UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: June 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT
Commission File Number: 0-30275
I-TRAX.COM, INC.
------------------------------------------
(Exact name of small business issuer in its charter)
Delaware 13-3212593
------------------------------ -------------------
(State or other jurisdiction) (I.R.S. Employer
Identification No.)
One Logan Square, 130 N. 18th Street, Philadelphia PA 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 June 30, 2000, the Registrant had
17,828,084 shares of its $0.001 par value Common Stock outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X ]
INDEX
Page
PART I FINANCIAL INFORMATION.............................................. 2
Item 1. Financial Statements ............................................ 2
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................16
PART II OTHER INFORMATION.................................................21
Item 1. Legal Proceedings................................................21
Item 2. Changes in Securities............................................21
Item 3. Defaults upon Senior Securities..................................22
Item 4. Submission of Matters to a Vote of Security Holders..............22
Item 5. Other Information................................................22
Item 6. Exhibits and Reports on Form 8-K.................................22
1
Part I Financial Statements
Item 1. Financial Statements
I-TRAX.COM, INC.
FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
Page
Number
Balance sheets at June 30, 2000 (unaudited) and
December 31, 1999 3
Statements of operations for the three months
ended June 30, 2000 and 1999 (unaudited) 4
Statements of operations for the six months
ended June 30, 2000 and 1999 (unaudited) 5
Statement of stockholders' equity for the
six months ended June 30, 2000 (unaudited) 6
Statements of cash flows for the six months
ended June 30, 2000 and 1999 (unaudited) 7
Notes to financial statements (unaudited) 8 to 15
2
I-TRAX.COM, INC.
BALANCE SHEETS
ASSETS
June 30,
2000 December 31
(unaudited) 1999
----------------- ---------------
Current assets:
Cash $ 84,699 $ 195,728
Accounts receivables, net 253,617 412,038
Prepaid expenses 30,382 18,770
Other receivables 61,960 -
----------------- ---------------
Total current assets 430,658 626,536
----------------- ---------------
Property and equipment, net 231,873 36,120
Web site development costs 210,750 6,000
Security deposits 128,162 40,162
----------------- ---------------
Total assets $ 1,001,443 $ 708,818
================= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 444,080 $ 192,578
Convertible note payable - 37,500
Capital lease payable 5,547 -
Due to related parties 48,048 66,048
----------------- ---------------
Total current liabilities 497,675 296,126
----------------- ---------------
Capital lease obligation, net of current portion 28,743 -
----------------- --------------
Total liabilities 526,418 296,126
----------------- ---------------
Commitments & Contingencies (Note 5) - -
Stockholders' Equity:
Preferred Stock - $.001 par value, 2,000,000 shares authorized,
-0- issued and outstanding -
Common Stock - $.001 par value, 50,000,000 shares authorized,
17,828,084 and 16,028,084 issued and outstanding, respectively 17,828 16,028
Additional paid in capital 3,076,380 1,043,299
Accumulated deficit (2,619,183) (646,635)
----------------- --------------
Total stockholders' equity 475,025 412,692
----------------- ---------------
Total Liabilities and Stockholders' Equity $ 1,001,443 $ 708,818
================== ===============
See accompanying notes to financial statements (unaudited)
3
I-TRAX.COM, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
Three months Three months
ended ended
June 30, June 30,
2000 1999
Revenue $ 64,227 $ 12,869
------------ ------------
Operating expenses:
Cost of revenue 45,513 64,216
General and administrative 1,143,983 299,684
Research and development -- 47,881
Marketing and advertising 78,295 3,342
------------ ------------
Total operating expenses 1,267,791 415,123
------------ ------------
Loss before other income (expenses)
and provision for income tax (1,203,564) (402,254)
------------ ------------
Other income (expenses):
Miscellaneous income 46,107 --
Interest expense (1,651) --
Provision for contingent liabilities (176,500) --
------------ ------------
Total other income (expenses) (132,044) --
------------ ------------
Loss before provision for income taxes (1,335,608) (402,254)
------------ ------------
Provision for income taxes -- --
------------ ------------
Net loss $(1,335,608) $ (402,254)
============ ============
Basic:
Net loss $ (.08) $ (.05)
============ ============
Weighted average number of shares
outstanding 16,928,084 8,852,751
============ ============
See accompanying notes to financial statements (unaudited)
4
I-TRAX.COM, INC.
