UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT
Commission File Number: 0-30275
I-TRAX, INC.
------------------------------------------
(Exact name of small business issuer in its charter)
Delaware 23-3057155
-------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Logan Square, 130 N. 18th Street, Suite 2615
Philadelphia, Pennsylvania 19103
--------------------------
(Address of principal executive offices)
(215) 557-7488
--------------------------
(Issuer's telephone number)
-----------------------------------------------
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. Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the last practicable date: As of May 2, 2003, the Registrant had
9,372,727 shares of its $0.001 par value common stock outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
INDEX
Page No.
PART I. FINANCIAL INFORMATION..............................................................................3
Item 1. Consolidated Financial Statements ................................................3
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................................16
Item 3. Controls and Procedures..........................................................21
PART II. OTHER INFORMATION................................................................................21
Item 1. Legal Proceedings................................................................21
Item 2. Changes in Securities............................................................21
Item 3. Defaults upon Senior Securities..................................................21
Item 4. Submission of Matters to a Vote of Security Holders..............................21
Item 5. Other Information................................................................21
Item 6. Exhibits and Reports on Form 8-K.................................................21
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
I-TRAX, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Page No.
Report of Independent Public Accountants 4
Consolidated Balance Sheets at March 31, 2003 (unaudited) and December 31, 2002 5
Consolidated Statements of Operations for the three months ended March 31, 2003 and 2002 (unaudited) 6
Consolidated Statement of Stockholders' Equity for the three months ended March 31, 2003 (unaudited) 7
Consolidated Statements of Cash Flows for the three months ended March 31, 2003 and 2002 (unaudited) 8
Notes to consolidated financial statements 10
3
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of I-trax, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of
I-trax, Inc. (a Delaware corporation) and Subsidiaries as of March 31, 2003, and
the related condensed consolidated statements of operations, stockholders'
equity and cash flows for the three-month period then ended.. These financial
statements are the responsibility of the company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with generally
accepted auditing standards, the objective of which is the expression of an
opinion regarding the condensed financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying condensed financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the balance sheet as of December 31,
2002, and the related consolidated statements of operations, stockholders'
equity and cash flows for the year then ended (not presented herein); and in our
report dated March 5, 2003, we expressed an unqualified opinion on those
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December 31, 2002, is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
May 7, 2003
4
I-TRAX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
2003 2002
(unaudited)
----------------- -----------------
Current assets:
Cash $ 32,153 $ 360,166
Deposit on potential acquisition -- 200,000
Accounts receivable, net 493,359 597,635
Prepaid expenses 150,627 77,569
Other current assets 28,390 20,960
----------------- -----------------
Total current assets 704,529 1,256,330
----------------- -----------------
Office equipment, furniture, leasehold improvements and software development
costs, net 560,517 412,779
Deferred marketing costs, net 1,171,111 1,284,445
Goodwill 8,424,062 8,424,062
Intangible assets, net 2,467,758 2,748,087
Debt issuance cost, net 191,748 249,273
Security deposits 31,564 31,564
----------------- -----------------
Total assets $ 13,551,289 $ 14,406,540
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Credit line payable 300,000 300,000
Accounts payable 1,000,029 918,791
Accrued expenses 960,500 743,151
Due to officers, directors and other related parties 464,500 225,000
Capital lease payable 59,519 60,047
Deferred revenue 528,107 1,379,922
Other current liabilities -- 13,423
----------------- -----------------
Total current liabilities 3,312,655 3,640,334
----------------- -----------------
Capital lease obligation, net of current portion 96,765 96,765
Promissory notes and debenture payable, net of discount 1,498,417 1,245,876
Due to officers and directors 1,224,598 1,024,598
----------------- -----------------
Total liabilities 6,132,435 6,007,573
----------------- -----------------
Total liabilities
Commitments and contingencies (Note 7)
Stockholders' equity
Preferred stock - $.001 par value, 2,000,000 shares authorized,
-0- issued and outstanding -- --
Common Stock - $.001 par value, 100,000,000 shares authorized,
9,372,727 shares issued and outstanding 9,372 9,372
Additional paid in capital 39,219,679 39,236,119
Accumulated deficit (31,810,197) (30,846,524)
----------------- -----------------
Total stockholders' equity 7,418,854 8,398,967
----------------- -----------------
Total liabilities and stockholders' equity $ 13,551,289 $ 14,406,540
================= =================
See accompanying notes to consolidated financial statements (unaudited).
