I-Trax Inc. Form 10KSB
U.S.
Securities and Exchange Commission
Washington,
D.C. 20549
Form
10-KSB
|
[X] |
ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
For the
fiscal year ended: December 31, 2004
|
[
] |
TRANSITION
REPORT UNDER TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
For the
transition period from _______ to _______
Commission
File Number: 001-31584
I-TRAX,
INC.
------------------------------------------
(Name of
small business issuer in its charter)
|
Delaware |
|
23-3057155 |
|
(State
or other jurisdiction of
incorporation
or organization) |
|
(I.R.S.
Employer Identification No.) |
| |
|
|
|
4
Hillman Drive, Suite 130
Chadds
Ford, Pennsylvania |
|
19317 |
|
(Address
of principal executive offices) |
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(Zip
Code) |
Issuer’s
telephone number: (610)
459-2405
Securities
registered under Section 12(b) of the Exchange Act: None
Securities
registered under Section 12(g) of the Exchange Act: Common
Stock, $.001 par value
Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. [X] Yes [ ] No
Check if
disclosure of delinquent filers in response to Item 405 of Regulation S-B is not
contained in this form, and no disclosure will be contained, to the best of the
registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
State
issuer’s revenues for its most recent fiscal year: $76,402,000.
The
aggregate market value of the voting common stock held by non-affiliates
computed with reference to the price at which the stock was sold on March 14,
2005 on the American Stock Exchange was $42,496,000. As of March 14, 2004, the
number of outstanding shares of common stock, par value $.001 per share, was
30,241,903.
DOCUMENTS
INCORPORATED BY REFERENCE: Portions
of the issuer’s definitive proxy statement for its 2005 Annual Meeting of
Stockholders are incorporated by reference in Part III of this report.
Transitional
Small Business Disclosure Format (Check one): [ ] Yes [X] No
TABLE
OF CONTENTS
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PART
I
This
report includes and incorporates forward-looking statements. Other than
statements of historical facts, all statements included or incorporated in this
report regarding our strategy, future operations, financial position, future
revenues, projected costs, prospects, plans, and objectives of management are
forward-looking statements. The words “anticipates,” “believes,” “estimates,”
“expects,” “intends,” “may,” “plans,” “projects,” “will,” “would” and similar
expressions are intended to identify forward-looking statements, although not
all forward-looking statements contain these identifying words. We cannot
guarantee that we actually will achieve the plans, intentions or expectations
disclosed in our forward-looking statements and you should not place undue
reliance on our forward-looking statements. Actual results or events could
differ materially from the plans, intentions and expectations disclosed in the
forward-looking statements we make. We have included important factors in the
cautionary statements included or incorporated in this report, particularly
under the heading “Risk Factors” beginning on page 7, that we believe could
cause actual results or events to differ materially from those stated in or
implied by the forward-looking statements we make. Our forward-looking
statements do not reflect the potential impact of any future acquisitions,
mergers, dispositions, joint ventures or investments we may make.
Our
Business
I-trax is
an integrated health and productivity management company formed by the merger on
March 19, 2004 of I-trax, Inc. and Meridian Occupational Healthcare Associates,
Inc., which does business as CHD Meridian Healthcare. Accordingly, this Annual
Report on Form 10-KSB describes the business of the merged companies. For
accounting purposes, the consolidation of results of operations of the two
constituent companies was effective April 1, 2004. As a result, our consolidated
results of operations for the year ended December 31, 2004 include the
operations of CHD Meridian Healthcare only from April 1, 2004 until December 31,
2004.
We offer
two categories of services that can be integrated or blended as necessary or
appropriate based on each client’s needs. The first category includes on-site
health related services such as occupational health, primary care, corporate
health, and pharmacy, which were historically offered by CHD Meridian
Healthcare. We believe we are the nation’s largest provider of on-site corporate
health management services. The second category includes personalized health
management programs, which were historically offered by I-trax.
Our
services are designed to allow employers to contract directly for a wide range
of employee healthcare needs. We can deliver these services at or near the
client’s work site by opening, staffing and managing a clinic or pharmacy
dedicated to the client and its employees, or remotely by using the Internet and
our state-of-the-art Care Communication Center staffed with trained nurses and
other healthcare professionals who are available 24 hours per day, 7 days per
week. Our array of services provides each client with flexibility to meet its
specific pharmacy, primary care, occupational health, corporate health,
wellness, lifestyle management or disease management needs.
As of
December 31, 2004, we were providing services to approximately 131 clients,
including automotive and automotive parts manufacturers, consumer products
manufacturers, large financial institutions, health plans, integrated delivery
networks, and third party administrators. For 82 of such clients, we operated
177 on-site facilities in 30 states, and for 49 of such clients, we provided a
variety of health management programs. Our client retention rate is high due to
strong client relationships that are supported by the critical nature of our
services, the benefits achieved by employer and employee constituents, and the
utilization of multi-year service contracts. Because some of our on-site clients
contract with us to provide multiple facilities at a single client site, as of
December 31, 2004, we were operating at 161 client sites.
Our
Services
Occupational
Health Services
We
provide professional staffing and management of on-site health facilities that
address the occupational health, workers’ compensation injuries, and minor
illnesses of an employer’s workforce. These programs are designed to operate
across the entire array of occupational health regulatory environments and
emphasize work-related injury cost-reduction, treatment, medical surveillance or
testing, disability management, case management, return-to-work coordination,
medical community relations or oversight, on-site physical therapy and injury
prevention, and ergonomic assessment and intervention. Our health programs are
intended to improve compliance with treatment protocols and drug formularies,
enhance employee productivity, and allow for greater employer control of
occupational health costs. At December 31, 2004, we were operating 78
occupational health facilities.
Primary
Care Services
We
operate employer-sponsored on-site health centers designed to integrate with the
employer’s existing healthcare plans. In such arrangements, employers contract
with us directly for primary care health services and in the process regain
control of costs, quality and access. Generally, each of our health centers
services a single employer and offers health management programs addressing the
primary care needs of the employee base, including optometry services and
prevention and disease management programs. Clients may combine our health
centers with a dedicated pharmacy. We also offer customized solutions in network
management and absence management, including non-work related case management
and disability management. Our physicians, nurses, and other staff are dedicated
to the customer’s employee population, allowing employees, retirees, and their
dependents to receive cost-effective, high quality, accessible and convenient
care. At December 31, 2004, we were operating 21 primary care centers.
Pharmacy
Services
We
operate employer-sponsored on-site pharmacies that offer prescription services
exclusively to the client’s covered population. A client may also combine our
pharmacy with a dedicated primary care center. By leveraging prescription volume
across our client base and procuring pharmaceuticals as a captive class of
trade, we purchase products at considerable savings for our clients, thus
significantly and positively affecting what we understand is one of our clients’
fastest-growing healthcare cost categories. Our pharmacy services also use
sophisticated information technologies. These technologies may be integrated
with each client’s existing pharmacy management programs and plans, and improve
employees’ prescription fulfillment convenience. At December 31, 2004, we were
operating 27 pharmacies.
Corporate
Health Services
We offer
custom designed workplace programs that combine preventative care, occupational
health, medical surveillance and testing, travel medicine and health education
to non-industrial clients that do not experience significant physical injury
rates, but nonetheless maintain large workforces with general and specialized
medical needs. Clients for which we provide corporate health services include
financial service, advertising and consulting firms. At December 31, 2004, we
were operating 51 corporate healthcare facilities.
Personalized
Health Management Programs
Our
personalized health management programs are designed to deliver lifestyle and
wellness management, and disease and risk reduction interventions to a client’s
entire population across multiple locations, irrespective of population size.
Using predictive science, proprietary computer software, clinical expertise, and
personal care coordination, we enable our clients to provide
their employees and dependents with a more cohesive
and efficient system of healthcare. We use a unified data platform to allow all
caregivers to share records, thus enabling our clients to provide effective
coordination of care. We believe that by facilitating real-time secure
communications between our client, the patient, the doctor, the care coordinator
and the insurer, our
health management solutions reduce
costs and enable improved delivery of care.
Predictive
Science. Our
programs incorporate predictive science to analyze our client’s medical claims
and pharmacy and clinical data to predict future healthcare costs, which of
those costs are avoidable, the health conditions that will drive those costs,
and the people within our client’s populations who are at risk for those
conditions. Armed with this information, we tailor our programs to help the
client achieve better care, savings and other desired results.
Technology
Solutions. Our
technology utilizes a single data platform—MediciveÒ Medical
Enterprise Data System—a proprietary software architecture developed to collect,
store, sort, retrieve and analyze a broad range of information used in the
healthcare industry. Our web accessible software includes portals for key
stakeholders in the care delivery process—consumers, physicians and care
managers—and permits real-time sharing of information and supports the adherence
to our health and disease intervention programs.
Interventions
and Clinical Expertise. Our
programs include personalized health and disease interventions for individuals
who suffer from, or are at high risk for, active or chronic disease and tailored
programs for individuals who are at low risk. Depending on the individual’s
level of risk, our custom-tailored interventions include self-help programs
available through the web or person-assisted programs administered through our
Care Communication Center. All interventions include lifestyle and risk
reduction programs that follow evidence-based clinical guidelines to optimize
health, fitness, productivity, and quality of life.
Care
Communication Resources. Our care
communication resources include trained nurses and other healthcare
professionals available 24 hours per day, 7 days per week. Through these
resources, we make targeted interventions to achieve the goals of our programs.
These resources help each member or employee of our client make informed
decisions about his or her health. They also provide ongoing support for those
with chronic diseases. Our demand management and nurse triage services
incorporate nationally recognized, evidence-based clinical guidelines to
increase compliance by caregivers and consumers with best practices.
Our
Client Contracts
Our
client contracts for on-site clinics and pharmacies are typically for an initial
term of three to five years and renew automatically in the absence of notice to
the contrary. Under these contracts, we typically provide services to our
clients’ employees, dependents and retirees, although arrangements vary
depending on the contract. We charge these clients for our services on a “cost
plus” and “fixed fee” basis to provide care to these individuals.
Similar
to contracts for on-site clinics and pharmacies, contracts covering our
personalized health management programs are typically for an initial term of
three to five years and renew automatically in the absence of notice to the
contrary. Under these contracts, we typically charge our clients a per member or
per employee per month fee, which increases with a corresponding increase in the
level of service we provide. Basic personalized health management programs
provide inbound telephone access to a nurse or healthcare professional for
triage or health information, 24 hours per day, 7 days per week, for employees,
health plan members and, in many instances, dependents. Enhanced programs, which
we introduced in October 2003, provide inbound and outbound contacts by
telephone, mail and e-mail and electronic health information and tools. Some
clients also engage us to provide to their members, employees and dependents
custom disease management programs to target individuals with a specific disease
or who are at high risk for a specific disease. We charge additional fees for
individuals that elect to enroll in our disease management programs. Some of our
personalized health management contracts also allow risk-sharing. These
contracts provide for an incentive payment and/or fee credit if we exceed or
fail to achieve, as appropriate, a targeted percentage reduction in our client’s
healthcare costs.
Our
Strategy
Our
business strategy is to improve the health status of employee populations and
manage the claim trend experienced by employers and employees, self-insured
employers and government agencies. These groups often seek programs that promote
health, manage disease and disability, and complement existing health
initiatives and benefits. Self-insured employers and government agencies invest
in such health programs because they reduce later need for critical care and
related costs, increase productivity, reduce absenteeism, improve health status
of both active employees and retirees, and reduce overall costs.
We
believe that our programs offer a complete solution to meet this need. We
service each segment of a self-insured employer’s population to achieve the
desired clinical and financial outcomes. Our on-site programs reduce healthcare
costs of the populations that use our facilities. Complementing those services,
our personalized health management programs improve the health of each client’s
entire population, achieving the same result. We believe that the combination of
our on-site services and personalized health management solutions responds to a
specific and frequent request of large employers for a comprehensive range of
health management services. We also offer our on-site clients the value-added
benefit of our personalized health management programs.
Finally,
our programs offer our clients multiple services and price entry points to meet
their budgets and specific needs. We believe that this available menu of
services helps shorten our sales cycle and provides us with an opportunity to
build a more comprehensive program as the relationship grows with each client
over time.
Corporate
History
I-trax
was incorporated in Delaware on September 15, 2000 at the direction of the Board
of Directors of I-trax Health Management Solutions, Inc., I-trax’s then parent
company. On February 5, 2001, I-trax became the holding company of I-trax Health
Management at the closing of a reorganization pursuant to Section 251(g) of
Delaware General Corporation Law. At the effective time of the reorganization,
all of the stockholders of I-trax Health Management became the stockholders of
I-trax and I-trax Health Management became a wholly owned subsidiary of I-trax.
Further, all outstanding shares of I-trax Health Management were converted into
shares of I-trax in a non-taxable transaction.
The
holding company structure has allowed us greater flexibility in our operations
and expansion and diversification plans, including in the acquisitions of
Meridian Occupational Healthcare Associates, Inc. and WellComm Group,
Inc.
I-trax
acquired WellComm effective February 6, 2002. In the acquisition, we paid the
WellComm stockholders approximately $2,200,000 in cash and 1,488,000 shares of
our common stock. We also issued to each of two senior officers of WellComm
options to acquire 56,000 shares of our common stock at a nominal exercise
price. Because the acquisition was structured as a merger, we also assumed all
of WellComm’s liabilities, which equaled approximately $775,000.
We funded
this acquisition by selling a 6% convertible senior debenture in the aggregate
principal amount of $2,000,000 to Palladin Opportunity Fund LLC. We also issued
Palladin a warrant to purchase up to 307,692 shares of our common stock. As of
March 19, 2004, Palladin has converted all amounts outstanding under the
debenture into common stock and has exercised the warrant in full at the
conversion price and exercise price of $1.75 per share.
We
acquired CHD Meridian Healthcare on March 19, 2004. Under the merger agreement,
we delivered to CHD Meridian Healthcare stockholders 10,000,000 shares of I-trax
common stock, 400,000 shares of I-trax Series A Convertible Preferred Stock,
each of which is convertible into 10 shares of I-trax common stock, and paid
$25,508,000 in cash. I-trax obtained the cash portion of the merger
consideration by selling 1,000,000 shares of Series A Convertible Preferred
Stock at a purchase price of $25.00 per share for gross proceeds of $25,000,000,
and by borrowing $12,000,000 on a new senior secured credit facility from a
national lender.
In the
merger, I-trax assumed all of CHD Meridian Healthcare’s liabilities, which
equaled approximately $21,505,000.
Immediately
following the closing of the merger, I-trax redeemed from former CHD Meridian
Healthcare stockholders that participated in the merger, pro rata, an aggregate
of 200,000 shares of Series A Convertible Preferred Stock at their original
issue price of $25.00 per share.
Pursuant
to the merger agreement, I-trax placed an aggregate of 3,859,200 shares of
common stock in escrow for issuance to former CHD Meridian Healthcare
stockholders subject to CHD Meridian Healthcare’s achieving calendar 2004
milestones for earnings before interest, taxes, depreciation and amortization,
or EBITDA. If the EBITDA milestones are met, the shares must be delivered on the
earlier of (1) two business days following the date on which I-trax files this
Annual Report on Form 10-KSB with the Securities and Exchange Commission, or
SEC, or (2) April 30, 2005. As of December 31, 2004, CHD Meridian Healthcare
achieved EBITDA in excess of $9,000,000, which will result in all 3,859,200
shares being released to former CHD Meridian Healthcare stockholders upon the
filing of this report with the SEC.
Finally,
under the merger agreement and the related financing documents, we registered
for resale the shares of common stock issued in the merger and issuable upon
conversion of shares of Series A Convertible Preferred Stock issued in the
merger and in the related financing.
Competition
Numerous
companies are currently delivering one or several components of our services,
including disease management companies, health insurers and plans, Internet
health information companies and pharmacy benefit management companies, among
others.
Many
of these companies are larger than we are and have greater resources, including
access to capital, than we do. We believe, however, that our corporate health
management services are unique. We also believe that our broad expertise in
establishing and managing employer-dedicated pharmacies and clinics, our
software applications and our expertise in designing and deploying scalable
software applications allow us to compete effectively against these larger
competitors. We consider the following types of companies to compete with us in
providing similar products and services:
| |
· |
On-site
healthcare providers, such as Comprehensive Health Services, MedCor and
Whole Health Management. |
| |
· |
Disease
management and care enhancement companies, such as American Healthways,
Lifemasters, Matria, Allere, SHPS, Inc., CorSolutions Medical, and Future
Health. |
| |
· |
Health-related,
online services or web sites targeted at consumers, such as
careenhance.com, drweil.com, healthcentral.com, intelihealth.com,
mayoclinic.com, thriveonline.com, webmd.com and
wellmed. |
| |
· |
Hospitals,
HMOs, pharmaceutical companies, managed care organizations, insurance
companies, other healthcare providers and payors that offer disease
management solutions. |
| |
· |
Pharmacy
benefit management companies, such as Caremark Rx and Drugmax, and
national pharmacy chains, such as
Walgreens. |
| |
· |
Regional
occupational health clinics and providers. |
Intellectual
Property
Our
proprietary software applications are protected by United States copyright laws.
We have registered the use of certain of our trade names and service names in
the United States. We also have the rights to a number of Internet domain names,
including I-trax.com and .net, MyFamilyMD.com and .net,
CHDMeridianHealthcare.com, CarePrime.com and .net and healthecoordinator.com. In
addition, we continue to explore potential availability of patent protection for
our business processes and innovations.
Research
and Development
We
conduct research and development related to our information technology to ensure
that it continues to meet the needs of our clients and fit the changing work
environment and clinical landscape of our clients and the industry as a whole.
We invested approximately $1,238,000 and $1,750,000 in software development in
2003 and 2004, respectively. These amounts were capitalized. The majority of
these amounts was attributable to the completion of MedWizard® health assessment
tools, and Health-e-Coordinator™ and CarePrime® applications. We expect to
continue to invest in research and software development for the foreseeable
future, including to add functionality to the MyFamilyMD™ application by adding
MedWizard® tools, to CarePrime®, which interacts with the MyFamilyMD™
application and its MedWizard® tools, and to Health-e-Coordinator™ software by
adding additional health and productivity capabilities.
Employees
We
believe our success depends to a significant extent on our ability to attract,
motivate and retain highly skilled, vision-oriented management and employees. To
this end, we focus on incentive programs for our employees and endeavor to
create a corporate culture that is challenging, professionally rewarding and
team-oriented. As of December 31, 2004, we had 982 full-time, 126 part-time, 568
nurses on an “as needed” basis, and 26 temporary employees.
Risk
Factors
In
addition to other information in this Annual Report, you should carefully
consider the following risks and the other information in evaluating I-trax and
its business. Our business, financial condition and results of operations could
be materially and adversely affected by each of these risks.
Risks
Related to Our Company
If
we are not able to implement our business strategy of deploying our integrated
services effectively to existing and new clients, we will not be able to grow
our revenue.
Although
we believe that there is significant demand for our services and products in the
corporate healthcare market, there are many reasons why we may be unable to
execute our business strategy, including our possible inability to:
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· |
deploy
our integrated services and solutions on a large scale;
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attract
a sufficiently large number of self-insured employers to subscribe for our
services and software applications; |
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increase
awareness of our brand; |
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· |
strengthen
user loyalty; |
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· |
develop
and improve our services and solutions; |
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continue
to develop and upgrade our services and software solutions; and
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· |
attract,
retain and motivate qualified personnel. |
Our
inability to achieve the above goals could adversely affect our revenue.
Our
credit facility contains certain covenants and financial tests that limit the
way we conduct business.
Our
senior secured credit facility contains certain covenants and financial tests
that limit the way we conduct business. Financial tests include a covenant
measuring the ratio of our funded indebtedness to EBITDA, the ratio of our
funded indebtedness to capitalization, and our fixed charges coverage ratio. The
covenants measuring the ratio of our funded indebtedness to EBITDA and our fixed
charges coverage ratio become more restrictive, or step down, in 2005. In
addition, the consolidated net worth covenant requires us to maintain our
stockholders’ equity at 90% of the level as of December 31, 2005. Other
covenants restrict our ability to incur certain debt and complete mergers and
dispose of assets without our senior creditor’s consent.
We were
not in compliance with certain financial tests as of June 30, 2004 and amended
the credit facility to address non-compliance on August 12, 2004. We
subsequently amended the credit facility again on October 27, 2004. As of
December 31, 2004, we are in compliance with all covenants. At December 31,
2004, $8,308,000 is outstanding, $3,000,000 is allocated to outstanding letters
of credit and $2,692,000 is available under our credit facility. Please see Note
5 - Long Term Debt to our consolidated financial statements for further
information on our credit facility.
The
covenants and financial tests in the credit facility may prevent us from
accessing working capital, competing effectively or taking advantage of new
business opportunities. If we cannot comply with these covenants or meet these
ratios and other tests, it could result in a default under our credit facility.
Unless we are able to negotiate an amendment, forbearance or waiver, we may be
required to repay all amounts then outstanding, which could have a material
adverse effect on our business, results of operations and financial condition.
Borrowings
under our credit facility also are secured by liens on substantially all of our
assets and the assets of our subsidiaries. If we are in default under one of
these credit facilities, our secured creditor could foreclose upon all or
substantially all of our assets and the assets of our subsidiaries. We cannot
assure you that we will generate sufficient cash flow to repay our indebtedness,
and we further cannot assure you that, if the need arises, we will be able to
obtain additional financing or to refinance our indebtedness on terms acceptable
to us, if at all. Any such failure to obtain financing could have a material
adverse effect on our business, results of operations and financial condition.
We
have a history of net losses and may incur a net loss in
2005.
Although
we earned a net profit in the quarter ended December 31, 2004, we do not expect
to earn a net profit in any quarter of 2005 because we expect to invest a
substantial portion of available cash flow in further development and
enhancement of our integrated on-site and health management solutions. Please
see Management’s Discussion and Analysis of Financial Condition and Results of
Operations - Key Trends and Analytical Points - Liquidity and Capital Resources
for a discussion of our growth strategy.
We
may require additional capital to implement our growth
strategy.
We may
require additional funds to continue development of our business, including by
acquisition. We expect to obtain these funds from operating activities and, as
necessary, financing activities. Financing activities may include equity or debt
financings, which could dilute stockholder ownership in the business. We cannot
provide assurance that additional funding will be available on acceptable terms,
if at all. If adequate funds are not available, we may have to delay our growth
strategy or scale-back or eliminate certain operations. Therefore, if we are
unable to obtain adequate funds, we may suffer an adverse impact on our
business, financial condition and results of operations.
Increasing
competition for contracts to establish and manage employer-dedicated pharmacies
and clinics increases the likelihood that we may lose business to our
competitors.
CHD
Meridian Healthcare pioneered the field of employer-dedicated pharmacies and
primary care clinics. Although CHD Meridian Healthcare has always faced
competition from other methods by which business enterprises can arrange and pay
for healthcare services for their employees, until recently we rarely
experienced face-to-face bidding for a contract to manage a particular
employer’s pharmacy or clinic. We have recently begun to see direct competition
for employer-dedicated pharmacy management contracts, including from much larger
and better capitalized competitors. We expect this competition will increase
over time. Although we believe that we have certain advantages in facing such
competition, including our experience and know-how, some of our competitors and
potential competitors, including prescription benefit management companies, with
revenues in the multiple billions of dollars, are substantially larger than we
are. We believe that the potential market for employer-dedicated pharmacies is
large enough for us to meet our growth plans despite increasing competition, but
there are no assurances that we will in fact be able to do so.