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
For the six For the six
months ended months ended
June 30, 2000 June 30, 1999
------------ ------------
Revenue $ 64,227 $ 236,819
------------ ------------
Operating expenses:
Cost of revenue 45,513 188,299
General and administrative expenses 1,748,295 400,435
Research and development -- 89,588
Marketing and advertising 122,152 11,583
------------ ------------
Total operating expenses 1,915,960 689,905
------------ ------------
Loss before other income (expenses)
and provision for income taxes (1,851,733) (453,086)
------------ ------------
Other income (expenses):
Miscellaneous income 57,360 --
Interest expense (1,675) (168)
Provision for contingent liabilities (176,500) --
------------ ------------
Total other income (expenses) (120,815) (168)
------------ ------------
Loss before provision for income taxes (1,972,548) (453,254)
------------ ------------
Provision for income taxes --
------------ ------------
Net loss $ (1,972,548) $ (453,254)
============ ============
Basic:
Net loss $ (.08) $ (.05)
============ ============
Weighted average number of
common shares outstanding 17,378,084 8,852,751
============ ============
See accompanying notes to financial statements (unaudited).
5
I-TRAX.COM, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
Additional Total
Common Stock Paid-in Accumulated Stockholders'
Shares Amount Capital Deficit Equity
----------- ----------- -------------- ------------- --------------
Balances at December 31, 1999 16,028,084 $ 16,028 $ 1,043,299 $ (646,635) $ 412,692
Sale of common stock,
net of costs 1,800,000 1,800 1,793,081 - 1,794,881
Grant of Non-qualified and
Non-plan options to consultants
as consideration for services 240,000 240,000
Net loss for the six months
ended June 30, 2000 - - - (1,972,548) (1,972,548)
------------ ----------- ------------- ------------- ----------------
Balances at June 30, 2000 17,828,084 $ 17,828 $ 3,076,380 $ (2,619,183) $ 475,025
============ =========== ============= ============= ==============
See accompanying notes to financial statements (unaudited)
6
I-TRAX.COM, INC
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
Six months Six months
ended ended
June 30, June 30,
2000 1999
----------- -----------
Cash flows from operating activities:
Net loss $(1,972,548) $ (453,254)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization 15,062 1,890
Grant of Non-Qualified and Non-Plan options as
consideration for services 240,000 --
Issuance of common stock as consideration for services
Provision for contingent liabilities 164,000 --
Decrease (increase) in:
Accounts receivable 158,421 233,632
Prepaid expenses (5,612) (15,167)
Other receivables (61,960) --
Security deposits (88,000) --
(Decrease) increase in:
Accounts payable and accrued expenses 87,502 47,074
----------- -----------
Net cash used for operating activities (1,463,135) (127,325)
----------- -----------
Cash flows from investing activities:
Purchase of property, equipment and website costs (387,275) (29,520)
----------- -----------
Net cash used for investing activities (387,275) (29,520)
----------- -----------
Cash flows from financing activities:
(Repayment to) proceeds from notes payable (37,500) 150,000
Repayments to related parties (18,000) (2,500)
Net proceeds from sale of common stock 1,794,881 --
----------- -----------
Net cash provided by financing activities 1,739,381 147,500
----------- -----------
Net decrease in cash (111,029) (9,345)
Cash and cash equivalents at beginning of period 195,728 52,883
----------- -----------
Cash and cash equivalents at end of period $ 84,699 $ 43,538
=========== ===========
Supplemental disclosure of non-cash flow information:
Cash paid during the period for:
Interest $ 1,675 $ 168
=========== ===========
Income taxes $ -- $ --
=========== ===========
Schedule of non-cash investing activities:
Acquisition of office equipment in connection
with capital lease obligation $ 34,290 $ --
=========== ===========
See accompanying notes to financial statements (unaudited).
7
I-TRAX.COM, INC.