5
I-TRAX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 30, 2003 AND 2002
(UNAUDITED)
Three months Three months
ended ended
March 31, March 31,
2003 2002
------------------ ---------------
Revenue:
Technology licenses $ 914,702 $ 44,500
Services 701,429 361,857
------------------ ---------------
Total revenue 1,616,131 406,357
------------------ ---------------
Cost of revenue:
Technology licenses 16,014 10,834
Services 300,066 251,331
------------------ ---------------
Total cost of revenue 316,080 262,165
------------------ ---------------
Gross profit 1,300,051 144,192
Operating expenses:
General and administrative 308,504 382,119
Salary and related benefits 858,863 1,182,899
Research and development -- 119,500
Depreciation and amortization 436,548 219,987
Marketing and publicity 81,757 170,456
------------------ ---------------
Total operating expenses 1,685,672 2,074,961
------------------ ---------------
Operating loss (385,621) (1,930,769)
------------------ ---------------
Other income (expenses):
Amortization of debt issuance costs (57,525) (36,384)
Costs in connection with uncompleted acquisition (200,000) --
Interest expense (320,527) (184,759)
------------------ ---------------
Total other income (expenses) (578,052) (221,143)
------------------ ---------------
Net loss $ (963,673) $ (2,151,912)
================== ================
Loss per common share:
Basic and diluted $ (.10) $ (.26)
================== ================
Weighted average number of shares outstanding: 9,372,727 8,319,179
================== ================
See accompanying notes to consolidated financial statements (unaudited).
6
I-TRAX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2003
(UNAUDITED)
Common Stock Additional Total
----------------------------- Paid-in Accumulated Stockholders'
Shares Amount Capital Deficit Equity
-------------- ------------- ---------------- -------------- ---------------
Balances at December 31, 2002 9,372,727 $ 9,372 $ 39,236,119 $ (30,846,524) $ 8,398,967
Issuance of compensatory stock options 23,942 23,942
Mark to market of warrants granted for
investor relations services and stock
options granted to a former employee -- -- (40,382) -- (40,382)
Net loss for the quarter ended March 31, 2003 -- -- -- (963,673) (963,673)
-------------- ------------- ---------------- -------------- ---------------
Balances at March 31, 2003 9,372,727 $ 9,372 $ 39,219,679 $ (31,810,197) $ 7,418,854
============== ============= ================ ============== ===============
See accompanying notes to consolidated financial statements (unaudited).
7
I-TRAX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)
Three months Three months
ended ended
March 31, 2003 March 31, 2002
----------------- ----------------
Operating activities:
Net loss $ (963,673) $ (2,151,912)
Adjustments to reconcile net loss to net cash used in operating
activities:
Accretion of discount on notes payable charged to interest expense 133,961 96,867
Accretion of beneficial conversion value of debenture 118,581 79,054
Amortization of option liability (13,423) (26,846)
Amortization of debt issuance costs 57,525 16,384
Depreciation and amortization 436,548 239,988
Issuance of securities for services (16,440) 308,544
Write off of deposit on cancelled acquisition 200,000 --
Changes in operating assets and liabilities, net of acquisitions:
Decrease (increase) in:
Accounts receivable 104,276 87,965
Prepaid expenses (73,058) (83,468)
Other current assets (7,430) (15,579)
(Decrease) increase in:
Accounts payable 81,238 2,708
Accrued expenses 217,349 (165,939)
Deferred revenue (851,815) 69,066
----------------- ----------------
Net cash used in operating activities (576,361) (1,543,168)
----------------- ----------------
Investing activities:
Proceeds from repayment of note receivable -- 37,500
Cash used for property, equipment and software development costs (190,624) --
Proceeds from partial release of security deposit -- 16,484
Net cash to acquire WellComm Group, Inc. -- (2,045,065)
----------------- ----------------
Net cash used in investing activities (190,624) (1,991,081)
----------------- ----------------
Financing activities:
Principal payments on capital leases (528) (12,906)
Repayment to related parties (140,000) (50,000)
Proceeds from officers, directors and other related parties 579,500 --
Proceeds from sale of common stock -- 1,472,850
Proceeds from sale of debenture option -- 161,078
Costs of issuance of debenture -- (150,000)
Proceeds from issuance of debenture -- 1,838,922
----------------- ----------------
Net cash provided by financing activities 438,972 3,259,943
----------------- ----------------
Net decrease in cash (328,013) (274,306)
Cash at beginning of period 360,166 1,029,208
----------------- ----------------
Cash at end of period $ 32,153 $ 754,902
================= ================
Supplemental disclosure of non-cash flow information:
Cash paid during the year for:
Interest $ 15,612 $ 8,213
================= ================
(Continues on following page.)