Our
ability to maintain existing clients, expand services to existing clients, add
new clients so as to meet our growth objectives, and maintain attractive pricing
for our services, will depend on the interplay among overall growth in the use
of employer-dedicated facilities, entry of new competitors into our business,
and our success or failure in maintaining our market position in relation to
these new entrants.
In
addition to this increasing head-to-head competition for contracts to establish
and manage employer-dedicated facilities, we expect to continue to face
competition for large employers’ healthcare budgets from other kinds of
enterprises, including health insurers, managed health care plans, and retail
pharmacy chains.
Loss
of advantageous pharmaceutical pricing could adversely affect our income and the
value we provide to our clients.
We
receive favorable pricing from pharmaceutical manufacturers as a result of our
class of trade designation, which means that we only sell pharmaceutical
products to our clients’ employees, dependents and retirees. We also receive
rebates from pharmaceutical manufacturers for driving market share to preferred
products. The benefit of favorable pricing is generally passed on to our clients
under the terms of client contracts. In the last few years, retail pharmacies
have brought legal cases against pharmaceutical manufacturers challenging class
of trade designations as unlawful price discrimination under the Robinson-Patman
Act. Although these challenges have generally failed, there remains a
possibility that we could lose the benefit of this favorable pricing, either due
to a legal challenge or to a change in policies of the pharmaceutical
manufacturers. Such a loss would diminish the value that we can provide to our
clients and, therefore, make our services less attractive. We also receive
volume performance incentives from our pharmaceutical wholesaler which directly
affect our revenue, the loss of which could adversely affect our income.
Our
business involves exposure to professional liability claims, and a failure to
manage effectively our professional liability risks could expose us to
unexpected expenses, thus resulting in losses.
Under the
terms of our contracts to manage employer sponsored clinics or pharmacies, we
must procure professional liability insurance covering the operations of such
facilities. We also typically agree to indemnify our clients against
professional liability claims arising out of acts or omissions of healthcare
providers working at the clinics and pharmacies we manage. Further, under the
terms of our services agreements with affiliated professional corporations, we
are contractually obligated to procure malpractice insurance on behalf of the
professional corporations and their employed physicians and typically absorb
such claims as are subject to the policy self-insured retention limit (which is
explained below) or above the policy limit. Finally, there also exists the
possibility that we may be subject to professional liability claims even though
neither we nor our healthcare providers were directly responsible for the
injury. As a result of these contractual arrangements, we routinely incur
expenses arising out of professional liability claims. If we fail to manage the
professional liability claims and associated risk effectively, we may sustain
financial losses.
Although
we maintain professional liability insurance with respect to such claims, our
professional liability insurance policies are written on a “claims-made” basis,
meaning that they cover only claims made during the policy period, and not
events that occur during the policy period but result in a claim after the
expiration of the policy. With this insurance strategy, we must renew or replace
coverage each year to have coverage for prior years’ operations. Availability
and cost of such coverage are subject to market conditions, which can fluctuate
significantly.
Certain
of our past professional liability insurance policy years were insured by two
insurance companies that are now either insolvent or under regulatory
supervision. As a result, we are partially uninsured for those periods. We have
established reserves in connection with the six pending claims from such policy
years. Although we believe such reserves are reasonable based on our historic
loss experience, there is no assurance that these reserves will be sufficient to
pay all judgments or settlements which may result from such claims.
Our
professional liability insurance for the period May 1, 2003 to April 30, 2004
provided for self-insured retention of $500,000. A self-insured retention is the
amount that we have agreed to assume responsibility for under our insurance
policy as if we are the insurer subject to the terms of the policy and related
regulatory scheme. This means that we are partially uninsured against a variety
of claims that may arise from this policy year.
We have
reserved for projected future professional liability expenses based on actuarial
estimates of potential losses that may emerge in the future as a result of past
operations. These reserves, however, could prove inadequate, as the size of our
ultimate uninsured liability could exceed our established reserves and we could
sustain losses in excess of our reserves.
Since May
1, 2004 we have purchased primary professional liability insurance from a
captive insurance subsidiary, Green Hills Insurance Company, Inc., or GHIC, and
excess coverage from third-party insurers. GHIC maintains separate reserves
based on actuarial estimates of potential losses up to the policy limits.
However, there can be no assurance that these reserves will be sufficient to
meet potential losses and we could be required to meet losses or loss adjustment
expenses out of other resources.
Our
subsidiary insurance company, GHIC, subjects us to additional regulatory
requirements and to risks associated with the insurance
business.
Operating
an insurance subsidiary represents additional risk to our operations, including
a potential perception among our existing and potential clients that we are not
adequately insured. We have hired a manager and have engaged an actuarial
consulting firm for the insurance subsidiary. We are subject to the risks
associated with any insurance business, which include investment risk relating
to the performance of our invested assets set aside as reserves for future
claims, the uncertainty of making actuarial estimates of projected future
professional liability losses, and loss adjustment expenses. Failure to make an
adequate return on our investments, to maintain the principal of invested funds,
or to estimate future losses and loss adjustment expenses accurately, could
cause asserted and unasserted claims to exceed our reserves causing us to
sustain losses. Also, maintaining the insurance subsidiary has exposed us to
substantial additional regulatory requirements, with attendant risks if we fail
to comply with applicable regulations.
We
may be unable to integrate successfully our operations and realize the full cost
savings we anticipate from the merger.
The
merger of CHD Meridian Healthcare and I-trax involves the integration of two
companies that have previously operated independently and focused on different
delivery methods within the corporate health management solutions market. The
difficulties of combining the merged companies’ operations include:
| |
· |
integrating
complementary businesses under centralized management
efficiently; |
| |
· |
coordinating
geographically separated organizations; |
|
|
· |
integrating
personnel with diverse business backgrounds;
and |
| |
· |
combining
different corporate cultures. |
The
process of integrating operations could cause an interruption of, or loss of
momentum in, the activities of I-trax or CHD Meridian Healthcare’s businesses or
the loss of key personnel. The diversion of management’s attention and any
delays or difficulties encountered in connection with the integration of the
merged companies’ operations could have an adverse effect on the business,
results of operations or financial condition of the merged companies.
Among the
factors considered by the CHD Meridian Healthcare and the I-trax boards of
directors in connection with their respective approvals of the merger were the
opportunities for reduction of operating costs and improvements in operating
efficiencies and other financial synergies that could result from the merger. We
cannot give any assurance that these savings will be realized, or if realized,
will be realized within the time periods contemplated by
management.
If
our clients do not provide us with accurate data, or if we do not process such
data accurately, we may not be able to fulfill our client contracts.
Implementation
and delivery of our personalized health management programs is highly dependent
on data about individuals supplied to us by our clients, and on our information
technology systems that process such data upon receipt. If we do not receive
timely and accurate data from our clients, or if our information technology
systems do not process such data accurately, we may not be able to fulfill our
client contracts, which could have a material adverse effect on our business,
results of operations and financial condition.
We
may be sued and incur losses if we provide inaccurate health information on our
website or inadvertently disclose confidential health information to
unauthorized users.
Because
users of our website will access health content and services relating to a
medical condition they may have or our content they may distribute to others,
third parties may sue us for defamation, negligence, copyright or trademark
infringement, personal injury or other matters. We could also become liable if
confidential information is disclosed inappropriately. These types of claims
have been brought, sometimes successfully, against online services in the past.
Others could also sue us for the content and services that will be accessible
from our website through links to other websites or through content and
materials that may be posted by our users in chat rooms or bulletin boards. Any
such liability will have a material adverse effect on our reputation and our
business, results of operations or financial position.
Finally,
we retain confidential healthcare information on our servers. It is, therefore,
important that our facilities and infrastructure remain secure and are perceived
by clients to be secure. Although we operate our software applications from a
secure facility managed by a reputable third party, our infrastructure may be
vulnerable to physical or virtual break-ins, computer viruses, programming
errors or similar disruptive problems. A material security breach could damage
our reputation or result in liability to us.
If
we lose key employees or fail to recruit and retain other skilled employees, we
may not be able to continue our growth.
Our
business greatly depends on, among others, Frank A. Martin, chairman and
director, Haywood D. Cochrane, Jr., vice chairman and director, and Dixon
Thayer, chief executive officer and director, and David R. Bock, senior vice
president and chief financial officer. If we cannot retain any one of these
individuals, we will lose employees with considerable operational experience and
knowledge of our business, which could significantly reduce our ability to
compete and succeed in the future.
We
maintain employment agreements with Messrs. Martin, Cochrane, Thayer and Bock.
In December 2004, Mr. Martin’s employment agreement renewed for a one year term
ending December 2005. In January 2005, Mr. Cochrane’s agreement renewed for a
one year term ending January 2006. In February 2005, we entered into an
employment agreement with Mr. Thayer for an initial term of three years. And in
November 2004, we entered into an employment agreement with Mr. Bock for an
initial term of three years. Each employment agreement may be terminated by us
with or without cause and by the applicable executive with or without good
reason. We maintain a $5,000,000 key-man life insurance policy on Mr.
Martin.
Our
future success also depends on our ability to attract, retain and motivate
highly skilled employees. As we secure new contracts and implement our services
and products, we will need to hire additional personnel in all operational
areas. We may be unable, however, to attract, assimilate or retain such highly
qualified personnel. Although we have not experienced such difficulties in the
recent past, we may do so in the future, especially if labor markets continue to
tighten. If we cannot attract new personnel or retain and motivate current
personnel, the service level we provide to our clients may suffer, which may
cause us to lose clients and revenue.
Our
sales cycle is long and complex, which may slow our growth.
The
corporate health management business is growing rapidly and has many providers.
Further, although each provider may define its service as corporate health
management, the services offered by different providers are often quite
different. Because the services offered are complex and require clients to incur
significant upfront costs, and because service offerings vary significantly by
vendor, potential clients take a long time to evaluate and purchase such
services. Further, the sales and implementation process for our services is
lengthy, involving a significant technical evaluation and requiring our clients
to commit time and other resources. Finally, the sale and implementation of our
services are subject to delays due to our clients’ internal budgets and
procedures for approving large capital expenditures and deploying new services
and software applications within their organizations. The sales cycle for our
services, therefore, is unpredictable and has generally ranged from 3 to 24
months from initial contact to contract signing. The time needed for
implementation of our services is also difficult to predict, lasting as long as
18 months from contract execution to the commencement of operations. During the
sales cycle and the implementation period, we may expend substantial time,
effort and money preparing contract proposals, negotiating the contract and
implementing the solution without receiving any related revenue.
Deterioration
of the financial health of our clients, many of which are large U.S.
manufacturing enterprises, may impair our business volume and
collections.
An
adverse trend in one or more U.S. manufacturing industries could lead to plant
closings or layoffs that could eliminate or reduce the need for some of our
employer-dedicated healthcare facilities. Because of the risks associated with
client insolvency, and the concentration of CHD Meridian Healthcare’s client
base, our business is to some extent dependent on the continued health of U.S.
manufacturing industries.
Also, if
our client becomes insolvent, we may not be able to recover outstanding accounts
receivable owed by that client, and may suffer premature contract termination.
For
example, Bethlehem Steel and National Steel were two clients for which we
managed several facilities when these clients became debtors in Federal
bankruptcy proceedings. Their financial difficulties resulted in problems in our
collecting amounts due to us, and generated claims against us of approximately
$1,000,000 in the aggregate for repayment of allegedly preferential transfers
previously received by us. We have settled approximately half of such claims for
significantly less than the amounts originally demanded.
Moreover,
because our professional liability insurance is written on a “claims-made”
basis, we are protected from malpractice claims only if the company that insured
us at the time of the alleged “occurrence” is the same company at the time the
claim is filed. To continue coverage in such circumstances, we must obtain
“tail” insurance coverage or continue to purchase insurance written on a “claims
made” basis. We typically charge our clients for tail insurance coverage when
the contract terminates. If a client is insolvent when the contract terminates,
however, we may not be able to recoup the cost of tail insurance coverage, or
other costs related to that facility’s shutdown.
We
are dependent on software technologies and are therefore subject to frequent
change and risks associated with Internet viruses and outages, which could
destroy the information we maintain or prevent our clients from accessing
important information.
Our
web-based software applications that form the backbone of our personalized
health management programs depend on the continuous, reliable and secure
operation of Internet servers and related hardware and software. Viruses and
outages on the Internet could cause outages of our applications from time to
time. To the extent that our services are interrupted, our users will be
inconvenienced and our reputation may be diminished. If access to our system
becomes unavailable at a critical time, users could allege we are liable, which
could depress our stock price, cause significant negative publicity, and
possibly lead to litigation. Although our computer and communications hardware
is protected by physical and software safeguards, it is still vulnerable to
fire, storm, flood, power loss, telecommunications failures, physical or
software break-ins and similar events. We do not have 100% redundancy for all of
our computer and telecommunications facilities. Consequently, a catastrophic
event could have a significant negative effect on our business, results of
operations, and financial condition.
We also
depend on third parties to provide certain of our clients with Internet and
online services necessary for access to our servers. It is possible that our
clients will experience difficulties with Internet and other online services due
to system failures, including failures unrelated to our systems. Any sustained
disruption in Internet access provided by third parties could have a material
adverse effect on our business, results of operations and financial condition.
We
are dependent on our ability to deploy and implement our software technologies
efficiently.
Our
personalized health management programs are dependent on efficient deployment,
implementation, and scalability of our software technology. To date, we have
implemented our software technology for relatively few clients. We must continue
to develop our software technology to provide the scalability and new
functionality necessary to accommodate the greater number of clients we expect.
If we fail to respond to these requirements, our ability to process new business
could be slowed, which ultimately could have a material adverse effect on our
business, results of operations and financial condition.
We
may be unable to compete successfully against companies offering services
similar to ours, which will impair our revenue growth.
Many
healthcare companies are offering on-site services and disease management and
wellness solutions. Further, a vast number of Internet sites offer healthcare
content, products and services. In addition, traditional healthcare providers
compete for consumers’ attention both through traditional means as well as
through new Internet initiatives. Although we believe our services are unique
and better than our competitors’, we compete for customers with numerous other
businesses.
We
believe our competitors include the following:
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· |
Disease
management and care enhancement companies, such as American Healthways,
LifeMasters, Matria Healthcare, CorSolutions, SHPS, Inc., and Health
Dialog. |
| |
· |
Wellness
companies, such as StayWell, HealthMedia, Harris Health Trends, and Impact
Health. |
| |
· |
On-site
healthcare providers, such as Comprehensive Health Services, MedCor and
Whole Health Management. |
| |
· |
Pharmacy
benefit management companies, such as Caremark and Express Scripts and
Drugmax, and national pharmacy chains such as Walgreens.
|
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· |
Regional
occupational health clinics and providers. |
Many of
these potential competitors are likely to enjoy substantial competitive
advantages compared to us, including:
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· |
greater
name recognition and larger marketing budgets and resources;
|
| |
· |
larger
customer and user bases; |
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· |
larger
production and technical staffs; |
| |
· |
substantially
greater financial, technical and other resources;
and |
| |
· |
a
wider array of online products and
services. |
To be
competitive, we must continue to enhance our products and services as well as
our sales and marketing channels. If we do not, we will not be able to grow our
revenue.
If
other companies develop intellectual property identical or similar to ours, we
will lose what we believe to be our competitive advantage.
Our
intellectual property is important to our business. We rely on a combination of
copyright, trademark and trade secret laws, confidentiality procedures and
contractual provisions to protect our intellectual property. Our efforts to
protect our intellectual property may not be adequate. Our competitors may
independently develop similar technology or duplicate our products or services.
Unauthorized parties may infringe upon or misappropriate our products, services
or proprietary information. In addition, the laws of some foreign countries do
not protect proprietary rights as well as the laws of the U.S., and the global
nature of the Internet makes it difficult to control the ultimate destination of
our products and services. In the future, litigation may be necessary to enforce
our intellectual property rights or to determine the validity and scope of the
proprietary rights of others. Any such litigation would probably be
time-consuming and costly. We could be subject to intellectual property
infringement claims as the number of our competitors grows and the content and
functionality of software applications and services overlap with competitive
offerings. Defending against these claims, even if not meritorious, could divert
our attention from operating our company. If we become liable to third parties
for infringing their intellectual property rights, we could be required to pay a
substantial damage award and forced to develop noninfringing technology, obtain
a license or cease selling the applications that contain the infringing
technology. We may be unable to develop noninfringing technology or obtain a
license on commercially reasonable terms, or at all. We also intend to rely on a
variety of technologies that we will license from third parties, including any
database and Internet server software, which will be used to operate our
applications. These third-party licenses may not be available to us on
commercially reasonable terms. The loss of or inability to obtain and maintain
any of these licenses could delay the introduction of enhancements to our
software applications, interactive tools and other features until equivalent
technology could be licensed or developed. Any such delays could materially and
adversely affect our business, results of operations and financial condition.
The
loss of a major client will significantly reduce our
revenue.
For the
year ended December 31, 2004, we had two clients that accounted for 13% and 10%
of our revenue. We anticipate that our results of operations in any given period
will continue to be influenced to a certain extent by a relatively small number
of clients. Accordingly, if we were to lose the business of such a client, our
results of operations could be materially and adversely affected.
Risks
Related to Our Industry
The
healthcare industry is subject to general cost pressures that could reduce our
revenue and gross margins.
The
healthcare industry is currently under pressure by governmental and
private-sector revenue sources to cut costs. These pressures will continue and
possibly intensify. Although we believe that our services and software
applications assist public health agencies, hospitals, health plans and
self-insured employers to control the high costs associated with treating
patients, the pressures to reduce costs immediately may hinder our ability (or
increase the length of time we require) to obtain new contracts. In addition,
the focus on cost reduction may pressure our customers to restructure contracts
and reduce our fees.
We are
affected by changes in the laws governing health plan, hospital and public
health agency reimbursement under governmental programs such as Medicare and
Medicaid. There are periodic legislative and regulatory initiatives to reduce
the funding of the Medicare and Medicaid programs in an effort to curtail or
reduce overall Federal healthcare spending.
Federal
legislation has and may continue to significantly reduce Medicare and Medicaid
reimbursements to most hospitals. These reimbursement changes are negatively
affecting hospital revenues and operations. Such legislative initiatives or
government regulations could reduce demand for our services, our revenue and
gross margins.
We
are subject to judicial and statutory prohibitions on the corporate practice of
medicine, and failure to comply with these prohibitions will expose us to
heightened scrutiny by regulatory agencies, fines, litigation and possibly loss
of revenue.
There are
judicial and statutory prohibitions on the corporate practice of medicine, which
vary from state to state. The corporate practice of medicine doctrine prohibits
a corporation, other than a professional corporation, from practicing medicine
or employing physicians. Some states also prohibit a non-physician from
splitting or sharing fees charged by a physician for medical services. The
services we provide include establishing and managing medical clinics. Most
physician services at clinics we manage are provided by physicians who are
employees of professional corporations with which we contract to provide
non-professional services such as purchasing equipment and supplies, patient
scheduling, billing, collection, accounting, and computer services. The
professional corporations control hiring and supervise physicians and all
medical functions. We have option agreements with the physician-owners of these
affiliated professional corporations that entitle us to require the
physician-owners to sell the stock of the professional corporations to any
licensed physician we designate. This structure is intended to permit
consolidation of the professional corporations’ financial statements with ours,
while maintaining sufficient separation to comply with the corporate practice of
medicine doctrine and with fee-splitting and fee-sharing prohibitions. Although
we do not believe that this structure violates the corporate practice of
medicine doctrine or fee-splitting or fee-sharing prohibitions, such a claim may
be successfully asserted against us in any jurisdiction, which may subject us to
civil and criminal penalties, or we could be required to restructure our
contractual arrangements with clients. Any restructuring of contractual
arrangements could result in lower revenues, increased expenses and reduced
influence over the business decisions of those operations. Alternatively, some
existing CHD Meridian Healthcare contracts could be found to be illegal and
unenforceable, which could result in their termination and an associated loss of
revenue, or inability to enforce valuable provisions of those contracts.
We
have custody of confidential patient records and if we fail to comply with
regulations applicable to maintaining such records we may be fined or sued.
Our
personnel who staff our on-site pharmacies and clinics have custody of
confidential patient records. Also, the computer servers we use to store our
software applications and deliver our health management solutions also contain
confidential health risk assessments completed by employees, patients and
beneficiaries of our clients. In our capacity as a covered entity or as a
business associate of a covered entity, we and the records we hold are subject
to a rule entitled Privacy of Individually Identifiable Health Information, or
Privacy Rule, promulgated by the U.S. Department of Health and Human Services
under the Health Insurance Portability and Accountability Act of 1996, or HIPAA,
and also to any state laws that may have more stringent privacy requirements. We
attempt to protect the privacy and security of confidential patient information
in accordance with applicable law. We could, however, face claims of violation
of the Privacy Rule, invasion of privacy or similar claims, if our patient
records or computer servers were compromised, or if our interpretation of the
applicable privacy requirements, many of which are complex, were incorrect or
allegedly incorrect, or if we failed to maintain a sufficiently effective
compliance program. Such security failures could also cause significant negative
publicity, depress our stock price and lead to litigation.
Furthermore,
while we believe that the Privacy Rule protects our ability to obtain patient
identifiable medical information for disease management purposes from certain of
our clients, state legislation or regulations will preempt Federal legislation
if state legislation or regulations are more restrictive. Accordingly, new
Federal or state legislation or regulations restricting the availability of this
information for disease management purposes could prevent us from performing
services for our existing clients, termination of our disease management
contracts and loss of revenue.
We
are subject to fraud and abuse statutes because we bill the Medicare and
Medicaid programs to recover amounts that offset the healthcare costs of our
clients and if we violate such statutes, we will be subject to civil and
criminal penalties.
In recent
years, various government entities have actively investigated potential
violations of fraud and abuse statutes and regulations by healthcare providers
and by pharmaceutical manufacturers. The fraud and abuse provisions of the
Social Security Act provide civil and criminal penalties and potential exclusion
from the Medicare and Medicaid programs for persons or businesses who offer,
pay, solicit or receive remuneration in order to induce referrals of patients
covered by Federal healthcare programs (which include Medicare, Medicaid,
TriCare and other Federally funded health programs). Although our services and
those of our affiliated professional corporations are generally paid for by
employer clients, we bill the Medicare and Medicaid programs and private
insurance companies, as agent of our affiliated professional corporations, to
recover reimbursable amounts that offset the healthcare costs borne by our
clients. We are therefore subject to various regulations under the Medicare and
Medicaid programs, including fraud and abuse prohibitions. We believe that we
are compliant with these requirements, but could face claims of non-compliance
if our interpretations of the applicable requirements, many of which are
complex, were incorrect or allegedly incorrect, or if we fail to maintain a
sufficiently effective compliance program.
The
professionals who staff our affiliated professional corporations as well as
those we employ are subject to state and Federal licensure requirements and if
we fail to comply with such licensure requirements, we may be scrutinized by
regulatory agencies and fined.
The
doctors, nurses and other healthcare professionals who staff our affiliated
professional corporations, the nurses who staff our care communication centers,
and the pharmacists and other healthcare professionals who staff our on-site
pharmacies and clinics, are subject to individual licensing requirements. All of
our healthcare professionals and facilities subject to such licensing
requirements are licensed in the state in which they are physically present.
Multiple state licensing requirements for healthcare professionals who provide
services telephonically over state lines may require us to license some of our
healthcare professionals in more than one state. We continually monitor the
developments in telemedicine. There is no assurance, however, that new judicial
decisions or Federal or state legislation or regulations would not increase the
requirement for multi-state licensing of all central operating unit call center
health professionals, which would increase our administrative costs. Further, in
the event a state regulatory agency alleges that we do not comply with relevant
licensing requirements, we may be subject to fines and administrative action.