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED
NOTE 1-- ORGANIZATION
Nature of Business
I-Trax.com, Inc. (the "Company") was incorporated in the state of
Delaware on May 23, 1969 under the name Marmac Corporation. During
December 1979, the Company changed its name to Ibex Industries
International, Inc. During April 1996, in connection with the
acquisition of assets and the assumption of liabilities of various
medical practices (which reverted back to the original owners during
1997), the Company changed its name to U.S. Medical Alliance, Inc. The
Company, on August 27, 1999, changed its name to I-Trax.com, Inc.
prior to the merger discussed below.
Prior to the Company's considering a merger with Memberlink, on
September 3, 1999, it had entered into a Software and Proprietary
Product Corporate License Agreement ("License Agreement), a Technical
Service Agreement ("Technical Agreement") and a Management Service
Agreement ("Management Agreement") with Memberlink for the use and
exploitation of certain proprietary software created by Memberlink. In
consideration for the technical and management support from
Memberlink, the Company paid a $10,000 per month management fee to
Memberlink and issued an aggregate of 2,000,000 shares of its common
stock to it's officers and to key personnel responsible for the
successful implementation and customization of the proprietary
software. As consideration for the license, the Company issued
3,000,000 shares to Member Link Systems, Inc. ("Memberlink"), which
were subsequently cancelled as a result of the merger discussed below.
Pursuant to a merger agreement dated as of December 14, 1999 (with an
effective date of December 30, 1999), the Company issued 8,000,082
shares of its common stock in exchange for all the issued and
outstanding common stock of Member-Link Systems, Inc. ("Memberlink").
Memberlink, also a Delaware corporation, was a health information
technology company which had developed certain software technology
which it sold and licensed to various organizations, including but not
limited to governmental agencies.
8
I-TRAX.COM, INC.
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED
NOTE 1-- ORGANIZATION (cont'd)
Nature of Business (cont'd)
The merger of the Company and Memberlink has been treated as a
recapitalization of Memberlink with Memberlink as the accounting
acquirer (reverse acquisition). The accompanying financial statements
reflect this transaction as if it had occurred on January 1, 1998.
Such transaction is considered a capital transaction whereby
Memberlink contributed its stock for the net assets of the Company.
Upon consummation of the merger on December 30, 1999, the shareholders
of Memberlink received 8,000,082 shares of the Company's common stock,
which in addition to the previously owned shares represented 60% of
the outstanding common stock immediately after the merger.
Simultaneously with the merger, Memberlink's former President was
elected as the Company's President. Upon consummation of the merger
transaction the Company was recapitalized and Memberlink ceased to
exist with the Company being the surviving entity. No goodwill or
intangibles were recorded as the public shell (the Company) only had
nominal assets and based on the reverse acquisition accounting rules,
the merger is valued at the net tangible assets of the Company.
The Company has incurred substantial losses since incorporation. As of
June 30, 2000, the accumulated deficit was $2,619,183. Moreover, the
Company expects that its operating losses will continue for the
foreseeable future. The Company's ability to continue as a going
concern is primarily based on raising sufficient equity to meet its
objectives
NOTE 2-- INTERIM RESULTS AND BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instruction 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 June 30, 2000 and the results of
the operations and cash flows for the three and six month periods
ended June 30, 2000 and 1999. The results for the three and six month
periods ended June 30, 2000 are not necessarily indicative of the
results to be expected for any subsequent quarter or the entire fiscal
year ending December 31, 2000. The balance sheet at December 31, 1999
has been derived from the audited financial statements at that date.
9
I-TRAX.COM, INC.