8
I-TRAX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(Continues from previous page.)
Three months Three months
ended ended
March 31, 2003 March 31, 2002
---------------- -----------------
Schedule of non-cash investing activities:
Issuance of 1,488,000 shares of common stock and granting of 112,000 stock
options in connection with acquisition of WellComm Group,
Inc. $ -- $ 10,480,000
================ =================
Issuance of common stock and warrants for finder fee $ -- $ 391,408
================ =================
See accompanying notes to consolidated financial statements (unaudited).
9
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1--ORGANIZATION
I-trax, Inc. (the "Company") provides focused disease management and
comprehensive health management solutions designed to improve the health of the
populations it serves while reducing the cost of medical care. The Company was
incorporated in the State of Delaware on September 15, 2000. The Company's
common stock is traded on the American Stock Exchange under the symbol "DMX."
As of March 31, 2003, the Company had three wholly owned subsidiaries: I-trax
Health Management Solutions, Inc. (formerly known as I-Trax.com, Inc.) ("Health
Management"), a corporation, and iSummit Partners, LLC and WellComm Group, LLC,
each a single member limited liability company.
NOTE 2--INTERIM RESULTS AND BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
for interim financial information, the instructions to Form 10-QSB and Items 303
and 310(B) of Regulation S-B. In the opinion of management, the unaudited
financial statements have been prepared on the same basis as the annual
financial statements and reflect all adjustments, which include only normal
recurring adjustments, necessary to present fairly the financial position as of
March 31, 2003 and the results of the operations and cash flows for the three
months ended March 31, 2003. The results for the three months ended March 31,
2003 are not necessarily indicative of the results to be expected for any
subsequent quarter or the entire fiscal year ending December 31, 2003. The
balance sheet at December 31, 2002 has been derived from the audited financial
statements at that date.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted pursuant to the
Securities and Exchange Commission's rules and regulations.
For the three months ended March 31, 2003, the Company capitalized software
development costs amounting to $187,500 since technological feasibility has been
achieved.
Loss per common share is computed pursuant to SFAS No. 128, "Earnings Per
Share." Basic loss per share is computed as net income (loss) available to
common shareholders divided by the weighted average number of common shares
outstanding for the period. Diluted loss per share reflects the potential
dilution that could occur from common shares issuable through stock options,
warrants, and convertible debt. As of March 31, 2003 and 2002, 3,863,604 and
2,386,049, respectively, of options and warrants were excluded from the diluted
loss per share computation, as their effect would be anti-dilutive.
These unaudited financial statements should be read in conjunction with the
Company's audited financial statements and notes thereto for the year ended
December 31, 2002 as included in the Company's report on Form 10-KSB for the
fiscal year ended December 31, 2002 filed on April 15, 2003.
10
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3--ACQUISITION OF WELLCOMM GROUP, INC.
On February 6, 2002, the Company acquired all of the issued and outstanding
common stock of WellComm Group, Inc. by issuing 1,488,000 shares of common stock
valued at $9,746,400, granting 112,000 options valued at $733,600 to acquire
common stock at a nominal exercise price and paying approximately $2,200,000 in
cash. The aggregate acquisition price amounted to approximately $12,680,000. The
financial statements include the operations of WellComm from February 1, 2002
forward.
The following unaudited pro forma results of operations of the Company give
effect to the acquisition of WellComm for the quarter ended March 31, 2002 as if
the acquisition was consummated at the beginning of that period.
Three months
ended
March 31, 2002
-----------------
Total revenue $ 660,136
=================
Total expenses $ 2,835,031
=================
Net loss $ (2,174,895)
=================
Pro forma net loss per share: $ (.24)
Basic and Diluted =================
Weighted average number of shares outstanding: 9,036,190
Basic and Diluted =================
NOTE 4--RELATED PARTY TRANSACTIONS
At December 31, 2002, the Company had loans outstanding to certain officers and
directors amounting to $1,024,598 and $225,000 to a relative of the Company's
Chief Operating Officer.
During February 2003, pursuant to a promissory note, the former Chief Executive
Officer of WellComm, now a member of the Company's Board of Directors, advanced
$200,000 to the Company for working capital. The loan carries interest at 8% per
year and it matures in February 2004.
During the three months ended March 31, 2003, the Company's Chief Executive and
Operating Officers, along with certain stockholders and the former Chief
Executive Officer of WellComm, now a member of the Company's Board of Directors,
advanced the Company a total of $379,500 for working capital. The Company's
Chief Executive and Operating Officers have committed to continue to fund the
Company until it generates positive cash flow from operations and raises
additional funds in the private placement described in Note 10, but at least
through January 1, 2004.