The
recently adopted Medicare prescription drug benefit legislation could reduce the
demand for the prescription drug benefits we provide.
In
December 2003, President Bush signed into law the Medicare Prescription Drug,
Improvement and Modernization Act of 2003. This law provides Medicare
beneficiaries with insurance coverage that offers access to prescription
medicines. The prescription drug benefit, which will be called Medicare Part D,
begins January 1, 2006. In the interim, a national prescription drug discount
card for Medicare-eligible seniors will be instituted in April 2004. Under the
new law, drug benefits will be provided through risk-bearing private plans
contracting with the government (including plans offering only the Medicare Part
D coverage as well as integrated plans offering all Medicare benefits). There
will be an annual open period during which Medicare beneficiaries will choose
their drug plan from among those available in their area of residence. In any
areas where there are fewer than two private plan choices, the government will
make a drug plan available directly.
We do not
know how this law will affect our business. Subsidies for employers providing
retiree drug benefits will decrease the costs to those employers of providing
such benefits, and therefore, may increase the number of employers willing to
provide retiree drug benefits, which would positively affect our business. On
the other hand, employers that now offer prescription drug benefits may decide
no longer to do so, on the basis that their retirees now will be able to obtain
such benefits on their own through Medicare. In that case, such employers would
have less need for employer-dedicated pharmacies of the kinds that we establish
and manage, which would adversely affect our business.
Risks
Related to Investment in Our Stock
The
price of our common stock is volatile and investors may lose money if they
invest in our stock.
Our stock
price has been and we believe will continue to be volatile. For example, from
March 1, 2003 through March 14, 2005, the per share price of our stock has
fluctuated from a high of $5.70 to a low of $1.15. The stock’s volatility may be
influenced by the market’s perceptions of the healthcare sector in general, or
other companies believed to be similar to us or by the market’s perception of
our operations and future prospects. Many of these perceptions are beyond our
control. In addition, our stock is not heavily traded and, therefore, the
ability to achieve relatively quick liquidity without a negative impact on our
stock price is limited.
Shares
reserved for future issuance upon the conversion of outstanding shares of Series
A Convertible Preferred Stock and upon the exercise of issued options and
warrants will cause dilution.
As of
March 14, 2004, 10,582,833 shares of our common stock were reserved for issuance
upon conversion of outstanding shares of Series A Convertible Preferred Stock
and 5,107,673 shares of our common stock were reserved for issuance upon the
exercise of our outstanding warrants and options. In addition, outstanding
shares of our Series A Convertible Preferred Stock accrue dividends at the rate
of 8% per year, which may be payable in common stock when shares of our Series A
Convertible Preferred Stock are converted. As of December 31, 2004, such accrued
dividends were approximately $1,683,000. If such dividends were converted into
common stock at $1.89, the closing price of our common stock on December 31,
2004, we would issue approximately 890,500 additional shares of common stock on
account of such interest. Our stockholders, therefore, would experience dilution
of their investment upon conversion or exercise, as applicable, of these
securities.
Provisions
of our certificate of incorporation could impede a takeover of our company, even
though a takeover may benefit our stockholders, or delay or prevent a change in
management.
Our board
of directors has the authority, without further action by the stockholders, to
issue from time to time, shares of preferred stock in one or more classes or
series, and to fix the rights and preferences of such preferred stock, subject,
however, to the limitations contained in the certificate of designations filed
with respect to our Series A Convertible Preferred Stock. We are subject to
provisions of Delaware corporate law which, subject to certain exceptions,
prohibit us from engaging in any “business combination” with a person who,
together with affiliates and associates, owns 15% or more of our common stock
(referred to as an interested stockholder) for a period of three years following
the date that such person became an interested stockholder, unless the business
combination is approved in a prescribed manner.
Additionally,
bylaws establish an advance notice procedure for stockholder proposals and for
nominating candidates for election as directors. These provisions of Delaware
law and of our certificate of incorporation and bylaws may have the effect of
delaying, deterring or preventing a change in our existing management or
control, may discourage bids for our common stock at a premium over market price
and may adversely affect the market price, and the voting and other rights of
the holders of our common stock.
Leases
Certain
of our executive, administrative and sales offices are located in Chadds Ford,
Pennsylvania, where we lease approximately 10,100 square feet of office space
pursuant to a lease expiring in December 2009 at a current base rate of
$217,000. The property is in good condition.
Certain
of our executive, administrative and sales offices are located in Nashville,
Tennessee, where we lease approximately 25,000 square feet of office space
pursuant to a lease expiring in November 2009 at a current base annual rate of
$642,000. The property is in good condition.
Our Care
Communication Center is located in Omaha, Nebraska, where we lease approximately
6,200 square feet of office space pursuant to a lease expiring in May 2007, at a
current base annual rate of $56,000. The property is in good condition.
Certain
of our executive and administrative offices are located in Latham, New York,
where we lease approximately 5,000 square feet of office space pursuant to a
lease expiring in August 2005 at a current base annual rate of $77,000. We do
not expect to renew the lease. The property is in good condition.
Certain
of our executive and administrative offices are located in New York, New York,
where we lease approximately 5,000 square feet of office space pursuant to a
lease expiring in April 2007 at a current base annual rate of $101,000. The
property is in good condition.
Certain
of our executive, administrative and sales offices were located in Philadelphia,
Pennsylvania, where we lease approximately 4,700 square feet of office space
pursuant to a lease expiring in June 2005 with remaining lease payments of
approximately $72,000. We do not expect to renew the lease. The property is in
good condition.
We
maintain offices in Springfield, Ohio, where we lease approximately 2,400 square
feet of office space pursuant to a lease expiring in August 2005 at a current
base annual rate of $30,000. Our clients reimburse us the rent owed under this
lease. The property is in good condition.
We
maintain offices in Elko, Nevada, where we lease approximately 10,000 square
feet of office space pursuant to a lease expiring in March 2005 at a current
base annual rate of $150,000. We expect the lease to be renewed. Our clients
reimburse us the rent owed under this lease. The property is in good condition.
We
maintain offices in Winnemucca, Nevada, where we lease approximately 6,000
square feet of office space pursuant to a lease which expired in January 2005 at
a current base annual rate of $79,000. Our clients reimburse us the rent owed
under this lease. We expect the lease to be renewed during the year. The
property is in good condition.
Real
Estate Investments
We do not
invest in real estate, real estate mortgages or securities of entities primarily
engaged in real estate activities.
CHD
Meridian Healthcare is a defendant in a lawsuit seeking a return of
approximately $556,000 in payments CHD Meridian Healthcare received in the
ordinary course of business from a client that filed for protection under
bankruptcy laws during 2003. Management believes that such amounts were not
preferential payments and not subject to repayment. The outcome of this lawsuit
cannot be determined. In October 2004, a pair of lawsuits failed by a separate
plaintiff seeking recovery of approximately $475,000 as preference payments was
settled for substantially less than the demand amount.
We are
also involved in certain legal actions and claims on a variety of matters
related to the normal course of our business. After consultation with legal
counsel, management expects these matters will be resolved without any material
adverse effect on our consolidated financial position or results of operations.
Further, any estimated losses have been adequately provided in other accrued
liabilities to the extent probable and reasonably estimable. It is possible,
however, that future results of operations for any particular quarterly or
annual period could be materially affected by changes in circumstances relating
to these procedures.
No
matters were submitted to a vote of our stockholders during the quarter ended
December 31, 2004.
PART
II
| Item 5.
|
Market
for Common Equity, Related Stockholder Matters and Small Business Issuer
Purchases of Equity
Securities |
Market
For Our Common Stock
Our
common stock trades on the American Stock Exchange under the symbol “DMX.” Prior
to January 15, 2003, our common stock was quoted on the Over-the-Counter
Bulletin Board under the symbol “IMTX” and “ITRX.” The following table sets
forth the high and low closing prices for our common stock for the periods
indicated as reported on Yahoo!® Finance.
All closing prices have been adjusted to reflect a 1-for-5 reverse stock split
effected as of close of business on January 3, 2003.
| |
High |
Low |
|
2004 |
|
|
|
Fourth
Quarter |
$2.75 |
$1.29 |
|
Third
Quarter |
$4.26 |
$2.60 |
|
Second
Quarter |
$5.60 |
$3.29 |
|
First
Quarter |
$5.70 |
$3.91 |
| |
|
|
|
2003 |
|
|
|
Fourth
Quarter |
$4.49 |
$2.60 |
|
Third
Quarter |
$3.79 |
$2.60 |
|
Second
Quarter |
$3.00 |
$1.51 |
|
First
Quarter |
$5.00 |
$1.37 |
As of
March 14, 2005, there were approximately 437 registered holders of our common
stock and approximately 64 registered holders of our Series A Convertible
Preferred Stock. On March 14, 2005, the last reported sales price of our common
stock was $1.48.
Dividend
Policy
We have
never paid or declared any cash dividends on our common stock and do not
anticipate paying cash dividends on our common stock in the foreseeable future.
Our
Series A Convertible Preferred Stock accrues dividends on the original issue
price at the rate of 8% per annum. The dividends are payable upon conversion of
Series A Convertible Preferred Stock into common stock in additional shares of
common stock or, subject to the consent of our senior secured lender, in
cash.
Recent
Sales of Unregistered Securities
Effective
November 1, 2004, we issued to our senior secured creditor a warrant to purchase
100,000 shares of our common stock at an exercise price of $.01 per share in
consideration of an amendment to our credit facility. The amendment was reported
on a current report on Form 8-K filed on October 29, 2004. The warrant expires
on December 31, 2014. We capitalized the fair value of the warrants, $210,000,
as debt issuance costs in connection with the issuance of this warrant. The
senior secured creditor is an accredited investor. In undertaking this issuance,
we relied on an exemption from registration under Section 4(2) of the Securities
Act of 1933, as amended.
Purchases
of Equity Securities by the Small Business Issuer and Affiliated
Purchases
None.
Item 6. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
The
following Management’s Discussion and Analysis of Financial Condition and
Results of Operations of I-trax, Inc. and its subsidiaries should be reviewed in
conjunction with our audited financial statements and related notes for the
fiscal years ended December 31, 2004 and 2003, appearing in this Annual Report
on Form 10-KSB.
The
following discussion also contains forward-looking statements, which are
based upon current expectations and involve a number of risks and uncertainties.
In order for I-trax to utilize the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, investors are hereby cautioned that
these statements may be affected by important factors, which are set forth below
and elsewhere in this report, and consequently, actual operations and results
may differ materially from those expressed in these forward-looking
statements.
Our
Business
I-trax is
an integrated health and productivity management company formed by the merger on
March 19, 2004 of I-trax, Inc. and Meridian Occupational Healthcare Associates,
Inc., which did business as CHD Meridian Healthcare. CHD Meridian Healthcare,
LLC has conducted CHD Meridian Healthcare’s operations since the merger. For
accounting purposes, the consolidation of results of operations of the two
constituent companies was effective April 1, 2004. As a result, our consolidated
results of operations for the year ended December 31, 2004 include the
operations of CHD Meridian Healthcare only from April 1, 2004 until December 31,
2004.
We offer
two categories of services that can be integrated or blended as necessary or
appropriate based on each client’s needs. The first category includes on-site
health related services - occupational health, primary care, corporate health,
and pharmacy - which were historically offered by CHD Meridian Healthcare. We
believe we are the nation’s largest provider of on-site corporate health
management services. The second category includes personalized health management
programs, which were historically offered by I-trax.
Our
services are designed to allow employers to contract directly for a wide range
of employee healthcare needs. We can deliver these services at or near the
client’s work site by opening, staffing and managing a clinic or pharmacy
dedicated to the client and its employees, or remotely by using the Internet and
our nurses and other healthcare professionals who are available 24 hours per
day, 7 days per week via our specialized healthcare call center operations. Our
array of services provides each client with flexibility to meet its specific
pharmacy, primary care, occupational health, corporate health, wellness,
lifestyle management, or disease management needs.
At
December 31, 2004, we were providing services to approximately 131 clients,
including automotive and automotive parts manufacturers, consumer products
manufacturers, large financial institutions, health plans, integrated delivery
networks, and third party administrators. For 82 of such clients, we operated
177 on-site facilities in 30 states and for 49 of such clients, we provided a
variety of health management programs. Our client retention rate is high due to
strong client relationships that are supported by the critical nature of our
services, the benefits achieved by employer and employee constituents, and the
utilization of multi-year service contracts. . Because some of our on-site
clients contract with us to provide multiple facilities at a single client site,
as of December 31, 2004, we were operating at 161 client sites.
Key
Financial Trends and Analytical Points
The
following is a summary of key trends and analytical points affecting our
business and, unless otherwise noted, reflects pro forma results of operations
giving effect to the acquisition of CHD Meridian Healthcare as though the
transaction had occurred on January 1, 2003:
Business
Integration. On March
19, 2004, we finalized the acquisition of CHD Meridian Healthcare and as of
April 1, 2004, commenced reporting financial results that include CHD Meridian
Healthcare operations. Since that time, we have substantially completed the
integration of the two companies’ management teams and operations, as well as
the finance, information technology and sales and marketing functions. We are
now focusing on integrating our on-site and health management solutions clinical
programs, expanding our health and productivity services, leveraging our
technology and customer relationships and strengthening our sales and marketing
efforts to deliver a wide range of value-added services to our clients. We have
added capacity while reducing fixed costs by outsourcing certain call center
services, and we continue to partner with vendors of complementary products and
services. We are taking steps to increase our pharmacy programs, including mail
order delivery and pharmacy benefit management services. We are also evaluating
opportunities to acquire complementary businesses, especially in health and
productivity management.
Revenue
Recognition. We
report our revenue net of all sales of pharmaceuticals offered at on-site
pharmacies that we operate for the benefit of our clients. We believe that this
approach is the most appropriate under applicable accounting literature.
However, we earn certain performance incentives from our distributors based on
the aggregate volume of our pharmaceutical purchases. These performance
incentives have a positive impact on our profitability and enable us to offer
lower management fees to our on-site pharmacy clients. Our pharmaceutical
purchases were $93,766,000 and $86,254,000 for the years ended December 31, 2004
and 2003, respectively.
In the
past, we included in reported revenue a portion of pharmaceuticals sales in
contracts where we agreed to maintain legal ownership of the pharmaceuticals for
regulatory purposes, but on November 10, 2004, we amended the audited financial
statements of CHD Meridian Healthcare and related notes for the year ended
December 31, 2003 in our current report on Form 8-K/A, and our quarterly
financial statements included on our quarterly reports on Form 10-QSB/A for the
quarters ended March 31, 2004 and June 30, 2004. Comparable numbers for prior
periods are set out in those reports.
Revenue
Trend. On a pro
forma basis, on-site revenue increased by $2,068,000 from $93,994,000 for the
year ended December 31, 2003 to $96,062,000 for the year ended December 31,
2004. Revenue from new and existing clients increased by more than $7,000,000
during the year ended December 31, 2004; however, we lost approximately
$5,200,000 in revenue due to bankruptcy of a major client, facility closures by
certain other clients and, in the case of one significant contract renewal, our
decision not to match an unacceptably low fee from a competitor. During the
quarter ended December 31, 2004, we won and began implementing new business that
we expect will produce more than $7,000,000 in additional revenue during the
year ending December 31, 2005. Overall, based on current contract negotiations
and other new business prospects, we expect to increase our revenue during the
year ending December 31, 2005 by approximately $10,000,000 compared to year
ended December 31, 2004.
Health
management solutions revenue for the year ended December 31, 2004 increased to
$3,195,000 from $2,613,000 for the year ended December 31, 2003, excluding
technology license revenue of $500,000 and $1,576,000, respectively. We continue
to develop new health and productivity products and services, which we are
marketing as stand-alone products and as integrated products with our on-site
services to existing on-site clients and to prospective new customers. We are
increasingly focusing on customized solutions based on the specific health and
productivity issues that individual clients are facing, rather than pre-defined
products, and we are using our predictive modeling tools as part of an
increasingly consultative selling process. Our health management solutions
differentiate us from other on-site providers and have contributed to our recent
success in winning new on-site business. We expect to continue to grow our
stand-alone health management solutions revenue during the year ending December
31, 2005, and to fully integrate our telehealth services with our on-site
programs. We continue to de-emphasize software sales and some aspects of our
traditional nurse call center business.
Profitability.
Consolidated pro forma gross profit contribution, that is net revenue less
direct costs of operation, for our on-site services was $23,227,000 for the year
ended December 31, 2004 compared to $21,027,000 for the year ended December 31,
2003, or 24% and 22% of net revenue, respectively. The gross profit contribution
from our health management solutions declined in the year ended December 31,
2004 to $351,000 from $1,816,000 for the year ended December 31, 2003,
reflecting increased spending on new product development, technology and
marketing. Our goal is to achieve significantly higher net margins on our health
management services than we currently earn on our on-site services, and to use
such services to improve the profitability of our on-site business. The
substantial reduction in our net loss in the year ended December 31, 2004
compared to the year ended December 31, 2003 stems from our ability to leverage
corporate overheads in our on-site services.
Working
Capital and Liquidity. At
December 31, 2004, we had working capital of $26,000, compared to a working
capital deficiency of $2,765,000 as of September 30, 2004. This improvement
resulted in part from amendments to several key terms of our senior credit
facility on October 27, 2004. Under our senior credit facility available cash
balances are automatically applied against the outstanding revolving credit
balance. Consequently, we maintain very small working cash balances on our
consolidated balance sheet, and our liquidity requirements are met by continuing
access to our revolving credit facility. At December 31, 2004, we had an
additional $2,692,000 available under the credit facility.
For the
full year ended December 31, 2004, we had negative operating cash flow of
$862,000, reflecting our continued investment in health and productivity
programs and content, data integration capabilities, integrated care management
software, as well as initial implementation costs associated with the launch of
new products. For the nine months ended December 31, 2004, cash flow from
operations improved to $894,000, as compared to negative cash flow from
operations of $1,759,000 for the three months ended March 31, 2004. During the
nine months ended December 31, 2004, we also reduced the balance outstanding
under our senior credit facility by $3,692,000.
In 2005,
we expect to invest a substantial portion of available cash flow to expand our
on-site operations, substantially complete our data integration and care
management tools, and further develop our integrated on-site and health
management programs and content.
CHD
Meridian Healthcare Acquisition Earn-out. Pursuant
to the merger agreement between I-trax and CHD Meridian Healthcare, an aggregate
of 3,859,200 shares of our common stock is in escrow for issuance to former CHD
Meridian Healthcare stockholders subject to CHD Meridian Healthcare achieving
calendar 2004 milestones for earnings before interest, taxes, depreciation and
amortization, or EBITDA. If the EBITDA milestones are met, the shares are to be
delivered on the earlier of (1) two business days following the date on which we
file this Annual Report on Form 10-KSB with the SEC or (2) April 30, 2005. As of
December 31, 2004, CHD Meridian Healthcare achieved EBITDA in excess of
$9,000,000 which will result in all 3,859,200 shares being released to former
CHD Meridian Healthcare stockholders.
Results
of Operations
As noted
above, we commenced reporting financial results that include CHD Meridian
Healthcare operations beginning as of April 1, 2004, and consequently, our
historic results from the periods prior to the second quarter ended June 30,
2004 only reflect the separate operations of I-trax. Accordingly, in addition to
providing comparative analysis on a historical basis, we are also providing
supplemental unaudited pro forma information that we believe is useful to
understand how our results of operations have performed on a comparative basis
as if the acquisition of CHD Meridian Healthcare had occurred on January 1,
2003.
Year
Ended December 31, 2004 (Actual) Compared to Year Ended December 31, 2003
(Actual)
Revenue
for the year ended December 31, 2004 was $76,402,000, an increase of $72,213,000
from $4,189,000 for the year ended December 31, 2003. Of the total revenue for
the year ended December 31, 2004, $3,695,000 was from our personalized health
management programs and $72,707,000 from our on-site facilities. The substantial
increase was the result of the CHD Meridian Healthcare acquisition.
Operating
expenses, which represent our direct costs associated with the operation of our
on-site and health management services, amounted to $58,151,000 for the year
ended December 31, 2004, an increase of $55,778,000 from $2,373,000 for the year
ended December 31, 2003. The substantial increase was the result of the CHD
Meridian Healthcare acquisition.
General
and administrative expenses, which represent our corporate costs, increased to
$16,585,000 for the year ended December 31, 2004 from $5,429,000 for the year
ended December 31, 2003. The increase of $11,156,000 is primarily attributable
to the addition of $10,199,000 related to the CHD Meridian Healthcare
acquisition, and to an increase of $1,371,000 in salaries and wages expenses,
including $832,000 of transaction related compensation costs associated with the
merger offset by a reduction in non-cash charges associated with issuing common
stock, granting warrants and having certain shareholders contribute shares to an
investor relations firm as consideration for services rendered.
Depreciation
and amortization expenses were $3,866,000 for the year ended December 31, 2004,
an increase of $2,164,000 as compared to $1,702,000 for the year ended December
31, 2003. This increase is largely attributable to an increase in amortization
expense of $1,403,000 for the intangibles recorded as part of the CHD Meridian
Healthcare acquisition.
Interest
expense for the year ended December 31, 2004 was $1,002,000, representing a
decrease of $1,403,000 from $2,405,000 for the year ended December 31, 2003. For
the year ended December 31, 2004, interest expense includes a charge of $573,000
attributable to the unamortized portion of the discount and beneficial
conversion value associated with the convertible debenture and certain other
promissory notes. The discount amount is expensed because the convertible
debenture was converted into common stock and the promissory notes were repaid
during March 2004. During the year ended December 31, 2003, interest expense
includes charges of $1,881,000 related to the debenture and warrants issued to
Palladin Opportunity Fund LLC.
Amortization
of financing costs for the year ended December 31, 2004 was $132,000,
representing a decrease of $205,000 from $337,000 for the year ended December
31, 2003. During the year ended December 31, 2004, we recorded financing costs
related to obtaining and amending our senior credit facility. As of December 31,
2004, the remaining unamortized financing costs are approximately
$412,000.
The
provision for income taxes for the year ended December 31, 2004 was $253,000,
representing an increase of $253,000 from the year ended December 31, 2003. This
increase is related to certain state taxes for CHD Meridian Healthcare
operations.
Other
expense for the year ended December 31, 2004, represents a one-time non-cash
charge of $350,000 associated with the fair value of certain warrants. The
related charge for the year ended December 31, 2003 was $301,000. These charges
represent the increase in the fair value of the common stock underlying warrants
between the date on which the warrants were granted and the date on which the
registration statement covering the resale of such common stock was declared
effective by the SEC. Other expenses for the year ended December 31, 2003 also
reflect a charge of $200,000 in connection with the termination in January 2003
of our agreement to acquire DxCG, Inc., a Boston-based predictive modeling
company. This sum
was paid to DxCG following DxCG’s termination of the merger agreement because
certain conditions to closing, including third party financing for the cash
portion of the purchase price, were not satisfied. It also includes $500,000
of
proceeds from a key-person life insurance policy.
For the
year ended December 31, 2004, our net loss was $3,937,000, as compared to a net
loss of $8,059,000 for the year ended December 31, 2003. The net loss for the
year ended December 31, 2004, includes non-cash and merger related expenses of
$1,755,000, comprised of: (1) $573,000 in non-cash interest expense attributable
to the unamortized discount and beneficial conversion value of a previously
outstanding convertible debenture and certain other promissory notes which were
converted into common stock in March 2004; (2) $350,000 of non-cash charges
related to an increase in the fair market value of common stock underlying
warrants issued in a private placement completed during October 2003; and (3)
$832,000 of transaction related compensation costs, which were included in
general and administrative expense.