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED
NOTE 2-- INTERIM RESULTS AND BASIS OF PRESENTATION (cont'd)
The Company recognizes revenues in accordance with Statement of
Position 97-2 "Software Revenue Recognition" as further modified by
Statement of Position 98-9 "Modification of SOP 97-2, "Software
Revenue Recognition with Respect to Certain Transactions". SOP 97-2
was effective January 1, 1998 and generally requires revenue earned on
software arrangements involving multiple elements such as software
products, upgrades, enhancements, post-contract customer support,
installation and training to be allocated to each element based on the
relative fair value of the elements. SOP 98-9 amends SOP 97-2 to
require that an entity recognize revenue for multiple element
arrangements by means of the "residual method" when (1) there is
vendor-specific objective evidence ("VSOE") of the fair values of all
the undelivered elements that are not accounted for by means of
long-term contract accounting, (2) VSOE of fair value does not exist
for one or more of the delivered elements, and (3) all revenue
recognition criteria of SOP 97-2 (other than the requirement for VSOE
of the fair value of each delivered element) are satisfied.
Revenue from software development contracts is recognized on a
percentage-of-completion method with progress to completion measured
based upon labor hours incurred or achievement of contract milestones.
Revenue from re-sale of hardware and software, obtained from vendors,
is recognized at the time hardware and software is delivered to
customers.
Deferred revenue represents funds received in advance in excess of
revenue recognized.
Software Development Costs
In accordance with the provisions of Statement of Financial Accounting
Standard (SFAS) No. 86, Accounting for the Costs of Computer Software
to be Sold, Leased or Otherwise Marketed, the Company capitalizes
software development and production costs once technological
feasibility has been achieved. Software development costs incurred
prior to achieving technological feasibility are included in research
and development expense in the accompanying statement of operations.
Capitalized software development costs are reported at the lower of
unamortized cost or net realizable value. Commencing upon the initial
product release or when software development revenue has begun to be
recognized, these costs are amortized, based on current and future
revenue for each product with an annual minimum equal to the
straight-line amortization over the remaining estimated economic life
of the product, generally two to five years.
10
I-TRAX.COM, INC.
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2-- INTERIM RESULTS AND BASIS OF PRESENTATION (cont'd)
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the
Securities and Exchange Commission's rules and regulations. It is
suggested that these unaudited financial statements be read in
conjunction with our audited financial statements and notes thereto
for the year ended December 31, 1999 as included in our report on Form
10-SB filed on April 10, 2000.
NOTE 3-- CONVERTIBLE NOTE PAYABLE
The $37,500 convertible note payable was repaid in full during the
quarter ended March 31, 2000.
NOTE 4-- DUE TO RELATED PARTIES
Due to related parties as of June 30, 2000 amounting to $48,048 is
comprised of the following:
i) Advances made by a former officer of Memberlink amounting to
$35,683. The former officer and current shareholder of the
Company had agreed to a repayment schedule at a rate of
$3,000 per month until fully paid, without interest,
commencing April 2000. During July 2000, such note was
converted into common stock in connection with the Company's
confidential private placement memorandum. (See note 6 (c)).
ii) Advances made by a current officer of the Company
(previously an officer of Memberlink) amounting to $679. The
amount is due on demand and is non-interest bearing.
iii) Advances made by a relative of the officer discussed in (ii)
above amounting to $11,686. The amount is also due on demand
and is non-interest bearing.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
a) Lack of Insurance
The Company, through March 14, 2000, did not maintain any liability
insurance or any other form of general insurance. Although the Company
is not aware of any claims resulting from product malfunctions or any
other type, there is no assurance that none exists.
b) Significant customers and vendors
For the three and six months ended June 30, 2000, the Company had two
unrelated customers, which accounted for 52% and 48% of total
revenues. For the three and six months ended June 30, 1999, the
Company had one unrelated customer, which accounted for 100% and 86%
of total revenues. As of June 30, 2000, the Company had three
unrelated customers, which accounted for 13%, 13% and 64%,
respectively of accounts receivables.
11
I-TRAX.COM, INC.
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 - COMMITMENTS AND CONTINGENCIES (cont'd)
c) Office Lease
On October 22, 1999, the Company entered into a non-cancelable lease
agreement for its technology and product development office pursuant
to a five year lease expiring October 31, 2004 with annual rent at
approximately $162,000 before annual escalations.
On April 10, 2000, the Company entered into a non-cancelable lease
agreement for its executive offices pursuant to a five year lease
expiring June 29, 2005 with annual rent of approximately $123,000 per
year before annual escalations.