During February 2003, the Company repaid $140,000 representing a portion of a
loan made by a relative of the Company's Chief Operating Officer. The
outstanding balance to this individual as of March 31, 2003 is $85,000 and is
due on demand.
11
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4--RELATED PARTY TRANSACTIONS (cont'd)
At March 31, 2003, $464,500 of the outstanding amount has been classified as a
current liability as it is due on demand and $1,224,598 has been classified as a
long-term liability as it is subordinated to the convertible debenture.
Interest expense associated with related party loans and advances amounted to
$29,386 and $14,292 for the three months ended March 31, 2003 and 2002,
respectively.
NOTE 5--PROMISSORY NOTES PAYABLE
On March 2, 2001 the Company borrowed $692,809 from an investor group that
included a venture capital fund managed by the Company's Chief Executive
Officer. Such sum is included in promissory notes and debenture payable on the
accompanying consolidated balance sheet. The loan bears interest at 8% per
annum, with a default rate of 12% per annum, and is due five years from original
date of issuance. The Company also granted to this investor group warrants to
purchase 364,694 shares of common stock exercisable at $0.50 per share, which
were exercised in the first quarter of 2002.
The value assigned to detachable warrants of $459,854 is being accreted to
interest expense over the five-year term of the underlying promissory notes. For
the three months ended March 31, 2003 and 2002, the amount accreted to interest
expense was $22,677 and $22,677, respectively. At March 31, 2003, the carrying
value of the notes amounted to $425,714 and is included in the promissory notes
and debenture payable in the accompanying consolidated balance sheet.
NOTE 6--CONVERTIBLE DEBENTURE
The Company funded the acquisition of WellComm by selling a 6% convertible
senior debenture in the aggregate principal amount of $2,000,000 to Palladin
Opportunity Fund LLC. Pursuant to the purchase agreement, the Company also
issued Palladin a warrant 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 any interest under the debenture are payable in full on or before February
3, 2004. Further, outstanding principal and any interest may be converted at any
time at the election of Palladin into common stock. The current conversion price
under the debenture is $3.03. The current conversion price is subject to "reset"
as of August 4, 2003 but only if the closing bid price for the Company's common
stock averaged during a period of 20 consecutive trading days ending on August
3, 2003, is less than the then current conversion price.
The value assigned to the warrant of $890,272 was recorded as a discount to the
debenture and is being accreted to interest expense over the life of the
debenture. For the three months ended March 31, 2003 and 2002, $111,284 and
$74,189, respectively, of the discount, is accreted to interest expense. The
Company also recorded $118,581 and $79,054 of interest expense for the three
months ended March 31, 2003 and 2002, respectively, for the amortization of the
portion of the beneficial conversion value of the debenture. The beneficial
conversion value, which amounted to $948,651, represents the difference between
the fair market value of the common stock on the date the debenture was sold and
the price at which the debt could be converted into common stock. As of March
31, 2003, the carrying value of the debenture amounted to $1,072,703 and is
included in the promissory notes and debenture payable in the accompanying
consolidated balance sheet.
12
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 7--COMMITMENTS AND CONTINGENCIES
Nature of Business
The Company is subject to risks and uncertainties common to growing technology
companies, including rapid technological developments, reliance on continued
development and acceptance of the Internet and health care applications
utilizing the Internet, intense competition and a limited operating history.
Significant Customers
Financial instruments, which may expose the Company to concentrations of credit
risk, consist primarily of accounts receivable. As of March 31, 2003, two
customers represented 20% and 20%, respectively of the total accounts
receivable. For the three months ended March 31, 2003, the Company had one
unrelated customer, which accounted for 43% of total revenues.
Risk Based Contracts
The Company enters into risk-based contracts in certain disease management
arrangements. These contracts are generally for terms of three to five years and
provide that a percentage of the Company's fees may be refunded to a client if
the Company does not save the client a certain percentage of the expenses
incurred by individuals whose health is managed by the Company. As of March 31,
2003, the Company was a party to one risk-based contract, which the Company
expects to implement during the second quarter.