Year
Ended December 31, 2004 (Pro Forma) Compared to Year Ended December 31, 2003
(Pro Forma)
The
following are our unaudited pro forma results of operations giving effect to the
acquisition of CHD Meridian Healthcare as though the transaction had occurred on
January 1, 2003. The results exclude transaction costs of $1,938,000 and
transaction related compensation costs of $832,000 included in CHD Meridian
Healthcare’s and our statements of operations, respectively. The pro forma
results also include adjustments to amortization expense associated with the
intangibles acquired and interest expense related to the new credit
facility.
| |
|
2004 |
|
2003 |
|
| |
|
|
|
|
|
|
|
|
Net
revenue |
|
$ |
99,757,000 |
|
$ |
98,183,000 |
|
| |
|
|
|
|
|
|
|
|
Operating
loss |
|
|
(758,000 |
) |
|
(2,494,000 |
) |
| |
|
|
|
|
|
|
|
|
Net
loss |
|
|
(2,646,000 |
) |
|
(6,210,000 |
) |
| |
|
|
|
|
|
|
|
|
Loss
per share |
|
$ |
(0.11 |
) |
$ |
(0.30 |
) |
On a pro
forma basis, on-site revenue increased by $2,068,000 from $93,994,000 for the
ended December 31, 2003 to $96,062,000 for the year ended December 31, 2004.
Revenue from new or existing clients increased by more than $7,000,000 during
the year ended December 31, 2004; however, we lost approximately $5,200,000 in
revenue due to bankruptcy of a major client, facility closures by certain other
clients and, in the case of one significant contract renewal, our decision not
to match an unacceptably low fee from a competitor.
Health
management solutions revenue for the year ended December 31, 2004 increased to
$3,195,000 from $2,613,000 for the year ended December 31, 2003, excluding
technology license revenue of $500,000 and $1,576,000, respectively. We continue
to develop technology platform and the content of our health and productivity
products and services, which we introduced in October 2003. We also continue to
de-emphasize software sales and some aspects of our traditional nurse call
center business.
Total
costs and expenses include direct costs of our operations (operating expenses),
corporate overhead (general and administrative expenses), and depreciation and
amortization. Total costs and expenses for the year ended December 31, 2004
decreased to $100,515,000, a $162,000 decrease, from $100,677,000 for the year
ended December 31, 2003 on a pro forma basis, despite incremental costs and
expenses associated with new and expanded business. Depreciation and
amortization decreased by $214,000 on a pro forma basis. In coming periods, we
expect operating expenses to increase as our revenue increases with somewhat
slower growth in general and administrative expenses.
Interest
expense and financing costs for the year ended December 31, 2004 decreased from
the corresponding expense and costs for the year ended December 31, 2003 on a
pro forma basis. During the years ended December 31, 2004 and December 31, 2003,
we recorded non-recurring charges to interest expense and other expenses in the
amounts of $573,000 and $2,007,474, respectively. We expect interest expense
related to outstanding amounts due under the senior secured credit facility to
increase in future periods.
We record
pass-through pharmaceuticals purchases on a net basis. These purchases were
$93,766,000 and $86,254,000 for the year ended December 31, 2004 and 2003,
respectively.
Green
Hills Insurance Company
During
the three months ended March 31, 2004, we formed Green Hills Insurance Company,
a risk retention group, to self-insure a portion of our professional and general
liability insurance and thereby reduce insurance costs for our clients while
maintaining an unchanged or improved risk exposure for the company. Green Hills
is managed by a firm that specializes in managing captive insurance companies,
risk retention groups and general risk management.
Green
Hills was capitalized with $2,000,000, which is invested in cash equivalents in
accordance with the regulations promulgated by the State of Vermont and is
reflected on the consolidated balance sheet as cash and cash equivalents, and a
$1,000,000 letter of credit under our senior credit facility.
Green
Hills’ loss and loss adjustment reserves are adjusted monthly and represent
management’s best estimate of the ultimate net cost of all reported and
unreported losses. Management’s estimates are based on an independent actuarial
report.
We
purchase excess insurance to mitigate risk in excess of Green Hills’ policy
limits, and we maintain parent company reserves against risks that are not
covered by either Green Hills or our excess insurance providers. Such risks
largely relate to prior periods when we purchased primary insurance coverage
with self-insured retention of up to $500,000 per claim and insolvency of our
prior medical malpractice insurers.
Operating
an insurance subsidiary subjects us to the risks associated with any insurance
business, which include investment risk relating to the performance of our
invested assets set aside as reserves for future claims, the uncertainty of
making actuarial estimates of projected future professional liability losses,
and loss adjustment expenses. Failure to make an adequate return on our
investments, to maintain the principal of invested funds, or to estimate future
losses and loss adjustment expenses accurately, could cause us to sustain
losses. Also, maintaining the insurance subsidiary has exposed us to substantial
additional regulatory requirements, with attendant risks if we fail to comply
with applicable regulations.
Liquidity
and Capital Resources
Working
Capital
As of
December 31, 2004, we had working capital of $26,000, an increase of $317,000
from a working capital deficiency of $291,000 as of December 31, 2003. Largely
as a result of the merger, cash and cash equivalents increased by $3,231,000,
accounts receivable increased by $13,410,000, deferred tax assets increased by
$1,198,000 and other current assets increased by $1,790,000. Accounts payable
increased by $5,512,000, accrued expenses by $3,535,000, liabilities of
discontinued operations by $1,299,000, and other current liabilities by
$9,246,000.
Our
working capital increased $2,701,000 during the quarter ended December 31, 2004,
from a working capital deficiency of $2,675,000 as of September 30, 2004. This
improvement is due to modifications to our senior credit facility in the quarter
ended December 31, 2004 and adjustments to deferred tax assets and
liabilities.
On
October 27, 2004, we amended our credit facility with our senior secured lender.
The amendment: (1) increased the funded indebtedness to EBITDA ratio and the
fixed charge coverage ratio; (2) moved the first measurement date for the
consolidated net worth covenant to December 31, 2005, and restated the covenant
as a maintenance of minimum stockholders’ equity at 90% of the level as of
December 31, 2005; (3) excluded the outstanding letters of credit from the
credit facility borrowing base through January 1, 2006; and (4) converted
amounts outstanding under the term loan commitment of the credit facility into
the revolving credit commitment; and (5) eliminated the term loan commitment,
including the current portion of long term debt of $2,000,000, thus reducing the
size of the facility from $20,000,000 to $14,000,000. We continue to have access
to $14,000,000 under the credit facility, of which $3,000,000 is currently
allocated to outstanding letters of credit and up to $11,000,000 is available
under the revolving portion.
We
automatically pay down the revolving credit facility out of available cash flow
and thus maintain relatively small cash balances. At December 31, 2004, we had
$8,308,000 outstanding, $3,000,000 allocated to outstanding letters of credit,
and $2,692,000 available under the credit facility. Please see Note 5 - Long
Term Debt to our consolidated financial statements for information on the
covenants in our credit facility.
During
the year ending December 31, 2005, we expect to generate EBITDA, that is, net
income plus interest, taxes, depreciation and amortization, of approximately
$5,000,000. We believe that this amount, together with amounts available under
our credit facility, will be sufficient to meet our estimated operating needs,
which will include approximately $3,000,000 of capital expenditures.
Operating
Activities
Cash used
in operations was $862,000 for the year ended December 31, 2004. Net tangible
assets of $25,715,000 (including $8,444,000 of cash) and liabilities of
$21,505,000 acquired in the CHD Meridian Healthcare merger are included in
investing activities and do not affect operating cash flow. Our operating cash
deficit for the year ended December 31, 2004 was primarily due to: (1) our net
loss of $3,937,000; (2) non-cash transactions of $5,085,000; and (3) net
decrease in assets and liabilities, net of acquisition, of $2,010,000.
Investing
Activities
Net cash
used in investing activities was $21,691,000 for the year ended December 31,
2004, which primarily consisted of $18,440,000 for the acquisition of CHD
Meridian Healthcare, net of acquired cash, and $3,070,000 in capital
expenditures.
Financing
Activities
Net cash
provided by financing activities was $25,784,000 for the year ended December 31,
2004, representing primarily net proceeds from the sale of Series A Convertible
Preferred Stock, net of issuance costs, of $23,510,000 and $8,158,000 in
proceeds from our senior secured credit facility, net of issuance costs. These
sources of cash were partially offset by $5,000,000 used to redeem shares of
Series A Convertible Preferred Stock immediately following the acquisition of
the CHD Meridian Healthcare.
Critical
Accounting Policies
Our
consolidated financial statements and applicable notes are prepared in
accordance with the generally accepted accounting principles in the United
States of America. The preparation of these financial statements requires us to
make estimates and judgments that affect the reported amounts of assets and
liabilities and the reported amounts of revenues and expenses during the covered
periods. We base our estimates and judgments on our historical experience and on
various other factors that we believe are reasonable under the circumstances. We
evaluate our estimates and judgments, including those related to revenue
recognition, bad debts, restructuring costs, and goodwill and other intangible
assets on an ongoing basis. Notwithstanding these efforts, there can be no
assurance that actual results will not differ from the respective amount of
those estimates.
Impairment
of Goodwill and Intangible Assets
We
operate in an industry that is rapidly evolving and extremely competitive. It is
reasonably possible that our accounting estimates with respect to the useful
life and ultimate recoverability of our carrying basis of goodwill and
intangible assets could change in the near term and that the effect of such
changes on the financial statements could be material. In accordance with
Statement of Financial Accounting Standards No. 142, “Goodwill and Other
Intangible Assts,” we complete a test for impairment of goodwill and certain
other intangible assets annually and whenever events or circumstances indicate a
potential impairment.
Insurance
Reserves
Loss and
loss adjustment expense reserves are recorded monthly and represent management’s
best estimate of the ultimate net cost of all reported and unreported losses
incurred. Management’s estimates are based on an independent actuarial report.
Green
Hills does not discount loss and loss adjustment expense reserves. The reserves
for unpaid losses and loss adjustment expenses are estimated using individual
case-basis valuations and statistical analyses. Those estimates are subject to
the effects of trends in severity and frequency. Although considerable
variability is inherent in such estimates, management believes the reserves for
losses and loss adjustment expenses are adequate. The estimates are reviewed and
adjusted continuously as experience develops or new information becomes known;
such adjustments are included in current operations. To the extent claims are
made against the policies in the future, we expect most such claims to be
resolved within five years of original date of claim.
Revenue
Recognition
Service
Revenue - On-site Facilities. We
generate revenue from contractual client obligations for occupational health,
primary care, pharmacy and corporate health services rendered on either a fixed
fee or a cost-plus arrangement. For fixed fee contracts, revenue is recorded on
a straight-line basis as services are rendered. For cost-plus contracts, revenue
is recorded as costs are incurred with the management fee component recorded as
earned based on the method of calculation stipulated in the client
contract.
Revenue
is recorded at estimated net amount to be received from clients for services
rendered. The allowance for doubtful accounts represents management’s estimate
of potential credit issues associated with amounts due from
customers.
We record
pass-through pharmaceutical purchases on a net basis in accordance with Emerging
Issues Task Force, or EITF, Issue No. 99-19, “Reporting Gross Revenue as a
Principal vs. Net as an Agent.” Under our pharmacy arrangements, we provide
pharmaceuticals to a client as a component of our pharmacy agreement, which
typically requires us to staff and operate a pharmacy for the sole benefit of
the client’s employees and, in certain instances, dependents and retirees. The
substance of our pharmacy agreements in relation to pharmaceutical purchases
demonstrates an agent-like arrangement and points to net reporting. Our
agreements stipulate that we must be reimbursed upon purchasing pharmaceuticals,
and not upon dispensing, thus limiting inventory risk. We also price
pharmaceuticals on a pass-through basis and mitigate credit risk through
structured payment terms with our clients. Consequently, we do not have
unmitigated credit risk.
Cash we
receive prior to the performance of services is reflected as deferred revenue on
the consolidated balance sheet.
Service
Revenue - Personalized Health Management Programs. We
recognize service revenue as services are rendered. We contract with our
customers to provide services for a monthly fee based on the number of
employees, members or covered lives, a per-call charge to our Care Communication
Center, or a combination of both.
Upon
execution of a contract for services, we assess whether the fee associated with
our revenue transactions is fixed and determinable and whether collection is
reasonably assured. We assess whether the fee is fixed and determinable based on
the payment terms associated with such contract. If a significant portion of a
fee is due after our normal payment terms, which are generally 30 to 90 days
from invoice date, we account for such fee as services are provided.
From time
to time we enter into risk-sharing contracts. A risk-sharing contract generally
requires us to manage the health and wellness of a predetermined set of
individuals for a term of three to five years. A risk-sharing contract may also
provide that we are required to give credits to our client for a portion of our
fees if our program does not save the client a stipulated percentage of the
client’s healthcare costs. As of December 31, 2004, we maintained a reserve of
$320,311 against potential future credits.
Technology
Revenue. In prior
periods, we derived a substantial portion our revenue from sales of technology
pursuant to different contract types, including perpetual software licenses,
subscription licenses and custom development services, all of which may have
included support services revenue such as licensed software maintenance,
training, consulting, and web-hosting arrangements. In the year ended December
31, 2004, technology revenue was $500,000. As described below, significant
management judgments and estimates must be made and used in connection with the
revenue recognized in any accounting period. Material differences may result in
the amount and timing of our revenue for any period if management made different
judgments or utilized different estimates.
We
license our software products for a specific term or on a perpetual basis. Most
of our license contracts also require maintenance and support. We apply the
provisions of Statement of Position 97-2, “Software Revenue Recognition,” as
amended by Statement of Position 98-9, “Modification of SOP 97-2, Software
Revenue Recognition, With Respect to Certain Transactions,” to all transactions
involving the sale of software products and hardware transactions where the
software is not incidental. For hardware transactions where software is not
incidental, we do not unbundle our fee and, accordingly, do not apply separate
accounting guidance to the hardware and software elements. For hardware
transactions where software is not involved, we apply the provisions of Staff
Accounting Bulletin 104, “Revenue Recognition.” In addition, we apply the
provisions of 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,” to our hosted software service transactions.
We
recognize revenue from the sale of software licenses when persuasive evidence of
an arrangement exists, the product has been delivered, the fee is fixed and
determinable, and collection of the resulting receivable is reasonably assured.
Delivery generally occurs when the product is delivered to a common carrier.
We assess
collection based on a number of factors, including past transaction history with
the customer and the creditworthiness of the customer. We do not request
collateral from our customers. If we determine that collection of a fee is not
reasonably assured, we defer the fee and recognize revenue at the time
collection becomes reasonably assured, which is generally upon receipt of cash.
For
technology arrangements with multiple obligations (for example, undelivered
software maintenance and support), we allocate revenue to each component of the
arrangement using the residual value method based on the fair value of the
undelivered elements. Accordingly, we defer technology revenue in the amount
equivalent to the fair value of the undelivered elements.
We
recognize revenue for maintenance services ratably over the contract term. Our
training and consulting services are billed at hourly rates, and we generally
recognize revenue as these services are performed. However, upon execution of a
contract, we determine whether any services included within the arrangement
require us to perform significant work either to alter the underlying software
or to build additional complex interfaces so that the software performs as the
customer requests. If these services are included as part of an arrangement, we
recognize the fee using the percentage of completion method. We determine the
percentage of completion based on our estimate of costs incurred to date
compared with the total costs budgeted to complete the project.
Material
Equity Transactions
During
the year ended December 31, 2004, we executed equity transactions with unrelated
parties in connection with the CHD Meridian Healthcare merger and related
financing. We believe that we have valued all such transactions pursuant to
applicable accounting rules and that they ultimately represent the economic
substance of each transaction. Please refer to “Management’s Discussion and
Analysis of Financial Condition and Results of Operations - Sources and Uses of
Cash.”
I-TRAX,
INC. AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
AS
OF DECEMBER 31, 2004 AND 2003
AND
FOR
THE YEARS ENDED DECEMBER 31, 2004 AND 2003
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
To the
Board of Directors and
Stockholders
of I-trax, Inc.
We have
audited the accompanying consolidated balance sheets of I-trax, Inc. and
Subsidiaries (the “Company”) as of
December 31, 2004 and 2003, and the related consolidated statements of
operations, stockholders’ equity and cash flows for the years then ended. 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 audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of the Company at December 31,
2004 and 2003, and the results of their operations and their cash flows for the
years then ended in conformity with United States generally accepted accounting
principles.
Goldstein
Golub Kessler LLP
New York,
New York
February
4, 2005, except for the last two paragraphs of Note 13, as to which the date is
February 15, 2005
CONSOLIDATED
BALANCE SHEETS
AS
OF DECEMBER 31, 2004 AND 2003
(in
thousands, except share data)
|
ASSETS |
|
| |
|
2004 |
|
2003 |
|
|
Current
assets |
|
|
|
|
|
|
Cash and cash
equivalents |
|
$ |
3,805 |
|
$ |
574 |
|
|
Accounts receivable,
net |
|
|
13,959 |
|
|
549 |
|
|
Deferred tax
asset |
|
|
1,198 |
|
|
-- |
|
|
Other current
assets |
|
|
1,978 |
|
|
188 |
|
|
Total current assets |
|
|
20,940 |
|
|
1,311 |
|
| |
|
|
|
|
|
|
|
|
Property
and equipment, net |
|
|
6,719 |
|
|
1,675 |
|
|
Goodwill |
|
|
61,390 |
|
|
8,424 |
|
|
Customer
list, net |
|
|
21,182 |
|
|
769 |
|
|
Other
intangible assets, net |
|
|
1,860 |
|
|
1,400 |
|
|
Other
long term assets |
|
|
61 |
|
|
24 |
|
| |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
112,152 |
|
$ |
13,603 |
|
| |
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY |
| |
|
|
|
|
|
|
|
|
Current
liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
6,118 |
|
$ |
606 |
|
|
Accrued expenses |
|
|
3,896 |
|
|
361 |
|
|
Due to officers and related
parties |
|
|
-- |
|
|
280 |
|
|
Net liabilities of discontinued
operations |
|
|
1,299 |
|
|
-- |
|
|
Other current
liabilities |
|
|
9,601 |
|
|
355 |
|
|
Total current liabilities |
|
|
20,914 |
|
|
1,602 |
|
| |
|
|
|
|
|
|
|
|
Common
stock warrants |
|
|
-- |
|
|
2,760 |
|
|
Note
payable |
|
|
8,308 |
|
|
-- |
|
|
Deferred
tax liability |
|
|
1,526 |
|
|
-- |
|
|
Accrued
purchase price (Note 3 - Business Combination) |
|
|
7,294 |
|
|
-- |
|
|
Other
long term liabilities |
|
|
2,347 |
|
|
856 |
|
| |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
40,389 |
|
|
5,218 |
|
| |
|
|
|
|
|
|
|
|
Stockholders’
equity |
|
|
|
|
|
|
|
|
Preferred
stock - $.001 par value, 2,000,000 shares authorized, 1,070,283 and -0-
issued and outstanding, respectively |
|
|
1 |
|
|
-- |
|
|
Common
stock - $.001 par value, 100,000,000 shares authorized 26,226,818 and
13,966,817 shares issued and outstanding, respectively |
|
|
25 |
|
|
14 |
|
|
Additional paid in
capital |
|
|
130,399 |
|
|
47,276 |
|
|
Accumulated
deficit |
|
|
(58,662 |
) |
|
(38,905 |
) |
|
Total stockholders’ equity
|
|
|
71,763 |
|
|
8,385 |
|
| |
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity |
|
$ |
112,152 |
|
$ |
13,603 |
|
The
accompanying notes are an integral part of these financial statements.
CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR
THE YEARS ENDED DECEMBER 31, 2004 AND 2003
(in
thousands, except share data)
| |
|
| |
|
2004 |
|
2003 |
|
| |
|
|
|
|
|
|
Net
revenue |
|
$ |
76,402 |
|
$ |
4,189 |
|
| |
|
|
|
|
|
|
|
|
Costs
and expenses |
|
|
|
|
|
|
|
|
Operating
expenses |
|
|
58,151 |
|
|
2,373 |
|
|
General and administrative
expenses |
|
|
16,585 |
|
|
5,429 |
|
|
Depreciation and amortization
|
|
|
3,866 |
|
|
1,702 |
|
|
Total
costs and expenses |
|
|
78,602 |
|
|
9,504 |
|
| |
|
|
|
|
|
|
|
|
Operating
loss |
|
|
(2,200 |
) |
|
(5,315 |
) |
| |
|
|
|
|
|
|
|
|
Other
expenses |
|
|
|
|
|
|
|
|
Interest expense |
|
|
1,002 |
|
|
2,405 |
|
|
Amortization of financing
costs |
|
|
132 |
|
|
337 |
|
|
Other expenses |
|
|
350 |
|
|
2 |
|
|
Total
other expenses |
|
|
1,484 |
|
|
2,744 |
|
| |
|
|
|
|
|
|
|
|
Loss
before provision for income taxes |
|
|
(3,684 |
) |
|
(8,059 |
) |
| |
|
|
|
|
|
|
|
|
Provision
for income taxes |
|
|
253 |
|
|
-- |
|
| |
|
|
|
|
|
|
|
|
Net
loss |
|
|
(3,937 |
) |
|
(8,059 |
) |
| |
|
|
|
|
|
|
|
|
Less
preferred stock dividend |
|
|
(1,878 |
) |
|
-- |
|
| |
|
|
|
|
|
|
|
|
Less
deemed dividends applicable to preferred stockholders |
|
|
(15,820 |
) |
|
-- |
|
| |
|
|
|
|
|
|
|
|
Net
loss applicable to common stockholders |
|
$ |
(21,635 |
) |
$ |
(8,059 |
) |
| |
|
|
|
|
|
|
|
|
Loss
per common share, basic and diluted |
|
$ |
(0.96 |
) |
$ |
(0.74 |
) |
| |
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding, basic and diluted |
|
|
22,466,262 |
|
|
10,904,553 |
|
| |
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these financial
statements.
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY
FOR
THE YEARS ENDED DECEMBER 31, 2004 AND 2003
(in
thousands, except share data)
| |
|
Preferred
Stock |
|
Common
Stock |
|
Additional
Paid-in |
|
Accumulated |
|
Total
Stockholders’ |
|
| |
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Capital |
|
Deficit |
|
Equity |
|
Balances
at January 1, 2003 |
|
|
-- |
|
$ |
-- |
|
|
9,372,727 |
|
$ |
9 |
|
$ |
39,236 |
|
$ |
(30,846 |
) |
$ |
8,399 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of compensatory stock options |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
28 |
|
|
-- |
|
|
28 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark
to market of warrants granted for investor relations services and stock
options granted to a former employee |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
(4 |
) |
|
-- |
|
|
(4 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
market value of detachable warrants and additional beneficial conversion
value in connection with re-pricing of convertible
debenture |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
1,008 |
|
|
-- |
|
|
1,008 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for services |
|
|
-- |
|
|
-- |
|
|
332,760 |
|
|
-- |
|
|
522 |
|
|
-- |
|
|
522 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution
of common stock given by shareholders to vendor for services rendered to
the Company |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
246 |
|
|
-- |
|
|
246 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sale of common stock and exercise of warrants, net of costs and
common stock warrants liability |
|
|
-- |
|
|
-- |
|
|
2,675,838 |
|
|
3 |
|
|
2,549 |
|
|
-- |
|
|
2,552 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of warrants for services |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
649 |
|
|
-- |
|
|
649 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of detachable warrants issued in connection with convertible
note |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
268 |
|
|
-- |
|
|
268 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for conversion of related party debt and assigned
debt |
|
|
-- |
|
|
-- |
|
|
668,152 |
|
|
1 |
|
|
1,169 |
|
|
-- |
|
|
1,170 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for conversion of deferred salaries |
|
|
-- |
|
|
-- |
|
|
69,711 |
|
|
-- |
|
|
122 |
|
|
-- |
|
|
122 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock upon conversion of debenture |
|
|
-- |
|
|
-- |
|
|
847,629 |
|
|
1 |
|
|
1,483 |
|
|
-- |
|
|
1,484 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year ended December 31, 2003 |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
(8,059 |
) |
|
(8,059 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at December 31, 2003 |
|
|
-- |
|
$ |
-- |
|
|
13,966,817 |
|
$ |
14 |
|
$ |
47,276 |
|
$ |
(38,905 |
) |
$ |
8,385 |
|
The
accompanying notes are an integral part of these financial
statements.