The Company's approximate future minimum rental payments under
non-cancelable operating leases in effect on June 30, 2000 are as
follows:
2000 $ 189,888
2001 292,005
2002 299,315
2003 306,804
2004 284,152
Thereafter 66,390
------------
$ 1,438,554
Prior to October 1999, the Company rented office space on a month to
month basis at a rate of approximately $2,500 per month.
Rent expense for the three months ended June 30, 2000 and 1999
amounted to approximately $58,000 and $10,500, respectively. Rent
expense for the six months ended June 30, 2000 and 1999 amounted to
approximately $102,000 and $18,000, respectively.
d) Employment Agreements
i) On June 1, 1999, Memberlink entered into three employment
agreements with certain officers of the Company. The employment
agreements expire on May 31, 2002 with annual salaries ranging from
$125,000 to $175,000. Subsequent to December 31, 1999, the Company
began renegotiating two of these employment agreements. The third of
these employment agreements was terminated pursuant to a Settlement
Agreement effective April 4, 2000. In the Settlement Agreement, the
Company agreed to pay the terminated employee $50,000, payable in
$10,000 monthly installments commencing April 15, 2000 as settlement
payments for which such employee is to continue to render services as
requested by the Company during the period of such installments. The
Company also agreed to arrange for the sale of 70,000 shares of common
stock in the Company held by the employee at a price of $1.25 per
share which was deemed to be the market value at date of settlement.
12
I-TRAX.COM, INC.
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 - COMMITMENTS AND CONTINGENCIES (cont'd)
d) Employment Agreements (cont'd)
ii) The Company entered into an employment agreement on November 29,
1999, with an individual to act as the Company's Chief Medical Officer
at an annual salary of $85,000. In addition, the Company agreed to
grant options to purchase 100,000 shares of common stock in accordance
with the Company's newly established 2000 Equity Compensation Plan
(see note 6(c)). Such options will vest in increments to be
determined, but in no event, later than November 29, 2002.
e) Judgments
During 1998, several judgments were entered against the Company while
it was operating as U.S. Medical Alliance, relating to, among other
things, the Company's prior line of business of managing physician
practices. The allegations made in the underlying suits relate to
wrongful discharge, general breach of contract, breach of equipment
lease agreements and miscellaneous vendor claims. The aggregate amount
of such judgements entered against the Company and certain associated
physicians was approximately $600,000. As of June 30, 2000, the
Company has settled one of the judgements of $43,875 for $35,000. Such
payment has been applied first to the $22,500 reserve the Company had
established as of December 31, 1999 with the remaining balance of
$12,500 charged to operations.
The remaining outstanding judgments are currently being negotiated for
settlements. The Company estimates that the remaining judgments will
be settled for an aggregate of approximately $164,000, for which an
accrual has been made as of June 30, 2000 and included in accounts
payable and accrued expenses.
f) Profit sharing plan
During the second quarter 2000, the Company established a 401(k)
profit sharing plan covering certain qualified employees, which
includes employer participation in accordance with the provisions of
the Internal Revenue Code. The plan allows participant to make pretax
contributions and the Company matches certain percentages of employee
contributions depending on a number of factors including the
participant's length of service. The profit sharing portion of the
plan is discretionary and noncontributory. All amounts contributed to
the plan are deposited into a trust fund administered by an
independent trustee. As of June 30, 2000 no contributions have been
made by the Company.
g) Capital lease obligation
In April 2000, the Company acquired a telephone system for $34,290 by
entering into capital lease obligations with interest at approximately
10.1% per annum, requiring 60 monthly payments of $731 which include
principal and interest. The lease is secured by the related equipment.
13
I-TRAX.COM, INC.
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 - COMMITMENTS AND CONTINGENCIES (cont'd)
g) Capital lease obligation (cont'd)
At June 30, 2000, the aggregate future minimum lease payments due
pursuant to the above capital lease obligations are as follows:
Total minimal lease payments $ 43,854
Less: Amounting representing interest 9,564
-------------
Present value of net minimum lease payments $ 34,290
=============
At June 30, 2000 computer equipment under capital leases are carried
at a book value of $34,290.