NOTE 8--STOCKHOLDERS' EQUITY
Warrants
The following table summarizes the Company's activity as it relates to its
warrants for the three months ended March 31, 2003:
Balance outstanding at January 1, 2003 2,132,953
Quarter ended March 31, 2003:
Granted --
Exercised --
-------------
Balance outstanding at March 31, 2003 2,132,953
=============
13
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 8--STOCKHOLDERS' EQUITY (cont'd)
Options
The table below summaries the activity in the Company's stock option plans for
the three months ended March 31, 2003:
Non-Qualified Non-Plan
Incentive Options Options Non-Qualified Total
Options
------------------------- -------------------- -------------------- -------------------- --------------------
Outstanding as of
January 1, 2003 735,829 535,973 439,000 1,710,802
Granted 20,000 40,000 -- 60,000
Exercised -- -- -- --
Forfeited/Expired (127,971) (40,000) -- (167,971)
-------------------- -------------------- -------------------- --------------------
Outstanding as of March
31, 2003 627,858 535,973 439,000 1,602,831
==================== ==================== ==================== ====================
Vesting Dates:
December 31, 2003 133,261 157,670 75,834 366,765
December 31, 2004 109,350 47,667 39,168 196,185
December 31, 2005 58,265 19,335 26,668 104,268
December 31, 2006 13,334 -- -- 13,334
December 31, 2007 -- -- -- --
Thereafter -- -- 20,000 20,000
As of March 31, 2003, there were outstanding an aggregate of 902,279 of
exercisable plan and non-plan options with exercise prices ranging from $.01 to
$10.00.
For the three months ended March 31, 2003, the Company recorded $23,942 for
compensation expense in connection with grants to independent consultants.
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. . Had the Company determined
compensation expense base on the fair value at the grant dates for those awards
consistent with the method of SFAS 123, the Company's net loss per share would
have been increased to the following pro forma amounts:
14
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 8--STOCKHOLDERS' EQUITY (cont'd)
Options (cont'd)
For the three For the three
Months ended Months ended
March 31, March 31,
2003 2002
------------------ -------------------
Net loss as reported $ (963,673) $ (2,151,912)
Add back intrinsic value of the options issued to -
employee and charged to operations 163,200
Deduct total stock based employee compensation
expense determined under fair value based methods
for all awards (710,365) (882,286)
------------------ -------------------
Pro forma net loss $ (1,674,038) $ (2,870,998)
================== ===================
Basic and diluted net loss per share as reported $ (.10) $ (.26)
Pro forma basic and diluted net loss per share $ (.18) $ (.35)
NOTE 9--AGREEMENT TO ACQUIRE DxCG, INC.
On November 8, 2002, the Company entered into a merger agreement to acquire
DxCG, Inc. for a total purchase price of approximately $10,000,000, of which the
Company intended to pay $6,000,000 in cash and $4,000,000 in common stock. 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 intended to be
released to DxCG if DxCG terminated the merger agreement because the Company
failed to satisfy certain conditions to closing, including third party financing
for the cash portion of the purchase price. The Company did not secure the
financing by January 31, 2003 and accordingly such agreement was terminated
resulting in the Company charging the $200,000 to earnings.
NOTE 10--SUBSEQUENT EVENTS
Related Party Transactions
During May 2003, the Company's Chief Executive Officer advanced $150,000 to the
Company for working capital. Such advance is due on demand with an interest rate
of 8% per annum.
Private Placement Memorandum
During March 2003, the Company commenced a private placement in order to raise
additional funds. The Company is offering to sell up to 1,000,000 Units of
equity securities, each consisting of one share of common stock and one warrant
to acquire one share of common stock.
15
Item 2. Management's Discussion And Analysis Of Financial Condition And Results
Of Operations
The following discussions of the financial condition and related
results of operations of I-trax, Inc. and its subsidiaries should be reviewed in
conjunction with our financial statements and related notes appearing on the
preceding pages as well as our audited financial statements for the fiscal year
ended December 31, 2002, incorporated into our Form 10-KSB, filed on April 15,
2003.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements, which are based upon
current expectations and involve a number of risks and uncertainties. In order
for I-trax, Inc. 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.
The important factors include our ability to continue as a going concern and our
ability to execute contracts for disease management services and software
technology.
Our Business
I-trax has historically developed enterprise and client server
applications for collecting disease specific data at the point-of-care for
several large hospitals and medical centers. In 2001, we expanded our product
lines by developing additional software applications, adding services, and
completing several strategic acquisitions.
I-trax now provides focused disease management and comprehensive health
management solutions designed to improve the health of the populations we serve
while reducing the cost of medical care. Our solutions are designed to meet the
needs of insurers, employers and consumers seeking to reduce costs and improve
the quality of care by enabling healthcare organizations to evolve from
fragmented care management practices into a cohesive and efficient system of
healthcare management. Our solutions are fully integrated, use a single-data
platform that allows all caregivers to share records and enable our clients to
provide true coordination of care.