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY
FOR
THE YEARS ENDED DECEMBER 31, 2004 AND 2003
(in
thousands,
except share data)
| |
|
Preferred
Stock |
|
Common
Stock |
|
Additional
Paid-in |
|
Accumulated |
|
Total
Stockholders’ |
|
| |
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Capital |
|
Deficit |
|
Equity |
|
Balances
at January 1, 2004 |
|
|
-- |
|
$ |
-- |
|
|
13,966,817 |
|
$ |
14 |
|
$ |
47,276 |
|
$ |
(38,905 |
) |
$ |
8,385 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification
of common stock warrants to paid in capital |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
3,110 |
|
|
-- |
|
|
3,110 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock in connection with conversion of promissory note and other
settlement, net of costs |
|
|
-- |
|
|
-- |
|
|
69,165 |
|
|
-- |
|
|
71 |
|
|
-- |
|
|
71 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for conversion of debenture and accrued
interest |
|
|
-- |
|
|
-- |
|
|
427,106 |
|
|
-- |
|
|
747 |
|
|
-- |
|
|
747 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for exercise of warrants |
|
|
-- |
|
|
-- |
|
|
333,583 |
|
|
-- |
|
|
52 |
|
|
-- |
|
|
52 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of preferred stock, net of costs |
|
|
1,000,000 |
|
|
1 |
|
|
-- |
|
|
-- |
|
|
23,509 |
|
|
-- |
|
|
23,510 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of preferred stock for acquisition of CHD Meridian |
|
|
400,000 |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
10,000 |
|
|
-- |
|
|
10,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption
of preferred stock |
|
|
(200,000 |
) |
|
-- |
|
|
-- |
|
|
-- |
|
|
(5,000 |
) |
|
-- |
|
|
(5,000 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for acquisition of CHD Meridian |
|
|
-- |
|
|
-- |
|
|
10,000,000 |
|
|
10 |
|
|
36,290 |
|
|
-- |
|
|
36,300 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of preferred stock and accrued dividends for preferred
stock |
|
|
(129,717 |
) |
|
-- |
|
|
1,430,147 |
|
|
1 |
|
|
(1,686 |
) |
|
-- |
|
|
(1,685 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial
conversion feature in connection with issuance of preferred
stock |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
15,820 |
|
|
(15,820 |
) |
|
-- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock warrants in connection with amendment of senior credit
facility |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
210 |
|
|
-- |
|
|
210 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year ended December 31, 2004 |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
(3,937 |
) |
|
(3,937 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at December 31, 2004 |
|
|
1,070,283 |
|
$ |
1 |
|
|
26,226,818 |
|
$ |
25 |
|
$ |
130,399 |
|
$ |
(58,662 |
) |
$ |
71,763 |
|
The
accompanying notes are an integral part of these financial
statements.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE YEARS ENDED DECEMBER 31, 2004 AND 2003
(in
thousands, except share data)
| |
|
2004 |
|
2003 |
|
|
Operating
activities: |
|
|
|
|
|
|
Net
loss |
|
$ |
(3,937 |
) |
$ |
(8,059 |
) |
|
Adjustments
to reconcile net loss to net cash used in operating
activities: |
|
|
|
|
|
|
|
|
Depreciation
and amortization |
|
|
3,866 |
|
|
1,702 |
|
|
Accretion
of discount on notes payable charged to interest expense and beneficial
conversion value of debenture |
|
|
573 |
|
|
2,027 |
|
|
Increase
in fair value of common stock warrants |
|
|
350 |
|
|
301 |
|
|
Amortization
of debt issuance costs |
|
|
132 |
|
|
337 |
|
|
Write-off
of deposit on cancelled acquisition |
|
|
-- |
|
|
200 |
|
|
Issuance
of securities for services |
|
|
-- |
|
|
1,418 |
|
|
Impairment
charge related to intangible assets |
|
|
-- |
|
|
458 |
|
|
Issuance
of warrants related to senior credit facility |
|
|
210 |
|
|
-- |
|
|
Other
non-cash items |
|
|
(46 |
) |
|
73 |
|
| |
|
|
|
|
|
|
|
|
Changes in operating assets and
liabilities, net of effects of acquisition: |
|
|
|
|
|
|
|
|
(Increase)/decrease in accounts
receivable |
|
|
(600 |
) |
|
8 |
|
|
Increase in deferred tax asset
|
|
|
(919 |
) |
|
-- |
|
|
Increase in other current
assets |
|
|
(793 |
) |
|
(90 |
) |
|
Decrease in accounts payable
|
|
|
(939 |
) |
|
(334 |
) |
|
Decrease in accrued
expenses |
|
|
(609 |
) |
|
(410 |
) |
|
Increase/(decrease) in other current
liabilities |
|
|
761 |
|
|
(1,140 |
) |
|
Increase in deferred tax
liability |
|
|
1,089 |
|
|
-- |
|
|
Net
cash used in operating activities |
|
|
(862 |
) |
|
(3,509 |
) |
| |
|
|
|
|
|
|
|
|
Investing
activities: |
|
|
|
|
|
|
|
|
Purchases
of property, plant and equipment |
|
|
(3,070 |
) |
|
(1,279 |
) |
|
Acquisition
of intangible assets |
|
|
(185 |
) |
|
-- |
|
|
Deposit
on acquisition of perpetual license |
|
|
-- |
|
|
(160 |
) |
|
Increase
in transaction costs |
|
|
-- |
|
|
(85 |
) |
|
Proceeds
from release of security deposit |
|
|
-- |
|
|
7 |
|
|
Proceeds
from sale of equipment |
|
|
4 |
|
|
-- |
|
|
Acquisition
of CHD Meridian, net of acquired cash |
|
|
(18,440 |
) |
|
-- |
|
|
Net
cash used in investing activities |
|
|
(21,691 |
) |
|
(1,517 |
) |
| |
|
|
|
|
|
|
|
|
Financing
activities: |
|
|
|
|
|
|
|
|
Principal
payments on capital leases |
|
|
(38 |
) |
|
(71 |
) |
|
(Repayment)
to/proceeds from related parties |
|
|
(280 |
) |
|
500 |
|
|
(Repayment)
of/proceeds from note payable |
|
|
(618 |
) |
|
100 |
|
|
Proceeds
from exercise of warrants |
|
|
52 |
|
|
-- |
|
|
Proceeds
from/(repayments) to bank credit facility, net of issuance
costs |
|
|
8,158 |
|
|
(300 |
) |
|
Proceeds
from sale of preferred stock, net of issuance costs |
|
|
23,510 |
|
|
-- |
|
|
Proceeds
from sale of common stock and exercise of warrants |
|
|
-- |
|
|
5,011 |
|
|
Redemption
of preferred stock |
|
|
(5,000 |
) |
|
-- |
|
| |
|
|
|
|
|
|
|
|
Net
cash provided by financing activities |
|
|
25,784 |
|
|
5,240 |
|
| |
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents |
|
|
3,231 |
|
|
214 |
|
| |
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of year |
|
|
574 |
|
|
360 |
|
| |
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of year |
|
$ |
3,805 |
|
$ |
574 |
|
(Continues
on following page.)
The
accompanying notes are an integral part of these financial
statements.
CONSOLIDATED
STATEMENT OF CASH FLOWS
FOR
THE YEARS ENDED DECEMBER 31, 2004 AND 2003
(Continues
from previous page.)
|
Supplemental
disclosure of cash flow information: |
|
|
|
|
|
|
Cash paid during the year
for: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
543 |
|
$ |
84 |
|
|
Income taxes |
|
$ |
285 |
|
$ |
-- |
|
| |
|
|
|
|
|
|
|
|
Schedule
of non-cash investing and financing activities: |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Reclassification of common stock
warrants to paid in capital |
|
$ |
3,110 |
|
$ |
-- |
|
|
Issuance of common stock in
connection with conversion of promissory note and other
settlement |
|
$ |
71 |
|
$ |
1,169 |
|
|
Issuance of common stock in
connection with conversion of debenture payable |
|
$ |
747 |
|
$ |
1,483 |
|
|
Beneficial conversion feature in
connection with issuance of preferred stock |
|
$ |
15,820 |
|
$ |
-- |
|
|
Fair market value of detachable
warrants and beneficial conversion value in connection with
re-pricing |
|
$ |
-- |
|
$ |
1,008 |
|
|
Proceeds from life insurance
company in connection with the death of executive officer |
|
$ |
-- |
|
$ |
500 |
|
|
Accrued interest expense on
debenture payable and promissory notes |
|
$ |
-- |
|
$ |
395 |
|
|
Repayments to related parties
from pledged life insurance proceeds |
|
$ |
-- |
|
$ |
500 |
|
|
Fair market value of warrants
granted in connection with convertible note |
|
$ |
-- |
|
$ |
268 |
|
| |
|
|
384 |
|
|
384 |
|
|
Issuance of common and preferred
stock in connection with the acquisition of CHD Meridian |
|
$ |
46,300 |
|
$ |
-- |
|
|
Accrued purchase price (see Note
3 - Business Combination) |
|
$ |
7,294 |
|
$ |
-- |
|
|
Preferred stock
dividend |
|
$ |
1,878 |
|
$ |
-- |
|
|
Conversion of accrued dividends
to common stock |
|
$ |
195 |
|
$ |
-- |
|
|
Issuance of common stock in
connection with the conversion of deferred salaries |
|
$ |
-- |
|
$ |
122 |
|
|
Purchase of all capital stock of
CHD Meridian and assumption of liabilities in the acquisition as
follows: |
|
|
|
|
|
|
|
|
Fair value of non-cash tangible assets
acquired |
|
$ |
17,256 |
|
$ |
-- |
|
|
Goodwill |
|
|
52,966 |
|
|
-- |
|
|
Customer list |
|
|
22,235 |
|
|
-- |
|
|
Other intangibles |
|
|
1,167 |
|
|
-- |
|
|
Cash paid, net of cash acquired (includes
$85 of transaction costs incurred in a prior period) |
|
|
(18,525 |
) |
|
-- |
|
|
Accrued purchase price (see Note 3 -
Business Combination) |
|
|
(7,294 |
) |
|
-- |
|
|
Common stock issued |
|
|
(36,300 |
) |
|
-- |
|
|
Preferred stock issued |
|
|
(10,000 |
) |
|
-- |
|
|
Liabilities assumed |
|
$ |
21,505 |
|
$ |
-- |
|
The
accompanying notes are an integral part of these financial
statements.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2004 AND 2003
Note
1—Nature of Business
I-trax,
Inc. (the “Company”) was
incorporated in the State of Delaware on September 15, 2000. On March 19, 2004,
the Company consummated a merger with Meridian Occupational Healthcare
Associates, Inc., a private company, which did business as CHD Meridian
Healthcare (“CHD
Meridian”). (See
Note 3 - Business Combination.)
Following
the merger, the Company offers two categories of services: (1) on-site health
related services such as occupational health, primary care, corporate health,
and pharmacy; and (2) personalized health management programs.
The
Company conducts its on-site services through CHD Meridian Healthcare, LLC, a
Delaware limited liability company (“CHD
Meridian LLC”), and
its subsidiary companies, and its personalized health management programs
through I-trax Health Management Solutions, LLC, a Delaware limited liability
company, and I-trax Health Management Solutions, Inc., a Delaware
corporation.
Physician
services at the Company’s on-site locations are provided under management
agreements with affiliated physician associations, which are organized
professional corporations that hire licensed physicians who provide medical
services (the “Physician
Groups”). The
Physician Groups provide all medical aspects of the Company’s on-site services,
including the development of professional standards, policies and procedures.
The Company provides a wide array of business services to the Physician Groups,
including administrative services, support personnel, facilities, marketing, and
non-medical services.
Note
2—Summary of Significant Accounting Policies
Principles
of Consolidation
The
accompanying consolidated financial statements include the
accounts of the Company and its subsidiaries, and the
balance sheet of CHD Meridian LLC, its wholly owned subsidiaries (including
Green Hills Insurance Company - see Note 16 - Professional Liability and Related
Reserves), and the Physician Groups. All
material intercompany accounts and transactions have been eliminated.
The
financial statements of the Physician Groups are consolidated with CHD Meridian
LLC in accordance with the nominee shareholder model of Emerging Issues Task
Force (“EITF”) Issue
No. 97-2, “Application of FASB Statement No. 94 and APB Opinion No. 16 to
Physician Practice Management Entities and Certain Other Entities with
Contractual Management Arrangements.” CHD Meridian LLC has unilateral control
over the assets and operations of the Physician Groups.
Consolidation
of the Physician Groups with CHD Meridian LLC, and consequently, the Company, is
necessary to present fairly the financial position and results of operations of
the Company. Control of the Physician Groups is perpetual and other than
temporary because of the nominee shareholder model and the management agreements
between the entities. The net tangible assets of the Physician Groups were not
material at December 31, 2004.
I-TRAX,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2004 AND
2003
Note
2—Summary of Significant Accounting Policies (continued)
The
results of operations for the year ended December 31, 2004 do not include the
operations of CHD Meridian from January 1, 2004 through March 31, 2004, even
though the merger was consummated on March 19, 2004, because the Company and CHD
Meridian agreed for accounting purposes to consolidate results of operations
effective as of April 1, 2004.
Accounts
Receivable
The
Company utilizes the allowance method for determining the collectibility of its
accounts receivable. The allowance method recognizes bad debt expense following
a review of the individual accounts outstanding in light of the surrounding
facts. Accounts receivable are reported at their outstanding unpaid principal
balances reduced by an allowance for doubtful accounts based on historical bad
debts, factors related to specific customers’ ability to pay and economic
trends. The Company writes off accounts receivable against the allowance when a
balance is determined to be uncollectible. Accounts receivable on the
consolidated balance sheet were stated net of allowance for doubtful accounts of
approximately $598,000 and $40,000 at December 31, 2004 and 2003,
respectively.
Property
and Equipment
The
Company records property and equipment at cost less accumulated depreciation and
amortization, which is provided for on the straight line basis over the
estimated useful lives of the assets which range between five and seven years.
Improvements to leased premises are amortized using the straight-line method
over the term of the lease or the useful life of the improvements, whichever is
shorter. The Company expenses maintenance and repair costs as incurred. Property
and equipment on the consolidated balance sheets includes accumulated
depreciation of $6,273,000 and $808,000 as of December 31, 2004 and 2003,
respectively. Depreciation and amortization of property and equipment for the
years ended December 31, 2004 and 2003 amounted to $1,183,000 and $177,000,
respectively.
In
accordance with the provisions of AICPA Statement of Position No. 98-1,
“Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use,” the Company capitalizes all application development costs and
expenses all preliminary project and post-implementation costs in the
consolidated statements of operations. For the years ended December 31, 2004 and
2003, the Company capitalized $1,750,000 and $1,238,000, respectively, of
software developed for internal use. The Company placed certain software
applications into service during 2004 and recorded amortization expense of
$174,000 for the year ended December 31, 2004.
I-TRAX,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2004 AND
2003
Note
2—Summary of Significant Accounting Policies (continued)
Property
and equipment consists of the following at December 31:
| |
|
2004 |
|
2003 |
|
|
Furniture,
fixtures and equipment |
|
$ |
9,552,000 |
|
$ |
1,035,000 |
|
|
Buildings
and improvements |
|
|
108,000 |
|
|
-- |
|
|
Leasehold
improvements |
|
|
344,000 |
|
|
50,000 |
|
|
Software
development costs |
|
|
2,988,000 |
|
|
1,398,000 |
|
| |
|
|
12,992,000 |
|
|
2,483,000 |
|
| |
|
|
|
|
|
|
|
|
Accumulated
depreciation |
|
|
(6,273,000 |
) |
|
(808,000 |
) |
| |
|
$ |
6,719,000 |
|
$ |
1,675,000 |
|
Goodwill
and Intangibles
Goodwill
is the excess of the purchase price over the fair value of identifiable net
assets acquired in business combinations accounted for as purchases. Under
Financial Accounting Standards Board’s (“FASB”)
Statement of Financial Accounting Standards (“SFAS”) No.
142, “Goodwill and Other Intangible Assets,” goodwill and other intangible
assets with indefinite useful lives are not amortized but are tested for
impairment annually and whenever events or circumstances occur indicating that
these intangibles may be impaired. The Company performs its review of goodwill
for impairment by comparing the carrying value of the applicable reporting unit
to the fair value of the reporting unit. Intangible assets with finite lives are
amortized over their estimated useful lives. The Company does not have any
indefinite lived intangible assets.
Debt
Issuance Costs
The
Company recorded $417,000 of debt issuance costs in connection with the sale of
a 6% senior debenture in February 2002. These costs consisted of a cash payment
of $130,000 and common stock and warrants valued at $287,000, which were issued
to a placement agent as a finder fee. The Company amortized these costs on a
straight-line basis over the two-year life of the debenture. For the year ended
December 31, 2003, amortization of debt issuance costs amounted to
$215,000.
Additionally,
during June 2003, in connection with the re-pricing of the warrants granted to
such placement agent, the Company charged an additional $122,000 as amortization
of debt issuance costs, bringing the total amortization expense for the year
ended December 31, 2003 to $337,000. As of December 31, 2003, the remaining
un-amortized portion of debt issuance cost amounted to $35,000, which was
amortized in 2004.
With
regard to its senior credit facility (see Note 5-Long Term Debt), the Company
recorded $150,000 of debt issuance costs on March 19, 2004 when it obtained the
senior credit facility and an additional $359,000 of debt issuance costs when it
amended the senior credit facility later in the year. As the amendment reduced
the total borrowing capacity of the senior credit facility, approximately
$36,000 of original debt issuance costs were written off during the year.
Amortization of debt issuance costs amounted to $132,000 for the year ended
December 31, 2004.
I-TRAX,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2004 AND
2003
Note
2—Summary of Significant Accounting Policies (continued)
Income
Taxes
The
Company accounts for income taxes in accordance with SFAS No. 109, “Accounting
for Income Taxes,” which requires the use of the “liability method” of
accounting for income taxes. Accordingly, deferred tax liabilities and assets
are determined based on the difference between the financial statement and tax
bases of assets and liabilities, using enacted tax rates in effect for the year
in which the differences are expected to reverse. Current income taxes are based
on the respective periods’ taxable income for federal and state income tax
reporting purposes.
Use
of Estimates
In
preparing the financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
which affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Fair
Value of Financial Instruments
The
carrying value of cash, accounts receivable, accounts payable, accrued expenses,
and other current liabilities are reasonable estimates of the fair values
because of their short-term maturity. The fair value of notes payable
approximates its principal amount of $8,308,000.
Revenue
Recognition
Service
Revenue - On-site Facilities.
Approximately 95% of the Company’s revenue for the year ended December 31, 2004
was generated from contractual client obligations for occupational health,
primary care, pharmacy and corporate health services performed on a fixed fee or
a cost-plus basis. For fixed fee contracts, revenue is recorded on a
straight-line basis as services are rendered. For cost-plus contracts, revenue
is recorded as costs are incurred, with the management fee component recorded as
earned based upon the method of calculation stipulated in the client contracts.
Revenue is recorded at estimated net amounts to be received from clients for
services rendered. Cash received prior to the performance of services is
reflected as deferred revenue on the consolidated balance sheets.
Service
Revenue - Personalized Health Management Programs. Service
revenue is recognized as services are rendered. The Company contracts with
clients to provide services based on an agreed upon monthly fee based on the
number of employees, members or covered lives, a per-call charge the Company’s
care communication center or a combination of both.
Upon
execution of a contract for services, the Company assesses whether the fee
associated with revenue transactions is fixed and determinable and whether
collection is reasonably assured. The Company assesses whether the fee is fixed
and determinable based on the payment terms associated with such contract. If a
significant portion of a fee is due after normal payment terms, which are
generally 30 to 90 days from invoice date, the Company accounts for such fee as
services are provided.
I-TRAX,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2004 AND
2003
Note
2—Summary of Significant Accounting Policies (continued)
Technology
Revenue. The
Company derives revenue pursuant to different contract types, including
perpetual software licenses, subscription licenses and custom development
services, all of which may include support services revenue such as licensed
software maintenance, training, consulting and web-hosting arrangements.
Significant management judgments and estimates must be made and used in
connection with the revenue recognized in any accounting period. Material
differences may result in the amount and timing of our revenue for any period if
management made different judgments or utilized different estimates.
The
Company licenses software products for a specific term or on a perpetual basis.
Most license contracts also require maintenance and support. The Company applies
the provisions of Statement of Position 97-2, “Software Revenue Recognition,” as
amended by Statement of Position 98-9, “Modification of SOP 97-2, Software
Revenue Recognition, With Respect to Certain Transactions,” to all transactions
involving the sale of software products and hardware transactions where the
software is not incidental. For hardware transactions where software is not
incidental, the Company does not unbundle its fee and, accordingly, does not
apply separate accounting guidance to the hardware and software elements. For
hardware transactions where software is not involved, the Company applies the
provisions of Staff Accounting Bulletin 104, “Revenue Recognition.” In addition,
the Company applies the provisions of 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,” to hosted software service
transactions.
The
Company recognizes revenue from the sale of software licenses when persuasive
evidence of an arrangement exists, the product has been delivered, the fee is
fixed and determinable, and collection of the resulting receivable is reasonably
assured. Delivery generally occurs when the product is delivered to a common
carrier.
The
Company assesses collection based on a number of factors, including past
transaction history with the customer and the creditworthiness of the customer.
The Company does not request collateral from customers. If the Company
determines that collection of a fee is not reasonably assured, the Company
defers the fee and recognize revenue at the time collection becomes reasonably
assured, which is generally upon receipt of cash.
For
technology arrangements with multiple obligations (for example, undelivered
software maintenance and support), the Company allocates revenue to each
component of the arrangement using the residual value method based on the fair
value of the undelivered elements. Accordingly, the Company defers technology
revenue in the amount equivalent to the fair value of the undelivered elements.
I-TRAX,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2004 AND
2003
Note
2—Summary of Significant Accounting Policies (continued)
Pharmaceuticals
Pharmaceutical
purchases are recorded on a net basis accordance with EITF Issue No. 99-19,
“Reporting Gross Revenue as a Principal vs. Net as an Agent.” Under pharmacy
arrangements, the Company provides pharmaceuticals to clients as a component of
the pharmacy agreement, which typically requires the Company to staff and
operate a pharmacy for the sole benefit of the client’s employees and, in
certain instances, dependents and retirees. The substance of these agreements in
relation to pharmaceutical purchases demonstrates an agent-like arrangement and
points to net reporting. The agreements stipulate that the Company is to be
reimbursed upon purchasing pharmaceuticals, and not upon dispensing, thus
limiting inventory risk. Furthermore, pharmaceuticals are priced on a
pass-through basis, thus mitigating credit risk through structured payment
terms. As such, the Company records pass-through pharmaceutical purchases on a
net basis. Pass through pharmaceutical purchases for the year ended December 31,
2004 were approximately $72,235,000.
