
10.2
Form of Notice of Grant
        of Incentive Stock Options under the Amended and Restated Stock Option
        Plan
10.3
Form of Notice of Grant
        of Non-Qualified Stock Options under the Amended and Restated Stock Option
        Plan
10.4(i)
Employment Agreement dated
        January 1, 2003 between MEDecision, Inc. and David St. Clair
10.4(ii)
Amendment to Employment Agreement
        dated July 18, 2006 between MEDecision, Inc. and David St. Clair
10.5(i)
Employment Agreement dated
        September 4, 2002 between MEDecision, Inc. and John H. Capobianco
10.5(ii)
Amendment to Employment Agreement
        dated July 18, 2006 between MEDecision, Inc. and John H. Capobianco
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Exhibit Number
Description
           of Document
10.6
+
Agreement of Lease, made March 5, 2004 by and between FV Office Partners, L.P. and MEDecision, Inc.
10.7
+
Agreement of Lease, made April 19, 2005 by and between FV Office Partners, L.P. and MEDecision, Inc.
10.8
+
Agreement of Lease, made May 31, 2006 by and between Chesterbrook Partners, LP and MEDecision, Inc.
10.9(i)
Second Amended and Restated Registration Rights Agreement dated as of September 25, 2001 by and among MEDecision, Inc. and the
Holders party thereto (as such term is defined therein)
10.9(ii)
Amendment to Second Amended and Restated Registration Rights Agreement dated as of July 6, 2006
10.9(iii)
Second Amendment to Second
        Amended and Restated Registration Rights Agreement dated as of August
    2, 2006
10.10(i)
Third Amended and Restated Shareholders Agreement dated January 11, 2002 among MEDecision, Inc. and the Shareholders party thereto (as
such term is defined therein)
10.10(ii)
Amendment to Third Amended and Restated Shareholders Agreement dated as of July 6, 2006
16.1
Letter of Goldenberg Rosenthal, LLP
16.2
Letter of KPMG LLP
23.1
Consent of Grant Thornton LLP
23.2
*
Consent of Pepper Hamilton LLP (included in Exhibit 5.1)
23.3
Consent of HealthCore, Inc.
24.1
Powers of Attorney (included in the signature page to the registration statement)
*
To be filed by amendment.
+
Exhibits and schedules have been omitted and will be provided to the Commission upon request.
(b) Financial Statement Schedules
All schedules have been omitted because
    they are not applicable, not required or the required information is included
  in the consolidated financial statements or the notes thereto.
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Item 17. Undertakings.
We hereby undertake to provide to the underwriters at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by a director, officer, or
controlling person of us in the successful defense of any action, suit, or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, we will, unless in the opinion of counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
We hereby undertake that:
(i) for purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
(ii) for purposes of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
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SIGNATURES
Pursuant to the requirements of the
    Securities Act of 1933, the Registrant has duly caused this registration
    statement to be signed on its behalf by the undersigned, thereunto duly authorized,
  in Wayne, Pennsylvania, on the 11
th
day of August 2006.
By:
/s/ David St. Clair
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act, this registration statement has been signed below by the following persons in the capacities and on the dates indicated. Each person whose signature appears below hereby constitutes and appoints David St. Clair, John
H. Capobianco and Carl E. Smith, his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution for him or her in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration
statement, or any registration statement for the same offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act, and to file the same, with exhibits thereto and other documents in connection therewith or in connection with the registration of our
common stock offered hereby under the Exchange Act, with the Securities and Exchange Commission, granting unto such attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary in connection with such
matters and hereby ratifying and confirming all that such attorney-in-fact and agent or his substitutes may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated on August 11
th
, 2006:
Signature
Title
/s/ D
AVID
S
T.
C
LAIR
Chairman of the Board and Chief Executive Officer and Director (Principal Executive
Officer)
/s/ C
ARL
E. S
MITH
Chief Financial Officer (Principal Financial and Accounting Officer)
/s/ F
RANK
A. A
DAMS
Director
/s/ J
OHN
H. C
APOBIANCO
Director
/s/ C
HARLES
P. C
ULLEN
Director
/s/ T
HOMAS
R. M
ORSE
Director
/s/ T
IMOTHY
W. W
ALLACE
Director
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