Our Services
Our services are divided into three portfolios: Prediction, Prevention
and Care Management. The specific services in each portfolio are:
Prediction
First, we license third party software to analyze our clients'
historical information to predict future healthcare costs. By using predictive
modeling, we identify our clients' future healthcare costs, the health
conditions that will drive those costs and the people within our clients'
populations who are at risk for those conditions.
Prevention
Second, we use what we believe to be state-of-the-art demand management
and nurse triage services to effect our targeted interventions. Our services
incorporate nationally recognized, evidence-based clinical guidelines to ensure
that all caregivers and consumers are following the best practices. We also link
the key stakeholders in this care delivery effort--consumers, physicians and
care managers--through secure, web-based solutions. These solutions facilitate
real-time sharing of information and support the adherence to our population and
disease management programs. Our prevention products and services include:
o MyNurseLine(TM)--24 hours per day, 7 days per week demand management and
nurse triage service staffed by skilled nurses;
o DoctorsLine(TM)--an after-hours custom triage and administrative
outsourcing service;
o Health-e-Community(TM)--a specialized enrollment, marketing and
fulfillment service;
16
o eImmune(R)--a clinical immunization and related adverse events tracking
system;
o Medicive(R) Medical Enterprise Data System--a proprietary software
architecture developed to collect, store, retrieve and analyze a broad
range of information used in the healthcare industry, which serves as the
foundation for our Care Coordination Platform offerings;
o Health-e-Coordinator(TM)--a web-based care management application; o
MyFamilyMD(TM)--a consumer health management portal; and
o CarePrime(R)--a clinical care application for physicians and clinicians.
Care Services
Finally, we offer what we believe to be the industry's most
comprehensive health management and disease management solutions. Our disease
management solutions currently address congestive heart failure (CHF), coronary
artery disease (CAD), asthma, diabetes, lower back pain and chronic obstructive
pulmonary disease (COPD). We also develop programs using evidenced-based
guidelines based on our clients' requests. Health-e-Life Program(TM) is our
comprehensive end-to-end solution for care management.
Listing on the American Stock Exchange
Effective January 3, 2003 we completed a 1-for-5 reverse stock split.
Our board of directors and stockholders authorized the reverse stock split in
connection with the then pending application to list our common stock on the
American Stock Exchange. We began trading on the American Stock Exchange on
January 15, 2003 under the symbol "DMX."
Corporate Overview
I-trax was incorporated in the State of Delaware on September 15, 2000.
We currently have three wholly owned subsidiaries: I-trax Health Management
Solutions, Inc. (formerly known as I-Trax.com, Inc.) ("Health Management"), a
corporation, and iSummit Partners, LLC and WellComm Group, LLC, each a single
member limited liability company. We conduct our operations through Health
Management and WellComm Group, LLC.
Our Customers
As of March 31, 2003, we served approximately 62 customers. Our
customers include physician groups, hospitals, health plans, including plans
providing Medicaid and Medicare covered services, universities and colleges and
agencies and branches of the United States government.
We continue to focus our marketing efforts on the following markets:
health plans and health insurers; self-insured employers; military, government
and public health agencies; college and university student health services; and
hospital and health systems.
Results of Operations
Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002.
Revenue for the three months ended March 31, 2003 was $1,616,131, an
increase of $1,209,774 or 298% from $406,357 for the three months ended March
31, 2002. Total revenue was comprised of two components: (1) prevention and care
services revenue of $701,429; and (2) technology license and services revenue of
$914,702, of which $702,000 represents revenue from the exclusive license of
CarePrime(R) and MyFamilyMD(TM) we granted to UICI and certain related software
development work. We contracted this revenue in the third quarter of 2002 and we
are recognizing it based on delivering required deliverables. We expect that in
future periods we will generate a significant portion of our revenue from
delivery of prevention services, such as MyNurseLine(TM), and care services that
we deliver using the Health-e-Program(TM).
Cost of revenue for the three months ended March 31, 2003 was $316,080,
an increase of 21% from $262,165 for the three months ended March 31, 2002. The
increase is attributable to the personnel costs required to service our
prevention and care services contracts. We expect that in future periods our
cost of revenue will increase
17
or decrease in proportion to volume of business. This is because we expect to
derive a significant portion of our future revenue from prevention and care
services contracts, which require human involvement proportionate to the size of
the contract.