Stock-Based
Compensation Plans
The
Company accounts for its employee incentive stock option plans using the
intrinsic value method in accordance with the recognition and measurement
principles of Accounting Principles Board Opinion No. 25, “Accounting for Stock
Issued to Employees,” as permitted by SFAS No. 123, “Accounting for Stock-Based
Compensation.” The adoption of the disclosure requirements of SFAS No. 148,
“Accounting for Stock-Based Compensation - Transition and Disclosure,” did not
have a material effect on the Company’s financial position or results of
operations.
Had the
compensation cost for the Company’s stock option plans been determined based on
the fair value at the grant date (derived through use of the Black-Scholes
methodology) for awards under the plans consistent with the method prescribed by
SFAS No. 123, the Company’s pro forma net income and net income per share for
fiscal 2004 and 2003 would have been as follows:
| |
|
2004 |
|
2003 |
|
| |
|
|
|
|
|
|
Net
loss as reported |
|
$ |
(3,937,000 |
) |
$ |
(8,059,000 |
) |
| |
|
|
|
|
|
|
|
|
Add
back intrinsic value of the options issued to employee and charged to
operations |
|
|
-- |
|
|
28,000 |
|
| |
|
|
|
|
|
|
|
|
Deduct
stock based employee compensation expense determined under fair value
based methods for all awards |
|
|
(741,000 |
) |
|
(2,953,000 |
) |
| |
|
|
|
|
|
|
|
|
Pro
forma net loss |
|
$ |
(4,678,000 |
) |
$ |
(10,984,000 |
) |
| |
|
|
|
|
|
|
|
|
Basic
and diluted net loss per share as reported |
|
$ |
(0.96 |
) |
$ |
(0.74 |
) |
| |
|
|
|
|
|
|
|
|
Pro
forma basic and diluted net loss per share |
|
$ |
(1.00 |
) |
$ |
(1.01 |
) |
I-TRAX,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2004 AND
2003
Note
2—Summary of Significant Accounting Policies (continued)
The above
pro forma disclosure may not be representative of the effects on reported net
operations for future years as options vest over several years and the Company
may continue to grant options to employees.
The fair
market value of each option grant has been estimated at the date of grant using
the Black-Scholes valuation model with the following weighted-average
assumptions:
|
Dividend
yield |
0.00% |
|
Expected
volatility |
112% |
|
Risk-free
interest rate |
4% |
|
Expected
life |
5
years |
Comprehensive
Income
The
Company adopted SFAS No. 130, “Accounting for Comprehensive Income.” This
statement establishes standards for reporting and disclosing comprehensive
income and its components (including revenues, expenses, gains and losses) in a
full set of general-purpose financial statements. The items of other
comprehensive income that are typically required to be disclosed are foreign
currency items, minimum pension liability adjustments, and unrealized gains and
losses on certain investments in debt and equity securities. The Company had no
items of other comprehensive income for the years ended December 31, 2004 and
2003.
Net
Loss Per Share
The
Company presents both basic and diluted loss per share on the face of the income
statement. As provided by SFAS 128, “Earnings per Share,” basic loss per share
is calculated as income available to common stockholders divided by the weighted
average number of shares outstanding during the period. Diluted
loss per share reflects the potential dilution that could occur from common
shares issuable through stock options, warrants and convertible preferred stock.
As of December 31, 2004 and 2003, 15,850,886 and 5,469,286 shares issuable upon
exercise of options, warrants, and convertible securities, respectively, were
excluded from the diluted loss per share computation because their effect would
be anti-dilutive.
Reclassifications
For
comparability, certain 2003 amounts have been reclassified and combined, where
appropriate, to conform to the financial statement presentation used in
2004.
I-TRAX,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2004 AND
2003
Note
2—Summary of Significant Accounting Policies (continued)
New
Accounting Pronouncements
In
December 2004, the FASB issued a revision of SFAS No. 123, “Accounting for
Stock-Based Compensation.” This statement supersedes APB Opinion No. 25,
“Accounting for Stock Issued to Employees,” and its related implementation
guidance. The revised statement requires entities to recognize the cost of
employee services received in share-based payment transactions, thereby
reflecting the economic consequences of those transactions in the financial
statements. The cost must be recognized over the period during which an employee
is required to provide service in exchange for the award, typically the vesting
period. The statement applies to all awards granted after the required effective
date and to awards modified, repurchased, or cancelled after that date.
This
statement becomes effective for public entities that do not file as small
business issuers as of first interim or annual reporting period that begins
after June 15, 2005 and for public entities that file as small business issuers
as of first interim or annual reporting period that begins after December 15,
2005. The Company does not intend to adopt this statement early. Upon adoption,
the Company will use a modified prospective application which will affect new
awards and awards modified, repurchased, or cancelled after the required
effective date. Additionally, compensation cost for the portion of awards for
which the requisite service has not been rendered that are outstanding as of the
required effective date must be recognized as the requisite service is rendered
on or after the required effective date. The adoption of the revised statement
is expected to impact the Company’s consolidated results of operations. The
Company cannot estimate the current impact on these consolidated financial
statements. See Note 2 - Summary of New Accounting Policies for 2004 and 2003
disclosure of pro forma results of operations under original FASB No. 123
guidance.
Note
3—Business Combination
On March
19, 2004, the Company merged with CHD Meridian, a privately held company and a
major provider of outsourced, employer-sponsored healthcare services. CHD
Meridian provides such services to large self-insured employers, including
Fortune 1,000 companies.
Pursuant
to the merger agreement, the Company, (1) issued 10,000,000 shares of common
stock, (2) issued 400,000 shares of convertible preferred stock (with each share
convertible into 10 shares of common stock) at $25.00 per share or $10,000,000
in the aggregate, and (3) paid approximately $25,508,000 in cash to the CHD
Meridian stockholders. Immediately following the closing of the merger, the
Company also redeemed from former CHD Meridian stockholders that participated in
the merger, pro rata, an aggregate of 200,000 shares of convertible preferred
stock at its original issue price of $25.00 per share or $5,000,000. The total
value of the merger consideration was $80,578,000,
made up of common stock valued at $36,300,000, preferred stock valued at
$10,000,000, cash of $25,508,000, transaction expenses of $1,476,000, and the
value attributable to accrued purchase price per the merger agreement of
$7,294,000.
I-TRAX,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2004 AND
2003
Note
3—Business Combination (continued)
Pursuant
to the merger agreement, an aggregate of 3,859,200 shares of our common stock is
in escrow for issuance to former CHD Meridian Healthcare stockholders subject to
CHD Meridian achieving calendar 2004 milestones for earnings before interest,
taxes, depreciation and amortization (“EBITDA”). If the
EBITDA milestones are met, the shares will be delivered on the earlier of (1)
two business days following the date on which the Company files its Annual
Report on Form 10-KSB for the year ended December 31, 2004 with the Securities
and Exchange Commission or (2) April 30, 2005. As of December 31, 2004, CHD
Meridian achieved EBITDA in excess of $9,000,000 which will result in all
3,859,200 shares being released to former CHD Meridian stockholders.
Consequently, the Company has recorded a liability of $7,294,000 for the value
of these shares, which was included on the consolidated balance sheet as accrued
purchase price. These shares were valued at $1.89 per share, the market price of
the Company’s common stock at December 31, 2004.
The
Company funded the cash portion of the merger consideration by (1) selling
1,000,000 shares of Series A Convertible Preferred Stock at $25.00 per share for
gross proceeds of $25,000,000, and (2) drawing $12,000,000 under a new senior
secured credit facility with a national lender. (See Note 5 - Long Term
Debt.)
In
connection with the sale and issuance of Series A Convertible Preferred Stock,
the Company reported $15,820,000 as a deemed dividend to preferred stockholders
representing the beneficial conversion value of the underlying common stock. The
beneficial conversion value is treated as a dividend on the convertible
preferred stock solely for the purpose of computing earnings per share. The
dividend is computed by multiplying (1) the difference between the value of the
underlying common stock calculated using the average closing price for the three
days prior and three days after the announcement of the merger ($3.63 per share)
and the conversion price ($2.50 per share) by (2) the number of shares of common
stock into which the convertible preferred stock outstanding at the merger’s
effective time was convertible (14,000,000 shares).
The
acquisition was accounted for using the purchase method of accounting. The
Company incurred acquisition costs of $1,476,000 that were included in the
purchase price. In addition, $832,000 of transaction related bonuses and
termination pay were included in general and administrative expenses on the
consolidated statement of operations.
The
aggregate purchase price of $80,578,000 for this transaction is summarized as
follows:
|
Fair
value of tangible assets acquired (includes cash of
$8,444,000) |
|
$ |
25,715,000 |
|
|
Liabilities
assumed |
|
|
(21,505,000 |
) |
|
Goodwill |
|
|
52,966,000 |
|
|
Customer
list |
|
|
22,235,000 |
|
|
Other
intangibles |
|
|
1,167,000 |
|
| |
|
$ |
80,578,000 |
|
I-TRAX,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2004 AND
2003
Note
3—Business Combination (continued)
The
following are the Company’s unaudited pro forma results of operations giving
effect to the acquisition of CHD Meridian as though the transaction had occurred
on January 1, 2003. The results exclude transaction costs of $1,938,000 and
transaction related bonuses and termination pay of $832,000 included in the CHD
Meridian and the Company’s statements of operations, respectively. The pro forma
results also include adjustments to amortization expense associated with the
intangibles acquired and interest expense related to the new senior secured
credit facility.
| |
|
2004 |
|
2003 |
|
| |
|
|
|
|
|
|
Net
revenue |
|
$ |
99,757,000 |
|
$ |
98,183,000 |
|
| |
|
|
|
|
|
|
|
|
Operating
loss |
|
|
(758,000 |
) |
|
(2,494,000 |
) |
| |
|
|
|
|
|
|
|
|
Net
loss |
|
|
(2,646,000 |
) |
|
(6,210,000 |
) |
| |
|
|
|
|
|
|
|
|
Loss
per share |
|
$ |
(0.11 |
) |
$ |
(0.30 |
) |
Note
4—Goodwill and Intangible Assets
During
the year ended December 31, 2004, the Company recorded $52,966,000 of goodwill
related to the purchase of CHD Meridian. On the merger date, $36,814,000 of
goodwill was initially recorded for the excess of the purchase price of CHD
Meridian over the fair value of net assets acquired in accordance with SFAS No.
142. Additional goodwill of $307,000 was recorded through December 31, 2004 for
transaction costs paid subsequent to the merger. Additional goodwill of
$1,602,000 was recorded through December 31, 2004 for liabilities incurred
related to CHD Meridian’s historical business.
During
the quarter ended December 31, 2004, the Company reclassified $6,949,000 of the
original purchase price from customer lists to goodwill. The Company reversed
the associated amortization expense taken during the year ended December 31,
2004 of $457,000.
Pursuant
to the merger agreement, the Company recorded additional goodwill of $7,294,000
for the value attributable to accrued purchase price (see Note 3 - Business
Combination).
The
changes in the carrying amount of goodwill for the year ended December 31, 2004
were as follows:
| |
|
|
|
|
Balance
as of January 1, 2004 |
|
$ |
8,424,000 |
|
|
Goodwill
acquired in the year ended December 31, 2004 |
|
|
52,966,000 |
|
|
Balance
as of December 31, 2004 |
|
$ |
61,390,000 |
|
I-TRAX,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2004 AND
2003
Note
4—Goodwill and Intangible Assets (continued)
The
components of identifiable intangible assets that are included in the
accompanying consolidated balance sheet as of December 31, 2004 are as
follows:
| |
Gross
Carrying Amount |
|
Accumulated
Amortization |
|
Net
Carrying Amount |
|
Amortized
intangible assets: |
|
|
|
|
|
|
Customer
lists |
26,736,000 |
|
5,554,000 |
|
21,182,000 |
|
Other
intangibles |
5,446,000 |
|
3,586,000 |
|
1,860,000 |
Total |
32,182,000 |
|
9,140,000 |
|
23,042,000 |
Customer
lists are amortized on a straight-line basis over the expected periods to be
benefited, generally 12 to 15 years. Other intangible assets represent
technology and deferred marketing costs, which are amortized on a straight-line
basis over the expected periods to be benefited, generally 3 to 5 years. In
accordance with SFAS No. 142, the Company completes a test for impairment of
goodwill and certain other intangible assets annually. Amortization of
intangible assets for the years ended December 31, 2004 and 2003 amounted to
$2,815,000 and $1,525,000, respectively.
Estimated
amortization expense for the next five years is as follows:
|
2005 |
$ 2,724,000 |
|
2006 |
$ 2,089,000 |
|
2007 |
$ 2,010,000 |
|
2008 |
$ 1,721,000 |
|
2009 |
$ 1,656,000 |
Note
5—Long Term Debt
On March
19, 2004, in connection with the CHD Meridian acquisition, the Company obtained
a $20,000,000 senior secured credit facility from a national lender which
expires on April 1, 2007. In addition to funding the merger and related costs,
the Company used a portion of the proceeds from the credit facility to repay
$280,000 in related party loans and $944,000 in principal and interest for all
other outstanding promissory notes. The credit facility originally had a
$6,000,000 term loan commitment with a $14,000,000 revolving credit commitment.
The credit facility includes certain financial covenants, including a covenant
measuring: (1) the ratio of the Company’s funded indebtedness to earnings before
income, taxes, depreciation and amortization, or EBITDA, (2) the ratio of the
Company’s funded indebtedness to capitalization, (3) the Company’s fixed charges
coverage ratio, and (4) a maximum capital expenditures amount.
The
credit facility is secured by substantially all of the Company’s assets.
Borrowings, at the Company’s election, may be either Base rate or Eurodollar
rate loans. Base rate loans bear interest at the prime rate as published from
time to time, plus up to 0.75% per annum depending on the Company’s debt service
coverage ratios. Eurodollar rate loans bear interest at the Eurodollar rate,
plus up to 3.0% per annum likewise depending on the Company’s debt service
coverage ratios.
I-TRAX,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2004 AND
2003
Note
5—Long Term Debt (continued)
On August
12, 2004, the Company and the senior lender amended the credit facility. Among
other things, the amendment added two additional covenants that required the
Company to achieve: (1) minimum stockholders’ equity of $82,878,000 as of
October 31, 2004, an increase of $10,000,000 from the stockholder’s equity
reflected on the consolidated balance sheet as of June 30, 2004, and (2) pro
forma 2004 EBITDA (giving effect to the acquisition of CHD Meridian Healthcare
as though the transaction had occurred on January 1, 2004) of $3,560,000. The
amendment also limited the amount the Company could borrow under the facility
through October 31, 2004 to $8,500,000.
On
October 27, 2004, the Company amended the credit facility again. The amendment:
(1) increased the funded indebtedness to EBITDA ratio and the fixed charge
coverage ratio; (2) moved the first measurement date for the consolidated net
worth covenant to December 31, 2005, and restated the covenant as a maintenance
of minimum stockholders’ equity at 90% of the level as of December 31, 2005; (3)
excluded the outstanding letters of credit from the credit facility borrowing
base through January 1, 2006; and (4) converted amounts outstanding under the
term loan commitment of the credit facility into the revolving credit
commitment, and eliminated the term loan commitment. Following the amendment,
the Company continues to have access to $14,000,000 under the credit facility,
of which $3,000,000 is currently allocated to outstanding letters of credit and
up to $11,000,000 is available under the revolving portion.
As of
December 31, 2004, the Company’s was in compliance with its financial covenants
as follows:
|
Covenant |
|
Required
Ratio |
|
Company’s
Ratio at
December
31, 2004 |
| |
|
|
|
|
|
Funded
indebtedness to EBITDA ratio |
|
<=4.50
to 1.00 |
|
2.33 |
|
Funded
indebtedness to capitalization ratio |
|
<=0.35
to 1.00 |
|
0.10 |
|
Fixed
charge coverage ratio |
|
>=1.10
to 1.00 |
|
1.67 |
|
Maximum
capital expenditures |
|
$2,500,000 |
|
$1,594,000 |
As of
December 31, 2004, the Company had outstanding $8,308,000 under the credit
facility, which was classified as long term, and an aggregate of $3,000,000
under letters of credit. The Company had $2,692,000 available under the credit
facility at December 31, 2004.
Note
6—Convertible Debenture
The
Company funded the acquisition of WellComm Group in 2002, by selling to Palladin
Opportunity Fund LLC (“Palladin”) a 6%
convertible senior debenture in the principal amount of $2,000,000 and warrants
to purchase an aggregate of up to 307,692 shares of common stock at
an exercise
price of $5.50 per share. The outstanding principal and interest under the
debenture was payable in full on or before February 3, 2004. Further,
outstanding principal and any accrued interest were convertible at any time at
the election of Palladin into common stock. The original conversion price of the
debenture was $5.00 per share. In accordance with the terms of the debenture,
the price was reset to $3.03 in February 2003 and to $1.75 in June 2003. In
accordance with the terms of the warrant, the exercise price of the warrant was
reset from $5.50 to $1.75 in June 2003.
I-TRAX,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2004 AND
2003
Note
6—Convertible Debenture (continued)
The
initial value assigned to the warrant of $890,272 was recorded as a discount to
the debenture and was accreted to interest expense over the term of the
debenture. The amount accreted to interest expense associated with the original
value assigned to the warrant amounted to $343,782 for the year ended December
31, 2003. As a result of resetting of the exercise price of the warrant in June
2003, the Company recorded an additional charge of $203,077 for interest expense
for the additional market value of the warrant on the date of resetting. Lastly,
as a result of Palladin’s partial conversion of the debenture, the Company
recorded $165,682 of additional interest expense for the year ended December 31,
2003. This amount represented the acceleration of the unamortized discount of
the warrant, which was attributable to the converted portion of principal.
Upon the
initial sale of the debenture, the Company recorded a beneficial conversion
value of $948,651. The beneficial conversion value represents the difference
between the fair market value of the underlying common stock on the date the
debenture was sold (or the date the conversion price is changed) and the price
at which the debt could be converted into common stock. The beneficial
conversion value was increased by $682,528 as a result of the reset in June
2003. The Company recorded $802,576 of interest expense for the year ended
December 31, 2003 for the amortization of the beneficial conversion value of the
debenture. As a result of Palladin’s partial conversion of the debenture, the
Company recorded $365,709 of additional interest expense for the year ended
December 31, 2003. This amount represents the unamortized portion of the
beneficial conversion value, which is attributable to the converted portion of
principal.
The
Company, pursuant to the debenture agreement, recorded accrued interest at the
rate of 6% on the outstanding principal portion of the debenture. Interest
accrued for the year ended December 31, 2003 amounted to $224,350.
For the
year ended December 31, 2003, Palladin converted an aggregate of $1,483,351 of
the amount due on the debenture for which the Company issued 847,629 shares of
common stock.
As of
December 31, 2003, the carrying value of the debenture amounted to $379,061 and
was included in other long term liabilities on the consolidated balance sheet.
The face value of the debenture amounted to $740,999 at December 31, 2003.
The
debenture was classified as a long-term liability because, during December 2003,
Palladin agreed to extend the maturity date of the debenture until February
2005. As consideration for the extension, the Company granted 50,000 warrants to
acquire common stock at $1.75 per share, which Palladin exercised on December
30, 2003. The warrants were valued at approximately $200,000 utilizing the
Black-Scholes valuation model. This amount was recorded as a discount to the
debenture and was accreted to interest expense over the extension period of one
year.
During
November and December 2003, Palladin exercised the 307,692 warrants granted upon
the sale of the debenture during February 2002, and the 50,000 warrants granted
for the extension of the maturity date of the debenture. As a result of the
exercises, the Company received proceeds of $625,961.
I-TRAX,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2004 AND
2003
Note
6—Convertible Debenture (continued)
Lastly,
in connection with facilitating the transaction with Palladin, the Company
recorded $416,610 of debt issuance costs comprised of $130,000 of cash, 6,200
shares of common stock valued at $40,610 and a warrant to acquire 40,000 shares
of common stock at $5.00 per share valued at $246,000 delivered to a third party
that brokered the transaction. In connection with the reset in June 2003 of the
conversion price of the debenture and the exercise price of the warrants, the
Company also, in accordance with a contractual commitment: (1) reset the
exercise price of the warrant originally granted to the third party from $5.00
to $1.75 per share, resulting in a charge to operations of $26,400 for
additional debt issuance costs; and (2) increased the shares of common stock
issuable under the warrant by 74,285 shares, resulting in a further charge to
operations of $95,828.
For the
year ended December 31, 2003, the amortization of these debt issuance costs
amounted to $336,783.
During
the first quarter of 2004, Palladin converted the remaining balance of the
debenture and outstanding interest into common stock. Accordingly, the Company
issued 427,106 shares of common stock for the conversion of principal and
accrued interest amounting to $747,000.
Interest
expense associated with the debenture amounted to $368,000 for the year ended
December 31, 2004. This amount included $362,000 that represents accelerated
accretion to interest expense for the discount of the value assigned to the
warrants issued to the debenture holder and the beneficial conversion value at
date of issuance.
Note
7—Notes Payable—Other
In April
2003, the Company borrowed $100,000 from a stockholder pursuant to a convertible
promissory note. The note, with an eleven-month term, accrued interest at 6% per
annum and a default interest rate of 12% per annum. The principal and related
accrued and unpaid interest was convertible by the stockholder into common stock
at anytime at $1.50 per share. As consideration for this loan, the Company
granted the stockholder a warrant to acquire 100,000 shares of common stock at
an exercise price of $1.50 per share. The value assigned to the warrant of
$68,000 was recorded as a discount to the promissory note using the relative
fair value of the debt and the warrant to the actual proceeds from the
convertible promissory note. The discount was accreted to interest expense over
the term of the convertible promissory note. For the year ended December 31,
2003, the discount accreted to interest expense associated with the convertible
promissory note amounted to $55,638. At December 31, 2003, the carrying value of
the note amounted to $87,638 and was included in other current liabilities on
the consolidated balance sheet. On March 19, 2004, the Company repaid such note
together with accrued interest.
Pursuant
to a promissory note dated April 10, 2003, the Company borrowed $150,000 from a
stockholder with an interest rate of 12% per annum, requiring monthly payments
of $25,000 plus accrued interest with a final payment due on December 31, 2003.
As of December 31, 2003, the outstanding principal balance and related accrued
interest was paid in full. For the year ended December 31, 2003, interest
expense amounted to $7,981.
I-TRAX,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2004 AND
2003
Note
7—Notes Payable—Other (continued)
On May
29, 2003, the Company borrowed $100,000 from a stockholder. For the period the
loan was outstanding, interest expense amounted to $12,000. The loan and related
interest amounting to $112,000 was repaid in full on September 29, 2003.
Note
8—Promissory Notes Payable
On March
2, 2001, the Company borrowed $692,809 from an investor group that included
$75,000 from a venture capital fund managed by the Company’s Chairman. The loan
bore interest at 8% per annum, with a default rate of 12% per annum, and was due
on March 2, 2006. The Company also granted this investor group warrants to
purchase 364,694 shares
of common stock at $0.50 per
share, which were exercised during the first
quarter of 2002 into 340,317 shares of common stock, net of shares surrendered
as exercise price. The value
assigned to detachable warrants of $459,854 was accreted to interest expense
over the five-year term of the underlying promissory notes.
In June
2003, as part of certain related parties converting and assigning debt (see Note
15 - Related Party Transactions), the venture capital fund managed by the
Company’s Chairman, with the consent of the Company, assigned the fund’s loan in
the principal amount of $75,000 and a portion of the accrued interest thereon
amounting to $6,669 to an investment relations firm, which thereafter converted
the assigned loan into common stock at $1.75 per share. The balance of the
accrued interest not assigned in the amount of $6,098 was converted into 3,484
shares of common stock also at $1.75 per share.