NOTE 6-- STOCKHOLDERS' EQUITY
a) Sale of common stock
During January and February 2000, the Company sold an aggregate of
1,800,000 shares of its common stock at $1 per share yielding net
proceeds of approximately $1,794,881 after certain offering expenses.
Such shares were sold pursuant to Rule 506 of Regulation D promulgated
under the Securities Act of 1933.
b) 2000 Equity Compensation Plan
During February 2000 (as amended during March 2000), the Company
established the 2000 Equity Compensation Plan (the "Plan") to provide
(i) designated employees of the Company and its subsidiaries, (ii)
certain consultants and advisors who perform services for the Company
or its subsidiaries, and (iii) non-employee members of the Board of
Directors of the Company with the opportunity to receive grants of
incentive stock options, non-qualified stock options and restricted
stock. The aggregate number of shares of common stock of the Company
that may be issued or transferred under the Plan is 3,000,000 shares.
The maximum aggregate number of shares of common stock that shall be
subject to grants made under the Plan to any individual during any
calendar year shall be 350,000 shares. The exercise price of any
incentive stock option granted under the plan shall not be less than
the fair market value of the stock on the date of grant, as determined
in good faith be the board of directors.
Through June 30, 2000, the Company has granted an aggregate of
1,505,500 incentive and non-qualified stock options pursuant to the
above plan with exercise prices ranging between $1 and $2 per share.
Such options are subject to various vesting periods ranging from June
2000 to May 2003.
In addition, during the six months ended June 30, 2000, the Company
granted 265,000 non-plan options to consultants. For the three and six
months ended June 30, 2000, the Company recorded $127,500 and $240,000
consulting expenses on account of such options.
14
I-TRAX.COM, INC.
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 6-- STOCKHOLDERS' EQUITY (cont'd)
b) 2000 Equity Compensation Plan (cont'd)
During 2000, FAS No. 123, "Accounting for Stock-Based Compensation,"
became effective for the Company. FAS 123, which prescribes the
recognition of compensation expense based on the fair value of options
on the grant date, allows companies to continue applying APB 25 if
certain pro forma disclosures are made assuming hypothetical fair
value method application. The Company has elected not to disclose any
pro forma disclosures since it has determined that the hypothetical
fair value of the options is equal to or less than the exercise price
of the options.
c) Confidential Private Placement Memorandum
During May 2000, the Company commenced the May 2000 Confidential
Private Placement Memorandum ("the Offering") pursuant to Rule 506 of
Regulation D under the securities act of 1933. The offering was
initially comprised of 1,000,000 shares of its $.001 par value common
stock at $2 per share. As of June 30, 2000, no shares were sold by the
Company. Through the middle of July, the Company has sold an aggregate
of 674,750 shares yielding proceeds of $1,349,500. During July 2000,
the Board of Directors approved an amendment to the offering by
increasing the number of shares offered from 1,000,000 to 2,500,000
with the same $2 per share price.
NOTE 7-- SUBSEQUENT EVENT
Letter of Intent
During July 2000, the Company entered into a non-binding letter of
intent to exchange its common stock for all outstanding membership
interest of iSummit, LLC, a privately held, New York City based
company doing business under the name MyFamilyMD. As a result of this
transaction, MyFamilyMD will become wholly owned subsidiary of the
Company.
The Company expects to issue up to five million shares of its common
stock in this transaction. Two million of the five million shares are
forfeitable depending on whether MyFamilyMD achieves certain
performance targets mutually established by the parties.
15
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Basis of Presentation
The following discussion of the financial condition and related
results of operations of I-Trax.com, Inc. (the "Company") should be reviewed in
conjunction with the financial statements of the Company and related notes
appearing on the preceding pages as well as the Company's audited financial
statement for the fiscal year ended December 31, 1999, attached to our
Registration Statement on Form 10-SB, filed on April 10, 2000, and the Company's
unaudited financial statements for the fiscal quarter ended March 31, 2000.
Unaudited results of operations for the three and six months periods
ended June 30, 2000 are compared to the unaudited results of operations for the
comparable periods ended June 30, 1999. Such information is based upon the
historical financial information available as of the dates indicated. Results of
operations for the three and six month periods ended June 30, 2000 are not
necessarily indicative of results to be attained for any other period.