Outsourced research and development costs were $-0- for the three
months ended March 31, 2003 as compared to $119,500 for the three months ended
March 31, 2002, a decrease of 100%. The decrease was attributable in significant
part to a shift of some software development work from a subcontractor to
in-house. Despite the decrease, we expect to continue to spend funds on adding
functionality to our products including to the MyFamilyMD(TM) application by
adding MedWizard(R) tools, on CarePrime(TM) application, which interacts with
MyFamilyMD(TM) and its MedWizard(R) tools, and on Health-e-Coordinator(TM)
application by adding additional disease capabilities. Commencing in the first
quarter of 2003, we began to capitalize certain costs, which are primarily
developer labor costs based on which project the developers were working on and
the stage of development of the applicable project. For the three months ended
March 31, 2003, we capitalized $187,500, which includes outsourced services and
certain internal costs.
General and administrative expenses (excluding salary and related
benefits which are discussed separately below) decreased from $382,119 for the
three months ended March 31, 2002 to $308,504 for the three months ended March
31, 2003, a decrease of 19%. Our ability to reduce general and administrative
expenses is attributable to increased efficiencies and the implementation of
stringent budgetary controls. We believe that currently, we have the resources
to handle increased revenue with minimal incremental fixed costs.
Salary and related benefits were $858,863 for the three months ended
March 31, 2003 as compared to $1,182,899 for the three months ended March 31,
2002. The decrease in salary and related benefits from the three months ended
March 31, 2002 to the three months ended March 31, 2003 was $324,036 or 27%.
Again, the reduction in salary and related benefits costs is a direct result of
continued efforts by us to consolidate certain functions and improve
efficiencies.
Depreciation and amortization expenses were $436,548 for the three
months ended March 31, 2003, as compared to $219,987 for the three months ended
March 31, 2002. The increase is primarily attributable to the amortization of
the value of intangible assets acquired in the WellComm acquisition.
Marketing and advertising expenses were $81,757 for the three months
ended March 31, 2003 as compared to $170,456 for the three months ended March
31, 2002. The decrease of 52% resulted from stringent budgetary constraints.
Interest expense for the three months ended March 31, 2003 was
$320,527, increasing by $135,768 or 74% from $184,759 for the three months ended
March 31, 2002. For the three months ended March 31, 2003, interest expense
includes the amortization and accretion on items related to the $2,000,000
debenture as follows: $118,581 associated with the beneficial conversion feature
of the debenture; and $133,961 associated with the value of the warrants issued
with the debenture. The balance of $67,985 is associated with interest on other
debt and related party loans. Generally, the beneficial conversion value
represents the benefit to the investor that results from purchasing an
immediately convertible debenture with a conversion price that is less than fair
market value on the date of purchase after first allocating a portion of the
proceeds from the debenture to the associated warrants.
Amortization of debt issuance and conversion costs was $57,525 and
$36,384 for the three months ended March 31, 2003 and 2002, respectively. These
were costs incurred in selling the $2,000,000 debenture to Palladin and are
being amortized over the two year life of the debenture.
During the quarter ended March 31, 2003, in connection with the
termination of our agreement to acquire DxCG, Inc., a Boston-based predictive
modeling company, we charged $200,000 to earnings. This sum was released to DxCG
following DxCG's termination of the merger agreement because certain conditions
to closing were not satisfied, including third party financing for the cash
portion of the purchase price.
Our net loss was $963,673 for the three months ended March 31, 2003 as
compared to a net loss of $2,151,912 the three months ended March 31, 2002, a
decrease of 55%.
18
Liquidity and Capital Resources
Working Capital Deficiency
As of March 31, 2003, we had a working capital deficiency of
$2,608,126. Through March 31, 2003 and the date of this report, we have been
able to finance these deficits with loans from our senior management team, their
affiliates and a director. Although we continue to run cash flow deficits as of
the date of this report, we also continue to make progress towards producing
positive cash flow from operations and we expect, although no assurances exist,
that we will reach operating cash flow break even in the third quarter of 2003.
Additionally, during the three months ended March 31, 2003 and through
the date of this report, our Chief Executive and Operating Officers, along with
certain stockholders advanced to us in the form of loans $729,500 for working
capital. Our Chief Executive and Operating Officers have committed to continue
to fund us until we generate positive cash flow from operations and raise
additional funds in the private placement, which we commenced subsequent to
year-end, but at least through January 1, 2004.
Sources and Uses of Cash
Despite our negative cash flows from operations, which amounted to
$576,361 for the three months ended March 31, 2003 and $1,543,168 for the three
months ended March 31, 2002, we have been able to secure funds to support our
operations. During the quarter ended March 31, 2002, we secured funding by
selling equity securities and a debenture, which aggregated approximately
$3,200,000. Of the $3,200,000, we used approximately $2,200,000 to acquire
WellComm and the remainder to fund operations. During the quarter ended March
31, 2003, we also received (net of repayments) $439,500 from officers and
related parties.