The
amount accreted to interest expense amounted to $90,708 for the years ended
December 31, 2003. At December 31, 2003, the carrying value of the notes
amounted to $418,744 and is included in promissory notes and debenture payable,
net of discount on the consolidated balance sheet. The face value of the
promissory notes amounted to $617,809 at December 31, 2003.
On March
19, 2004, the Company repaid such promissory notes along with accrued interest.
(See Note 5 - Long Term Debt.)
Note
9—Deposit on Acquisition of Perpetual License
On April
25, 2003, the Company entered into a marketing and services agreement with
BioSignia, Inc. (“BioSignia”),
whereby the Company committed to pay BioSignia certain minimum payments in
return for allowing the Company to private label BioSignia’s technology,
software and services in connections with the Company’s products and services.
BioSignia provides products and services in the field of predictive modeling,
health economics, epidemiology and prospective medicine. Pursuant to the
agreement, the Company paid BioSignia $160,000, which was classified as a
deposit on perpetual license.
During
2004, the Company and BioSignia entered into a new agreement whereby for an
additional $575,000, the Company acquired a perpetual license to BioSignia’s
technology and software. The Company believes the useful life of the acquired
license is approximately five years. Therefore, the total cost of acquisition,
$735,000, was included in fixed assets on the consolidated balance sheet and
depreciation expense of approximately $90,000 was recorded during the year ended
December 31, 2004.
I-TRAX,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2004 AND
2003
Note
10—Costs Associated With Terminated Acquisition
On
November 8, 2002, the Company entered into a merger agreement to acquire a
technology company, which had developed web based predictive modeling software.
Under the terms of this agreement and at the time this agreement was executed,
the Company deposited $200,000 into an escrow account. This sum was to be
released to the target company if the Company failed to satisfy certain
conditions to closing, including third-party financing for the cash portion of
the purchase price. As a result of not securing the financing by January 31,
2003 as stipulated in the merger agreement, the sum of $200,000 was released in
the first quarter of 2003 and charged to operations as terminated acquisition
cost included in other expenses on the consolidated statement of operations.
Note
11—Provision For Income Taxes
Income
tax expense is comprised of the following for the year ended December 31,
2004:
|
Current: |
|
|
|
|
Federal |
|
$ |
-- |
|
|
State |
|
|
253,000 |
|
|
Deferred: |
|
|
-- |
|
|
Income
tax expense |
|
$ |
253,000 |
|
At
December 31, 2004 and 2003, the Company had a cumulative net operating loss
(“NOL”)
carryforward for federal income tax purposes of $33,000,000 and $18,300,000,
respectively, which expires between 2011 and 2021. At December 31, 2004 and
2003, the Company had a cumulative NOL carryforward for state income tax
purposes of $17,200,000 and $3,300,000, respectively, which expire between 2006
and 2024. For financial reporting purposes, a valuation allowance of $6,966,000
was recorded against the deferred tax assets related to these
carryforwards.
I-TRAX,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2004 AND
2003
Note
11—Provision for Income Taxes (continued)
Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Significant components of the
Company’s deferred tax assets and liabilities are as follows:
| |
|
2004 |
|
2003 |
|
| |
|
|
|
|
|
|
Deferred
tax assets: |
|
|
|
|
|
|
Net
operating loss carryforwards |
|
$ |
12,159,000 |
|
$ |
8,987,000 |
|
|
Allowance
for doubtful accounts |
|
|
233,000 |
|
|
-- |
|
|
Accrued
expenses |
|
|
2,434,000 |
|
|
-- |
|
|
Other |
|
|
87,000 |
|
|
574,000 |
|
|
Total
gross deferred tax assets |
|
|
14,913,000 |
|
|
9,561,000 |
|
|
Less:
Valuation allowance |
|
|
(6,966,000 |
) |
|
(9,561,000 |
) |
|
Total
deferred tax assets |
|
|
7,947,000 |
|
|
-- |
|
|
Deferred
tax liabilities: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
(665,000 |
) |
|
-- |
|
|
Amortization |
|
|
(7,610,000 |
) |
|
-- |
|
|
Net
deferred tax asset (liability) |
|
|
(8,275,000 |
) |
|
-- |
|
|
Total
deferred tax liability |
|
$ |
(328,000 |
) |
$ |
-- |
|
Due to
the merger with CHD Meridian, the Company recorded $328,000 of net deferred tax
liability related to the difference in carrying values of assets and liabilities
for financial reporting purposes and tax purposes.
The
provision for income taxes for the years ended December 31, 2004 and 2003
differs from the amount computed by applying the statutory rate of 34% due to
the following:
| |
2004 |
|
2003 |
|
| |
|
|
|
|
|
Tax
at federal statutory rate |
(34.00 |
)% |
(34.00 |
)% |
|
State
income taxes |
6.99 |
% |
(4.00 |
)% |
|
Nondeductible
amortization |
21.77 |
% |
---- |
|
|
Stock
compensation |
81.55 |
% |
|
|
|
Other |
1.22 |
% |
---- |
|
|
Change
in valuation allowance |
(70.44 |
)% |
38.00 |
% |
|
Income
tax provision (benefit) |
6.99 |
% |
0.00 |
% |
I-TRAX,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2004 AND
2003
Note
12—Stockholders’ Equity
Preferred
Stock
The
Company has 2,000,000 authorized shares of preferred stock. As of December 31,
2004, the Company had issued and outstanding 1,070,283 shares of Series A
Convertible Preferred Stock. Each share of Series A Convertible Preferred Stock
is convertible, at any time, into 10 shares of common stock, has a liquidation
preference of $25.00 per share, the original purchase price, and accrues
dividends on that amount at a rate of 8% per year. Dividends are payable, at the
Company’s option, in cash or common stock, and only upon the Company’s
liquidation or conversion of the Series A Convertible Preferred Stock into
common stock. At December 31, 2004, the Company recorded approximately
$1,683,000 in accrued dividends.
In the
fourth quarter of 2004, 129,717 shares of preferred stock were converted into
1,297,164 shares of common stock. An additional 132,983 shares of common stock
were issued to satisfy the accrued dividends related to the converted shares.
The
placement agents that assisted the Company in the sale of 1,000,000 shares of
the Series A Convertible Preferred Stock to fund the acquisition of CHD Meridian
received a commission of $1,490,000, and warrants to acquire 492,000 shares of
common stock exercisable at $2.50 per share. Such warrants were valued at
$1,506,000 utilizing the Black-Scholes valuation model. The amount of the cash
paid has been classified as a cost of equity in the accompanying consolidated
statement of stockholders’ equity.
Common
Stock
The
Company has 100,000,000 authorized shares of common stock. As of December 31,
2004, the Company had issued and outstanding 26,226,818 shares, which excludes
3,859,200 shares held in escrow for purposes of the CHD Meridian merger earn
out. As discussed in Note 3 - Business Combination, the full number of shares
held in escrow will be released following the filing of this report with the
SEC.
Warrants
During
May 2003, the Company issued an aggregate of 332,760 shares of common stock to
four investor relations firms. The common stock valued at $522,708, based on the
market price of the common stock on the date of issuance, was charged to
operations for 2003.
During
May 2003, certain stockholders of the Company contributed loans (which were
thereafter converted into common stock) and 163,073 shares of common stock to an
investor relations firm retained by the Company as compensation for services.
The benefit that the Company received from these contributions were $246,240
based on the market price of the common stock on the date of the contribution,
and was charged to operations.
During
June 2003, the Company sold 613,986 shares of common stock at $1.75 per share
yielding net proceeds (after direct costs including 40,167 shares of common
stock) of $1,004,186.
I-TRAX,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2004 AND
2003
Note
12—Stockholders’ Equity (continued)
During
June 2003, the Company issued 519,667 shares of common stock in connection with
the conversion of related party debt and accrued interest thereon amounting to
$909,421 based on the market price of the common stock on the date of
issuance.
During
June 2003, the Company issued 148,485 shares of common stock in connection with
the conversion of assigned debt to an investor relations firm amounting to
$259,849 based on the market price of the common stock on the date of issuance.
During
June 2003, the Company issued 69,711 shares of common stock in connection with
the conversion of deferred salaries amounting to $121,997 based on the market
price of the common stock on the date of issuance.
During
August 2003, the Company commenced a private placement whereby it offered as a
unit, two shares of common stock and a warrant to purchase an additional share
of common stock exercisable at $3.00 (the market price on the Company’s common
stock on the date the Company commenced the private placement) for a unit
purchase price of $5.00. The maximum amount offered was $3,500,000. Through
October 31, 2003, the end of the private placement, the Company issued a total
of 1,400,000 shares of common stock and granted warrants to purchase 700,000
additional shares. The Company realized net proceeds of $3,037,894 after
expenses as of December 31, 2003.
Pursuant
to the terms of the registration rights agreement entered in connection with the
transaction, within 30 days of the closing of the private placement, the Company
was required to file with the SEC a registration statement under the Securities
Act of 1933, as amended, covering the resale the common stock and the common
stock underlying the warrants sold in the private placement. Additionally, the
Company was required to use its best efforts to cause such registration
statement to become effective within 90 days of closing. The registration rights
agreement further provided that if a registration statement was not filed or did
not become effective within the defined time periods, the Company was required
to pay each holder that purchase common stock and warrants liquidated damages
equal to 1.5% per month of the aggregate purchase price paid by such holder. The
registration statement was filed within the allowed time and was declared
effective by the SEC on February 17, 2004.
In
accordance with EITF No. 00-19, “Accounting for Derivative Financial Instruments
Indexed To, and Potentially Settled in a Company’s Own Stock,” and the terms of
the warrants and the transaction documents, the fair value of the warrants
amounted to $2,458,800 on date of grant. The warrants were accounted for as a
liability, with an offsetting reduction to additional paid-in capital. The
warrant liability was reclassified to equity as of February 17, 2004, the
effective date of the registration statement, evidencing the non-impact of these
adjustments on the Company’s financial position and business operations.
I-TRAX,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2004 AND
2003
Note
12—Stockholders’ Equity (continued)
The fair
value of the warrants was estimated using the Black-Scholes valuation model with
the following assumptions: no dividends; risk-free interest rate of 4%; the
contractual life of 5 years and volatility of 112%. The fair value of the
warrants at December 31, 2003 was approximately $2,760,000, which reflects an
increase in fair value of $301,305 from the time the warrants were granted. This
amount was charged to operations as an increase in common stock warrants. The
fair value of the warrants increased additionally by approximately $350,000 from
December 31, 2003 to February 17, 2004. Accordingly, such increase was charged
in the consolidated statement of operations for the quarter ended March 31, 2004
as an increase in common stock warrants.
The
adjustments required by EITF 00-19 were triggered by the potential penalties in
the agreement if the Company did not timely register the common stock underlying
the warrants issued in the transaction. The SEC declared the related
registration statement effective within the contractual deadline and the Company
incurred no penalties. The adjustments for EITF 00-19 had no impact on the
Company’s working capital, liquidity, or business operations.
For the
year ended December 31, 2003, Palladin converted an aggregate of $1,483,000
outstanding under the debenture into 847,629 shares of the Company’s common
stock.
During
2003, the Company granted fully vested, non-forfeitable warrants to purchase
375,000 shares of common stock with exercise prices of $1.50 and $1.76 (based on
market value at the date of issuance) to certain individuals and one institution
for investor relations services pursuant to various consulting agreements
expiring in May and June 2004. The value of such warrants, utilizing the
Black-Scholes model, amounted to $649,448.
During
May 2003, pursuant to the approval of the Board of Directors, the Company
granted warrants to purchase an aggregate of 450,000 shares for an exercise
price of $1.80 per share (representing a premium over market price on the date
of grant) to the Company’s Chairman and former Chief Operating Officer for their
agreement to support the Company through January 2004. The granting of such
warrants did not result in any charges to operations because they were granted
to employees.
In April
2003, the Company borrowed $100,000 from a stockholder pursuant to a convertible
promissory note. The note, with an eleven-month term, accrues interest at 6% per
annum and a default interest rate of 12% per annum. The principal and related
accrued and unpaid interest is convertible by the shareholder into common stock
at anytime at $1.50 per share. As consideration for this loan, the Company also
granted the shareholder a warrant to acquire 100,000 shares of common stock at
an exercise price of $1.50 per share. The value assigned to the warrant of
$68,000 was recorded as a discount to the promissory note using the relevant
fair value of the debt and the warrant to the actual proceeds from the
convertible promissory note.
During
December 2003, Palladin agreed to extend the maturity date of its debenture
until February 2005, in exchange for which the Company granted an additional
50,000 warrants with an exercise price of $1.75 per share. The warrants were
valued at approximately $200,000 utilizing the Black-Scholes valuation model.
This amount, also recorded as a discount to the debenture, was accreted to
interest expense over the extension period of one year.
I-TRAX,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2004 AND
2003
Note
12—Stockholders’ Equity (continued)
In
connection with the reset in June 2003 of the conversion price of Palladin’s
debenture and the exercise price of Palladin’s warrant, the Company, in
accordance with a contractual commitment, reset the exercise price of the
warrant originally granted to a third party that brokered the Palladin
investment from $5.00 to $1.75 per share and amended the warrant to increase the
number of shares issuable thereunder by 74,285 shares of common stock. This
reset of the exercise price and the amendment to the warrant resulted in a
charge to operations in the amount of $95,828.
During
the fourth quarter of 2003, the Company received an aggregate of $968,769 (net
of financing costs) from the exercise of warrants from various holders.
The
Company issued warrants to acquire 492,000 shares of common stock exercisable at
$2.50 per share to the placement agents that assisted the Company in the sale of
Series A Convertible Preferred Stock. Such warrants were valued at $1,506,000
utilizing the Black-Scholes valuation model. The value of the warrants was
classified as a cost of equity in the consolidated statement of stockholders’
equity.
On
October 27, 2004, in connection with the amendment of the Company’s senior
credit facility (see Note 5 - Long Term Debt), the Company issued warrants to
purchase 100,000 shares of the Company’s common stock at an exercise price of
$.01 per share to its senior secured creditor. The warrants were valued at
$210,000 and recorded as debt issuance costs. The warrant expires on December
31, 2014.
I-TRAX,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2004 AND
2003
Note
12—Stockholders’ Equity (continued)
The
following table summarizes the Company’s activity as it relates to its warrants
for the year ended December 31, 2004:
| |
|
Shares
Underlying Warrants |
|
| |
|
|
|
|
Balance
outstanding at January 1, 2004 |
|
|
3,351,372 |
|
|
Quarter
ended March 31, 2004: |
|
|
|
|
|
Granted |
|
|
492,000 |
|
|
Exercised |
|
|
(179,278 |
) |
|
Balance
outstanding at March 31, 2004 |
|
|
3,664,094 |
|
|
Quarter
ended June 30, 2004: |
|
|
|
|
|
Granted |
|
|
-- |
|
|
Exercised |
|
|
(7,500 |
) |
|
Balance
outstanding at June 30, 2004 |
|
|
3,656,594 |
|
|
Quarter
ended September 30, 2004 |
|
|
|
|
|
Granted |
|
|
-- |
|
|
Exercised |
|
|
(361,700 |
) |
|
Balance
outstanding at September 30, 2004 |
|
|
3,294,894 |
|
|
Quarter
ended December 31, 2004 |
|
|
|
|
|
Granted |
|
|
100,000 |
|
|
Exercised |
|
|
-- |
|
|
Balance
outstanding at September 30, 2004 |
|
|
3,394,894 |
|
At
December 31, 2004, all outstanding warrants were exercisable at a weighted
average exercise price of $2.78 per share.
Note
13—Stock Options
Equity
Compensation Plans and Non-Plan Stock Options
The
Company has two equity compensation plans, which were adopted in 2000 and 2001.
The purpose of the plans is to provide the opportunity for grants of incentive
stock options, nonqualified stock options and restricted stock to employees of
the Company and its subsidiaries, certain consultants and advisors who perform
services for the Company or its subsidiaries and non-employee members of the
Company’s Board of Directors. The 2001 plan has several additional features,
including, a salary investment option grant program that permits eligible
employees to reduce their salary voluntarily as payment of two-thirds of the
fair market value of the underlying stock subject to the option, with the
remaining one-third of the fair market value payable as the exercise price for
the option and, if specifically implemented, automatic grant program for
non-employee members of the Board of Directors at periodic intervals.
I-TRAX,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2004 AND
2003
Note
13—Stock Options (continued)
Originally,
there were 600,000 shares of common stock authorized for issuance under the 2000
plan and 1,200,000 shares of common stock authorized for issuance under the 2001
plan. The number of shares authorized for issuance under the 2001 plan increases
automatically on the first day of each year beginning with the year 2002 by an
amount equal to the lesser of (a) three percent of the shares of common stock
then outstanding or (b) 200,000 shares. Therefore, effective January 1, 2003,
the number of shares of common stock available for issuance under the 2001 plan
increased from 1,200,000 to 1,400,000.
In August
2004, the 2001 Plan was amended to increase the number of shares of common stock
available for grant under the 2001 Plan by 2,000,000 and to increase the number
of shares authorized for issuance under the 2001 plan to increase automatically
on the first day of each year to 300,000.
The
maximum aggregate number of shares of common stock that can be granted to any
individual during any calendar year is 70,000 under the 2000 plan. Under the
2001 plan, such number was increased from 80,000 to 400,000 in August
2004.
2000
Plan Grants
As of
December 31, 2004, an aggregate of 160,000 options were outstanding under the
2000 plan. Exercise prices of these options range from $5.00 to $10.00 per share
(depending, among other factors, on the fair market value of the stock on the
date of grant).
2001
Plan Grants
As of
December 31, 2004, an aggregate of 1,099,161 options were outstanding under the
2001 plan. Exercise prices of these options range from $1.51 to $10.00
(depending, among other factors, on fair market value of the stock on the date
of grant).
Non-Plan
Stock Option Grants
As of
December 31, 2004, the Company had outstanding an aggregate of 493,998 options
outside of any stock option plan with exercise prices ranging from $.005 to
$10.00 per share (depending, among other factors, on fair market value of the
stock on the date of grant).
I-TRAX,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2004 AND
2003
Note
13—Stock Options (continued)
The table
below summarizes the activity in the Company’s stock option plans for the year
ended December 31, 2004:
| |
|
Incentive
Options |
|
Non-Qualified
Options |
|
Non-Plan
Non-Qualified Options |
|
Total |
|
|
Outstanding
as of January
1, 2004 |
|
|
652,941 |
|
|
795,973 |
|
|
669,000 |
|
|
2,117,914 |
|
|
Granted |
|
|
70,921 |
|
|
-- |
|
|
-- |
|
|
70,921 |
|
|
Exercised |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
Forfeited/Expired |
|
|
-- |
|
|
(30,000 |
) |
|
-- |
|
|
(30,000 |
) |
|
Outstanding
as of March
31, 2004 |
|
|
723,862 |
|
|
765,973 |
|
|
669,000 |
|
|
2,158,835 |
|
|
Granted |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
Exercised |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
Forfeited/Expired |
|
|
(95,875 |
) |
|
-- |
|
|
-- |
|
|
(95,875 |
) |
|
Outstanding
as of June
30, 2004 |
|
|
627,987 |
|
|
765,973 |
|
|
669,000 |
|
|
2,062,960 |
|
|
Granted |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
Exercised |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
Forfeited/Expired |
|
|
(14,291 |
) |
|
-- |
|
|
(175,002 |
) |
|
(189,293 |
) |
|
Outstanding
as of September 30, 2004 |
|
|
613,696 |
|
|
765,973 |
|
|
493,998 |
|
|
1,873,667 |
|
|
Granted |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
Exercised |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
Forfeited/Expired |
|
|
(80,508 |
) |
|
(40,000 |
) |
|
-- |
|
|
(120,508 |
) |
|
Outstanding
as of December 31, 2004 |
|
|
533,188 |
|
|
725,973 |
|
|
493,998 |
|
|
1,753,159 |
|
As of
December 31, 2004, exercisable plan and non-plan options to purchase an
aggregate of 1,408,258 shares, with exercise prices ranging from $.005 to
$10.00, were outstanding.
The
weighted average fair value of options granted during the year ended December
31, 2004 was $4.42 per share.
I-TRAX,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2004 AND
2003
Note
13—Stock Options (continued)
Plan
activity is summarized as follows:
| |
|
Options
Outstanding |
|
Options
Exercisable |
|
|
Range
of Exercise Price |
|
Number
Outstanding |
|
Weighted
Average Remaining Contractual Life |
|
Weighted
Average Exercise Price |
|
Number
Exercisable |
|
Weighted
Average Exercise Price |
|
|
$.01 |
|
|
112,000 |
|
|
7.10 |
|
$ |
0.01 |
|
|
112,000 |
|
$ |
.01 |
|
|
$1.51-$1.77 |
|
|
488,331 |
|
|
8.35 |
|
$ |
1.52 |
|
|
348,329 |
|
$ |
1.51 |
|
|
$2.60-$3.00 |
|
|
665,440 |
|
|
6.83 |
|
$ |
2.76 |
|
|
593,681 |
|
$ |
2.75 |
|
|
$3.10-$5.00 |
|
|
348,688 |
|
|
7.71 |
|
$ |
4.15 |
|
|
220,583 |
|
$ |
4.30 |
|
|
$5.50-$7.50 |
|
|
92,700 |
|
|
6.96 |
|
$ |
6.00 |
|
|
87,665 |
|
$ |
6.00 |
|
|
$10.00 |
|
|
46,000 |
|
|
5.40 |
|
$ |
10.00 |
|
|
46,000 |
|
$ |
10.00 |
|
| |
|
|
1,753,159 |
|
|
7.42 |
|
$ |
2.88 |
|
|
1,408,258 |
|
$ |
2.92 |
|
On
February 2, 2005, the Company granted options to acquire 1,857,000 shares of
common stock to certain employees with an exercise price of $1.40 per
share.
Effective
February 15, 2005, the Company granted options to acquire 400,000 shares of
common stock to an director in connection with his appointment as Chief
Executive Officer with an exercise price of $1.41 per share.
Note
14—Commitments and Contingencies
Employment
Agreements
The
Company is a party to various employment agreements with certain of its officers
and key employees. Such employment agreements range between 1 and 3 years with
annual salaries ranging from $79,000 to $250,000.
Litigation
CHD
Meridian is a defendant in a lawsuit seeking a return of approximately $556,000
in payments CHD Meridian received in the ordinary course of business from a
client that filed for protection under bankruptcy laws during 2003. Management
believes that such amounts were not preferential payments and not subject to
repayment. The outcome of this lawsuit cannot be determined. In October 2004, a
pair of lawsuits failed by a separate plaintiff seeking recovery of
approximately $475,000 as preference payments was settled for substantially less
than the demand amount.
The
Company is also involved in certain legal actions and claims on a variety of
matters related to the normal course of our business. After consultation with
legal counsel, management expects these matters will be resolved without any
material adverse effect on our consolidated financial position or results of
operations. Further, any estimated losses have been adequately provided in other
accrued liabilities to the extent probable and reasonably estimable. It is
possible, however, that future results of operations for any particular
quarterly or annual period could be materially affected by changes in
circumstances relating to these procedures. (See also Note 16 - Professional
Liability and Related Reserves.)
I-TRAX,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2004 AND
2003
Note
14—Commitments and Contingencies (continued)
Compliance
with Healthcare Regulations
Because
the Company operates in the healthcare industry, it is subject to numerous laws
and regulations of Federal, state, and local governments. These laws and
regulations include, but are not limited to, matters regarding licensure,
accreditation, government healthcare program participation requirements,
reimbursement for patient services, and Medicare and Medicaid fraud and abuse.