Statements regarding the Company's expectations as to financial
results and other aspects of its business set forth herein or otherwise made in
writing or orally by the Company may constitute forward looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Although the Company believes that its expectations are based on reasonable
assumptions within the bounds of its knowledge of its business and operations,
there can be no assurance that actual results will not differ materially from
its expectations. Factors that might cause or contribute to such differences
include, but are not limited to, uncertainty of future profitability, changing
economic conditions and demand for the Company's products.
Introduction
We were incorporated in the State of Delaware under the name of
Marmac Corporation in May 1969. In December 1979, we changed the Company's name
to Ibex Industries International, Inc. On April 1, 1996, we purchased the assets
of certain physician practices, changed the Company's name to U.S. Medical
Alliance, Inc., and commenced operations as a physician practice management
company.
As U.S. Medical Alliance, we completed one additional physician
practice acquisition. However, we did not have adequate liquidity and capital
resources to withstand the downturn in the physician practice management
industry, nor the ability to acquire profitable physician practices.
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During 1997, the Company, formerly known as US Medical Alliance,
Inc., ceased doing its business activities as a physician practice management
company and embarked on a program of winding down such activities, returning
physician practice assets to physicians in exchange for cancellation of stock in
the Company issued for such assets, and settling its obligations. During 1998,
the Company had no operations. In August, 1999, six principal stockholders of
the Company purchased 4,000,000 shares of the Company's Common Stock for
$400,000 to raise working capital which enabled the Company to enter into a
license agreement, a technical services agreement and a management services
agreement with Member-Link Systems, Inc. ("Member-Link"), a health information
technology company, to own and develop the Internet application of an
immunization tracking system known as "I-Trax." As consideration for these
agreements, we issued 3,000,000 shares of our Common Stock to Member-Link and an
aggregate of 2,000,000 shares of our Common Stock to certain executive officers
of Member-Link. We also changed our name to "I-Trax.com, Inc." on August 27,
1999.
Effective as of December 30, 1999, Member-Link merged with and into
us pursuant to a Merger Agreement dated as of December 14, 1999. In the merger,
each of the 1,809,686 outstanding shares of Common Stock of Member-Link was
converted into a right to receive 4.4207 shares of our Common Stock. An
aggregate of 8,000,082 shares of our Common Stock was issued in the merger. The
3,000,000 shares of our Common Stock held of record by Member-Link at the time
of the merger were canceled. As a further consequence of the merger, each of the
license agreement, the technical services agreement and management services
agreement were canceled.
The Company believes that the merger of Member-Link into the Company
effective as of December 30, 1999 will have substantial impact on its future
operating results.
Overview
The Company has historically developed enterprise or client server
applications for collecting disease specific data at the point of care. In the
first fiscal quarter of 2000, the Company began to develop its Internet
applications. No such Internet applications have been deployed in this fiscal
quarter. The Company intends to continue to increase its expenditures primarily
in the areas of product development, client services, business development, and
sales and marketing. As a result, the Company expects to continue to incur
substantial operating losses over the next nine to twelve months.
The Company's current primary sources of revenues are license fees
and product development fees it charges its customers. In the future, the
Company expects to generate a significant portion of its revenue from
subscriptions to the Company's products delivered over the Internet.
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Results of Operations
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30,
1999. Total revenues for the six-month period ended June 30, 2000 decreased to
$64,227 as compared to $236,819 for the six-month period ended June 30, 1999,
due primarily to the Company's continued migration to an Internet model as well
as normal sales cycles. Cost of revenue was $45,513 for the six-month period
ended June 30, 2000 as compared to $188,299 for the prior comparable period,
consisting primarily of computer hardware, networking and consulting.
The aggregate operating expenses, net of cost of revenue for the
six-month period ended June 30, 2000 increased to $1,870,447 as compared to
$501,606 for the prior comparable period. The significant increase in the
aggregate operating expenses, net of cost of revenue was due primarily to the
Company's selling, general and administrative expenses, which equaled $1,748,295
during this period as compared to $400,435 for the prior comparable period.