As of March 31, 2003, our current liabilities were $3,312,655 of which
$464,500 is due to related parties. The remainder of current liabilities of
approximately $2,800,000 is made up, primarily, of trade payables of
approximately $1,000,000 accrued expenses of approximately $960,000, $300,000
credit line payable, which was assumed with the acquisition of WellComm and
approximately $530,000 of deferred revenue. We have good relationships with all
of our vendors.
As of March 31, 2003, the face value of our long-term debt amounted to
approximately $3,700,000. This sum is comprised of 6% convertible senior
debenture in the aggregate principal amount of $2,000,000 (but carrying value of
$1,072,703) held by Palladin, for which principal and deferred interest is not
due until February 3, 2004, $692,809 (but carrying value of $425,714) held by a
group of investors led by Psilos Group Partners, L.P., which includes Nantucket
Healthcare Ventures I, L.P., a venture fund managed by our Chief Executive
Officer, for which principal and interest is not due until March 2006, and
approximately $1,200,000 held by executive officer and members of our Board of
Directors.
Critical Accounting Policies
Impairment of Goodwill and Intangible
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.
Revenue Recognition
We derive our revenue pursuant to different type contracts, including
perpetual software licenses, subscription licenses and custom development
services, all of which may also include support services revenue such as
licensed software maintenance, training, consulting and web hosting
arrangements. 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 our management made different judgments or
utilized different estimates.
19
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 the fee and we do not apply separate
accounting guidance to the hardware and software elements. For hardware
transactions where no software is involved we apply the provisions of Staff
Accounting Bulletin 101 "Revenue Recognition." In addition, we apply the
provisions of Emerging Issues Task Force 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 product is delivered to a common
carrier.
At the time of the transaction, we assess whether the fee associated
with our revenue transactions is fixed and determinable and whether or not
collection is reasonably assured. We assess whether the fee is fixed and
determinable based on the payment terms associated with the transaction. If a
significant portion of a fee is due after our normal payment terms, which are 30
to 90 days from invoice date, we account for the fee as not being fixed and
determinable. In these cases, we recognize revenue as the fees become due.
We assess collection based on a number of factors, including past
transaction history with the customer and the credit-worthiness 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 arrangements with multiple obligations (for example, undelivered
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. This means that we defer revenue from the arrangement fee
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 based on hourly rates, and
we generally recognize revenue as these services are performed. However, at the
time of entering into a transaction, we assess whether or not 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 entire fee using the percentage of
completion method. We estimate the percentage of completion based on our
estimate of the total costs estimated to complete the project as a percentage of
the costs incurred to date and the estimated costs to complete.
We recognize service revenue as the services are rendered. We contracts
with our customers to provide services based on an established monthly fee, a
per-call charge or a combination of both.
Although as of the date of these financials, we have not entered into
any risk-based contracts, we expect that in the very near future it will do so.
These types of contracts are generally for terms of three to five years, provide
for an automatic renewal and typically provide that a percentage of our fees may
be refundable ("performance based") based on achieving a targeted percentage
reduction in the customer's healthcare costs.
20
Item 3. Controls and Procedures
Within the 90-day period prior to the filing of this report, we carried
out an evaluation under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer of the effectiveness of our
disclosure controls and procedures. Based on this evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded that our disclosure
controls and procedures are effective to ensure that information we are required
to disclose in reports filed or submitted under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms. Subsequent to
the date of this evaluation, there were no significant changes in our internal
controls or in other factors that could significantly affect the disclosure
controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
We did not default upon any senior securities during the quarter ended
March 31, 2003.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
We filed a current report on Form 8-K with the Securities and Exchange
Commission on February 12, 2003 to report the dismissal of
PricewaterhouseCoopers, LLP as our auditors.
We filed a current report on Form 8-K with the Securities and Exchange
Commission on February 19, 2003 to report the engagement of Goldstein Golub
Kessler LLP as our auditors.
21
SIGNATURE
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
I-TRAX, INC.
Date: May 14, 2003 By: /s/ Frank A. Martin
---------------------
Name: Frank A. Martin
Title: Chief Executive Officer
22
CERTIFICATION
I, Frank A. Martin, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of I-trax, Inc.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 14, 2003
/s/ Frank A. Martin
-------------------
Frank A. Martin
Chief Executive Officer
23
CERTIFICATION
I, Anthony Tomaro, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of I-trax, Inc.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 14, 2003
/s/ Anthony Tomaro
-------------------
Anthony Tomaro, CPA
Chief Financial Officer
24