Recently, government activity has increased with respect to investigations and
allegations concerning possible violations of fraud and abuse statutes and
regulations by healthcare providers. Violations of these laws and regulations
could result in, among other things, expulsion from government healthcare
programs together with the imposition of significant fines and penalties, as
well as significant repayments for patient services previously billed.
Management
believes that the Company is in compliance with fraud and abuse statutes as well
as other applicable government laws and regulations. Compliance with such laws
and regulations can be subject to future government review and interpretation as
well as regulatory actions unknown or unasserted at this time.
Significant
Customers
As of
December 31, 2004, two customers represented 14% and 10% of the Company’s
accounts receivable as reflected on the consolidated balance sheet. As of
December 31, 2003, one customer represented 25% of the total accounts
receivable.
For the
year ended December 31, 2004, two customers accounted for 13% and 10% of the
Company’s revenue as reflected on the consolidated statement of operations. For
the year ended December 31, 2003, the Company had three customers which
accounted for 29%, 13%, and 14% of revenue.
Risk-Sharing
Contracts
From time
to time the Company enters into risk-sharing contracts. A risk-sharing contract
generally requires the Company to manage the health and wellness of a
predetermined set of individuals for a term of three to five years. A
risk-sharing contract provides that the Company is required to refund to its
client a percentage of the Company’s fees if its program does not save the
client an agreed upon percentage of the client’s healthcare costs. At December
31, 2004, the Company estimated $320,000 of revenue was at risk. This amount was
classified as deferred revenue in other current liabilities on the consolidated
balance sheet and ass not included in revenue on the consolidated statement of
operations.
Operating
Leases
Rental
expense for operating leases was $2,284,000 and $245,000 for the year ended 2004
and 2003, respectively.
I-TRAX,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2004 AND
2003
Note
14—Commitments and Contingencies (continued)
Future
minimum cash lease commitments under all non-cancelable leases in effect at
December 31, 2004 were as follows:
|
2005 |
|
$ |
1,381,000 |
|
|
2006 |
|
|
1,177,000 |
|
|
2007 |
|
|
1,011,000 |
|
|
2008 |
|
|
905,000 |
|
|
2009 |
|
|
823,000 |
|
|
Thereafter |
|
|
-- |
|
|
Total |
|
$ |
5,297,000 |
|
Note
15—Related Party Transactions
During
February 2003, the Company repaid $140,000 of the $225,000 loan outstanding to a
relative of the Company’s Chairman.
During
February 2003, pursuant to two promissory notes, two former directors of the
Company advanced $200,000 to the Company for working capital. The notes accrued
interest at 8% per year and matured in February 2004.
As of
June 30,
2003, the Company’s Chairman and former Chief Operating Officer, along with a
former director of the Company, advanced the Company a total of $540,000 for
working capital at an interest rate of 8% per year. As of
December 31, 2003, the Company repaid an aggregate of $99,622 to its Chairman
and other related parties.
During
May 2003, certain stockholders of the Company contributed a total of 163,073
shares of common stock valued at $246,240 to an investor relations consultant
for services rendered. Accordingly, the Company charged this amount to
operations.
In June
2003, certain of the Company’s officers, directors and a venture capital fund
managed by the Company’s Chairman converted a total $909,421, comprised of loans
and advances of $790,697 (including $75,000 from a venture fund managed by the
Company’s Chairman) and accrued interest of $118,724, into 519,667 shares of
common stock at $1.75 per share. In addition, certain of the same parties
assigned additional loans in the principal amount of $246,342, and accrued
interest of $13,507, to an investor relations firm, which thereafter converted
the assigned loans and interest into common stock at $1.75 per share. The price
of the conversions was determined with reference to a private placement of
common stock to third parties completed by the Company contemporaneously with
the conversions.
In
connection with the death of a senior executive officer of the Company, during
2003, the Company was entitled to receive proceeds of $500,000 from a key-person
life insurance policy maintained by the Company on the life of such senior
executive officer. The proceeds from the life insurance policy were pledged as
security for loans made to the Company in 2002 and 2003 by the deceased senior
executive officer, a former director and a key employee. Accordingly, the life
insurance company was instructed to disburse such proceeds directly to the
related note holders in partial satisfaction of such loans.
I-TRAX,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2004 AND
2003
Note
15—Related Party Transactions (continued)
As of
December 31, 2003, the amount due to officers and related parties amounted to
$280,000, which was classified as current liabilities since they are due on
demand. On March 19, 2004, the Company repaid such related party advances along
with accrued interest. (See Note 5 - Long Term Debt.)
Interest
expense associated with related party loans and advances amounted to $83,761 for
the year ended December 31, 2003.
Note
16—Professional Liability and Related Reserves
Green
Hills Insurance Company (“GHIC”), a
risk retention group, was incorporated by CHD Meridian under the laws of the
State of Vermont on January 14, 2004. It was subsequently issued a Certificate
of Authority permitting it to transact business as a captive insurance company
under the Federal Liability Risk Retention Act of 1986.
GHIC was
formed to provide the primary layer of professional and general liability
insurance to the Company, its subsidiaries and the Physician Groups. GHIC began
to issue policies to CHD Meridian LLC, its subsidiaries and the Physician Groups
effective May 1, 2004. Prior to May 1, 2004, CHD Meridian and its affiliated
companies were insured for medical professional liability on a claims-made basis
through commercial insurance companies. During some of such prior policy years,
CHD Meridian and its affiliated companies were insured by two companies which
were declared insolvent or placed under regulatory supervision.
GHIC
provides medical malpractice on a claims-made basis and general liability
insurance on an occurrence basis to its insured members. GHIC’s policy limits
are $2,000,000 for each claim reported and $4,000,000 in the shared annual
aggregate. CHD Meridian maintains excess liability insurance with other
unaffiliated commercial insurance carriers above these limits.
GHIC was
capitalized with $2,000,000 in cash and a $1,000,000 letter of credit under the
Company’s senior secured credit facility. As of December 31, 2004, cash held by
GHIC, which includes $2,000,000 contributed to GHIC’s capital, was invested in
cash equivalents in accordance with the regulations promulgated by the State of
Vermont and is reflected on the consolidated balance sheet as cash and cash
equivalents.
Loss and
loss adjustment expense reserves are recorded monthly and represent management’s
best estimate of the ultimate net cost of all reported and unreported losses
incurred. GHIC does not discount loss and loss adjustment expense reserves. The
reserves for unpaid losses and loss adjustment expenses are estimated using
individual case-basis valuations and statistical analyses. Those estimates are
subject to the effects of trends in severity and frequency. Although
considerable variability is inherent in such estimates, management believes the
reserves for losses and loss adjustment expenses are adequate. The estimates are
reviewed and adjusted continuously as experience develops or new information
becomes known; such adjustments are included in current operations. To the
extent claims are made against the policies in the future, the Company expects
such claims to be resolved within five years of original date of claim.
I-TRAX,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2004 AND
2003
Note
16—Professional Liability and Related Reserves (continued)
As of
December 31, 2004, the loss reserve for unreported claims prior to the inception
of GHIC was $2,000,476, which was included in other long term liabilities on the
consolidated balance sheet. As of December 31, 2004, the reserve for unreported
losses insured by GHIC was $729,306, which was included in other current
liabilities on the consolidated balance sheet. In addition, the Company
maintains a reserve of $1,610,808 for cost and settlement amounts of reported
claims prior to the inception of GHIC, which as of December 31, 2004, was also
included in other current liabilities on the consolidated balance sheet.
Management’s estimates are based on an independent actuarial report.
Note
17—Profit Sharing and 401(k) Plans
Prior to
the merger on March 19, 2004 and through December 31, 2004, the Company
maintained a 401(k) profit sharing plan (the “Company
Plan”)
covering qualified employees, which included employer participation in
accordance with the provisions of the Internal Revenue Code. The Company Plan
allowed participants to make pretax contributions and the Company to match
certain percentage of employee contributions depending on a number of factors,
including the participant’s length of service. The profit sharing portion of the
Company Plan was discretionary and noncontributory. All amounts contributed to
the Company Plan were deposited into a trust fund administered by an independent
trustee. The Company made no contributions to the Company Plan during 2004 and
2003.
Prior to
the merger on March 19, 2004 and through December 31, 2004, CHD Meridian
maintained a defined contribution benefit plan (the “CHD
Meridian Plan”), which
provided retirement and other benefits to CHD Meridian’s employees. Employees
became eligible for participation at age 21 and upon completion of 90
consecutive days of employment. CHD Meridian matched (in cash) 50% of the
employee’s elective contributions up to 2% of the employee’s compensation, plus
25% of the employee’s elective contributions from 3% to 4% of the employee’s
compensation. CHD Meridian’s contributions vested over four years. CHD Meridian
contributions to the CHD Meridian Plan during 2004 and 2003 were approximately
$566,000 and $0, respectively.
Effective
January 1, 2005, the Company adopted the CHD Meridian Plan to cover all
qualified employees of the Company, its direct and indirect subsidiaries, and
the Physician Groups.
|
|
Changes
In and Disagreements with Accountants on Accounting and Financial
Disclosure |
There are
no changes in or disagreements with accountants on accounting or financial
disclosure.
Our
management, under the supervision and with the participation of the principal
executive officer and principal financial officer, have evaluated the
effectiveness of our controls and procedures related to our reporting and
disclosure obligations as of December 31, 2004, which is the end of the period
covered by this Annual Report on Form 10-KSB. Based on that evaluation, the
principal executive officer and principal financial officer have concluded that
our disclosure controls and procedures are sufficient to provide that (a)
material information relating to us, including our consolidated subsidiaries, is
made known to these officers by our and our consolidated subsidiaries other
employees, particularly material information related to the period for which
this periodic report is being prepared; and (b) this information is recorded,
processed, summarized, evaluated and reported, as applicable, within the time
periods specified in the rules and forms promulgated by the Securities and
Exchange Commission.
There
were no changes that occurred during the fiscal quarter ended December 31, 2004
that have materially affected, or are reasonable likely to materially affect,
our internal controls over financial reporting.
None.
PART
III
|
|
Directors,
Executive Officers, Promoters and Control Persons; Compliance With Section
16(a) of the Exchange Act |
See the
information set forth in the section entitled “Proposal No. 1 Election of
Directors” in I-trax’s Proxy Statement for the 2005 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission within 120
days after the end of our fiscal year ended December 31, 2004, or 2005 Proxy
Statement, which is incorporated herein by reference.
See the
information set forth in the section entitled “Executive Compensation” in the
2005 Proxy Statement, which is incorporated herein by reference.
|
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters |
See the
information set forth in the section entitled “Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters” in the 2005
Proxy Statement, which is incorporated herein by reference.
|
|
Certain
Relationships and Related
Transactions |
See the
information set forth in the section entitled “Certain Relationships and Related
Transactions” in the 2005 Proxy Statement, which is incorporated herein by
reference.
| Number |
Exhibit
Title |
| |
|
|
2.1 |
Merger
Agreement, dated as of December 26, 2003, by and among I-trax, Inc.
Meridian Occupational Healthcare Associates, Inc., doing business as CHD
Meridian Healthcare, DCG Acquisition, Inc., and CHD Meridian Healthcare,
LLC. (Incorporated by reference to Exhibit 2.1 to I-trax, Inc.’s Current
Report on Form 8-K, filed on December 29, 2003.) |
| |
|
|
2.2 |
Amendment
to Merger Agreement, dated February 4, 2004, by and among I-trax, Inc.
Meridian Occupational Healthcare Associates, Inc., doing business as CHD
Meridian Healthcare, DCG Acquisition, Inc., and CHD Meridian Healthcare,
LLC. (Incorporated by reference to Appendix A to I-trax, Inc.’s Proxy
Statement dated, and filed on, February 6, 2004.) |
| |
|
|
3.1 |
Certificate
of Incorporation of I-trax, Inc. filed on September 15, 2000.
(Incorporated by reference to Exhibit 3.1 to I-trax, Inc.’s Registration
Statement on Form S-4, Registration No. 333-48862, filed on October 27,
2000.) |
| |
|
|
3.2 |
Certificate
of Amendment to Certificate of Incorporation of I-trax, Inc. filed on June
4, 2001. (Incorporated by reference to Exhibit 3.2 to I-trax, Inc.’s
Annual Report on Form 10-KSB for the fiscal year ended December 31, 2001,
filed on April 4, 2002.) |
| |
|
|
3.3 |
Certificate
of Amendment to Certificate of Incorporation of I-trax, Inc. filed on
January 2, 2003. (Incorporated by reference to Exhibit 3.3 to I-trax,
Inc.’s Annual Report on Form 10-KSB for the fiscal year ended December 31,
2002, filed on April 15, 2003.) |
| |
|
|
3.4 |
Amended
and Restated Bylaws of I-trax, Inc. |
| |
|
|
4.1 |
Form
of Common Stock certificate of I-trax, Inc.’s Common Stock. (Incorporated
by reference to Exhibit 4.1 to I-trax, Inc.’s Annual Report on Form 10-KSB
for the fiscal year ended December 31, 2001, filed on April 4,
2002.) |
| |
|
|
4.2 |
Certificate
of Designations, Preferences and Rights of the Series A Convertible
Preferred Stock of I-trax, Inc. filed on March 19, 2004. (Incorporated by
reference to Exhibit 4.2 to I-trax, Inc.’s Annual Report on Form 10-KSB
for the year ended December 31, 2003, filed on April 8,
2004.) |
| |
|
|
4.3 |
Form
of warrant certificate of I-trax, Inc. issued to private placement
participants in private placement closed on October 31, 2003.
(Incorporated by reference to Exhibit 4.1 to I-trax, Inc.’s Registration
Statement on Form S-3, Registration No. 333-110891, filed on December 3,
2003.) |
| |
|
|
4.4 |
Financial
Advisor’s Warrant Agreement between Westminster Securities Corporation and
I-trax, Inc. dated as of May 23, 2003, with a form of warrant attached.
(Incorporated by reference to Exhibit 4.2 to I-trax, Inc.’s Registration
Statement on Form S-3, Registration No. 333-110891, filed on December 3,
2003.) |
|
4.5 |
Financial
Advisor’s Warrant Agreement between Westminster Securities Corporation and
I-trax, Inc. dated as of October 31, 2003, with a form of warrant
attached. (Incorporated by reference to Exhibit 4.3 to I-trax, Inc.’s
Registration Statement on Form S-3, Registration No. 333-110891, filed on
December 3, 2003.) |
| |
|
|
4.6 |
Financial
Advisor’s Warrant Agreement between Westminster Securities Corporation and
I-trax, Inc. dated as of December 11, 2003, with a form of warrant
attached. (Incorporated by reference to Exhibit 4.4 to I-trax, Inc.’s
Registration Statement on Form S-3, Amendment No. 1, Registration No.
333-110891, filed on February 2, 2004.) |
| |
|
|
4.7 |
Form
of warrant certificate of I-trax, Inc. issued as of March 19, 2004 to
placement agents of Series A Convertible Preferred Stock. (Incorporated by
reference to Exhibit 4.7 to I-trax, Inc.’s Annual Report on Form 10-KSB
for the year ended December 31, 2003, filed on April 8,
2004.) |
| |
|
|
4.8 |
Form
of Common Stock Warrant Certificate of I-trax, Inc. issued effective
November 1, 2004 to Bank of America, N.A. (Incorporated by reference to
Exhibit 10.1 to I-trax, Inc.’s Current Report on Form 8-K filed on October
29, 2004.) |
| |
|
|
10.1 |
Lease
Agreement dated April 10, 2000, between I-Trax.com, Inc. and OLS Office
Partners, L.P. (Incorporated by reference to Exhibit 10.1 to I-Trax.com,
Inc.’s Quarterly Report Form 10-QSB for the quarter ended June 30, 2000,
filed on August 14, 2000.) |
| |
|
|
10.2 |
Lease
Agreement dated May 28, 2002, between I-trax, Inc. and F & J
Enterprises, Inc. dba Bedford Plaza. (Incorporated by reference to Exhibit
10.23 to I-trax, Inc.’s Registration Statement on Form SB-2, Amendment No.
1, Registration No. 333-87134, filed on July 11, 2002.) |
| |
|
|
10.3 |
Lease
Agreement dated January 2002, between Burton Hills IV Partnership and
Meridian Occupational Healthcare Associates, Inc., d/b/a CHD Meridian
Healthcare. (Incorporated by reference to Exhibit 10.1 to I-trax, Inc.’s
Quarterly Report Form 10-QSB for the quarter ended March 30, 2004, filed
on May 14, 2004.) |
| |
|
|
10.4 |
Lease
Agreement made as on August 12, 2004, by and between Henderson Birmingham
Associates and I-trax Health Management Solutions, Inc. (Incorporated by
reference to Exhibit 10.1 to I-trax, Inc.’s Quarterly Report Form 10-QSB
for the quarter ended September 30, 2004, filed on November 15,
2004.) |
| |
|
|
10.5 |
Guarantee
and Suretyship Agreement made as on August 12, 2004, by I-trax, Inc. for
the benefit of Henderson Birmingham Associates. (Incorporated by reference
to Exhibit 10.2 to I-trax, Inc.’s Quarterly Report Form 10-QSB for the
quarter ended September 30, 2004, filed on November 15,
2004.) |
| |
|
|
10.6 |
I-trax,
Inc. 2000 Equity Compensation Plan. (Incorporated by reference to Exhibit
10.16 to I-Trax.com, Inc.’s Registration Statement on Form 10-SB, files on
April 10, 2000.) |
| |
|
|
10.7 |
I-trax,
Inc. Amended and Restated 2001 Equity Compensation Plan. (Incorporated by
reference to Exhibit 10.3 to I-trax, Inc.’s Quarterly Report Form 10-QSB
for the quarter ended September 30, 2004, filed on November 15,
2004.) |
| |
|
|
10.8 |
License
and Maintenance Agreement dated as of September 30, 2002, between I-trax,
Inc. and UICI, Inc. (Incorporated by reference to Exhibit 10 to I-trax,
Inc.’s Current Report on Form 8-K, filed on October 9,
2002.) |
| |
|
|
10.9 |
Employment
Agreement effective as of December 29, 2000, between I-trax Health
Management Solutions, Inc. (f/k/a I-Trax.com, Inc.) and Frank A. Martin.
(Incorporated by reference to Exhibit 10.17 to I-Trax.com, Inc.’s Annual
Report on Form 10-KSB for the fiscal year ended December 31, 2000, filed
on April 2, 2001.) |
| |
|
|
10.10 |
Employment
Agreement dated as of January 1, 2000, between Meridian Occupational
Healthcare Associates, Inc. and Haywood D. Cochrane, Jr. (Incorporated by
reference to Exhibit 10.10 to I-trax, Inc.’s Annual Report on Report Form
10-KSB for the year ended December 31, 2003, filed on April 8,
2004.) |
| |
|
|
10.11 |
Employment
Agreement dated November 17, 2004, between I-trax, Inc. and David R. Bock.
(Incorporated by reference to Exhibit 10.1 to I-trax, Inc.’s Current
Report on Form 8-K, filed on November 22, 2004.) |
| |
|
|
10.12 |
Employment
Agreement dated November 17, 2004, between I-trax, Inc. and Yuri
Rozenfeld. (Incorporated by reference to Exhibit 10.2 to I-trax, Inc.’s
Current Report on Form 8-K, filed on November 22,
2004.) |
| |
|
|
10.13 |
Employment
Agreement dated March 14, 2005, between I-trax, Inc. and R. Dixon Thayer.
|
| |
|
|
10.14 |
Credit
Agreement dated as of March 19, 2004, by and among I-trax, Inc., all
subsidiaries of I-trax, Inc. that are parties to the Credit Agreement, and
Bank of America, N.A. (Incorporated by reference to Exhibit 10.11 to
I-trax, Inc.’s Annual Report on Report Form 10-KSB for the year ended
December 31, 2003, filed on April 8, 2004.) |
| |
|
|
10.15 |
First
Amendment to Credit Agreement dated as of June 1, 2004, by and among
I-trax, Inc., all subsidiaries of I-trax, Inc. that are parties to the
Credit Agreement, and Bank of America, N.A. (Incorporated by reference to
Exhibit 10.1 to I-trax, Inc.’s Quarterly Report Form 10-QSB for the
quarter ended June 30, 2004, filed on August 18, 2004.) |
| |
|
|
10.16 |
Second
Amendment to Credit Agreement dated as of July 1, 2004, by and among
I-trax, Inc., all subsidiaries of I-trax, Inc. that are parties to the
Credit Agreement, and Bank of America, N.A. (Incorporated by reference to
Exhibit 10.2 to I-trax, Inc.’s Quarterly Report Form 10-QSB for the
quarter ended June 30, 2004, filed on August 18, 2004.) |
| |
|
|
10.17 |
Third
Amendment to Credit Agreement dated as of August 12, 2004, by and among
I-trax, Inc., all subsidiaries of I-trax that are parties to the Credit
Agreement, and Bank of America, N.A. (Incorporated by reference to Exhibit
10.3 to I-trax, Inc.’s Quarterly Report Form 10-QSB for the quarter ended
June 30, 2004, filed on August 18, 2004.) |
| |
|
|
10.18 |
Fourth
Amendment to Credit Agreement, dated October 27, 2004, by and among
I-trax, Inc., all subsidiaries of I-trax, Inc. that are parties to the
Credit Agreement and Bank of America, N.A. (Incorporated by reference to
Exhibit 10.1 to I-trax, Inc.’s Current Report on Form 8-K filed on October
29, 2004.) |
| |
|
|
21 |
Subsidiaries
of I-trax, Inc. |
| |
|
|
23 |
Consent
of Goldstein Golub Kessler LLP. |
| |
|
|
31.1 |
Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002. |
| |
|
|
31.2 |
Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002. |
| |
|
|
32.1 |
Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002. |
| |
|
|
32.2 |
Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of
2002. |
Item 14. Principal
Accounting Fees and Services
See the
information set forth in the section entitled “Principal Accounting Fees and
Services” in the 2005 Proxy Statement, which is incorporated herein by
reference.
SIGNATURES
In
accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized as of March 29, 2005.
| |
I-TRAX,
INC. |
| |
|
| |
By:
/s/
R. Dixon Thayer |
| |
R.
Dixon Thayer, Chief Executive Officer |
| |
|
| |
|
| |
By:
/s/
David R. Bock |
| |
David
R. Bock, Senior Vice President and Chief Financial Officer
|
| |
(Principal
Financial and Accounting Officer) |
In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
|
Signature |
Title |
Date |
| |
|
|
|
/s/
Haywood D. Cochrane, Jr.
Haywood
D. Cochrane, Jr. |
Vice-Chairman
and Director |
March
29, 2005 |
| |
|
|
|
/s/
Philip D. Green
Philip
D. Green |
Director |
March
29, 2005 |
| |
|
|
|
/s/
Dr. Michael M.E. Johns
Dr.
Michael M.E. Johns |
Director |
March
29, 2005 |
| |
|
|
|
/s/
Gail F. Lieberman
Gail
F. Lieberman |
Director |
March
29, 2005 |
| |
|
|
|
/s/
Dr. David Nash
Dr.
David Nash |
Director |
March
29, 2005 |
| |
|
|
|
/s/
Frank A. Martin
Frank
A. Martin |
Chairman
and Director |
March
29, 2005 |
| |
|
|
|
/s/
R. Dixon Thayer
R.
Dixon Thayer |
Chief
Executive Officer and Director |
March
29, 2005 |
| |
|
|
74