Selling, general and administrative expenses consisted primarily of compensation
for legal, finance, sales, management, travel, rent, telephone and consulting
services. This increase resulted primarily from increased costs necessary to
support the growth of the Company's business activities. The Company intends to
continue to increase the amounts spent in these categories in future periods to
support continued growth and expansion.
The Company did not incur any research and development expenses for
the six-month period ended June 30, 2000, as compared to $89,588 for the
six-month period ended June 30, 1999. Although the Company has expensed its
research and development costs in the past, the Company intends to capitalize a
significant percentage of the costs associated with the development of its
Internet versions of its existing products in the future.
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999.
Total revenues for the three-month period ended June 30, 2000
increased to $64,227 as compared to $12,869 for the three-month period ended
June 30, 1999. Cost of revenue was $45,513 for the three-month period ended June
30, 2000 as compared to $64,216 for the prior comparable period, consisting
primarily of computer hardware, networking and consulting.
The aggregate operating expenses, net of cost of revenue for the
three-month period ended June 30, 2000 increased to $1,222,278 as compared to
$350,907, net of cost of revenue for the prior comparable period. The
significant increase in the aggregate operating expenses was due primarily to
the Company's selling, general and administrative expenses, which equaled
$1,143,983 during this period as compared to $299,684 for the prior comparable
period. Selling, general and administrative expenses consisted primarily of
compensation for legal, finance, sales, management, travel, rent, telephone and
consulting services. This increase resulted primarily from increased costs
necessary to support the growth of the Company's business activities. The
Company intends to continue to increase the amounts spent in these categories in
future periods to support continued growth and expansion.
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The Company did not incur any research and development expenses for
the three-month period ended June 30, 2000, as compared to $47,881 for the
three-month period ended June 30, 1999. Although the Company has expensed its
research and development costs in the past, the Company intends to capitalize a
significant percentage of the costs associated with the development of its
Internet versions of its existing products in the future.
Liquidity and Capital Resources
The Company's accumulated deficit of $2, 619,183 from inception
through June 30, 2000 has been funded through capital contributions from the
sale of its Common Stock. On February 20, 2000, the Company completed a private
placement of 1,800,000 shares of its Common Stock at $1.00 per share, yielding
to the Company aggregate proceeds of $1,800,000, to fund the next phase of the
Company's expansion.
In addition, in May 2000 the Company initiated a second private
placement of 1,000,000 shares of its Common Stock at $2.00 per share, seeking to
raise an additional $2,000,000. No money was raised pursuant to this private
placement during the quarter ended June 30, 2000. In July 2000, however, the
Company sold an aggregate of 674,750 shares of Common Stock, yielding to the
Company an aggregate of $1,349,500. Furthermore, in July 2000, the Board of
Directors of the Company authorized an amendment to the May private placement,
authorizing the Company to raise an aggregate of $5,000,000. The aggregate funds
the Company intends to raise in the May 2000 private placement, as amended in
July 2000, will be used to fund operations and to accelerate the Company's
product development efforts. The Company believes that these funds, together
with anticipated revenue, will be sufficient to meet the Company's present
business expansion requirements until the end of the second quarter of 2001.
Although the Company plans to seek additional capital during that period, there
can be no assurance that such financing will be available on acceptable terms,
if at all.
At June 30, 2000, the Company's cash and cash equivalents were
$84,699. The Company's principal source of liquidity is the cash obtained from
the private placements described above. The Company currently has no available
credit facilities.
During 1998, while the Company was operating as U.S. Medical Alliance,
several judgments were entered against the Company and two physicians who were
at one time the principal executive officers of U.S. Medical Alliance. The
judgments relate to, among other things, the Company's prior line of business of
managing physician practices. The allegations made in the underlying suits
relate to wrongful discharge, general breach of contract, breach of equipment
lease agreements and miscellaneous vendor claims. The aggregate amount of such
judgments entered against the Company and such physicians is approximately
$600,000. None of the plaintiffs in the underlying suits has attempted to
collect from the Company on the judgments.
19
In an effort to resolve these matters, the Company has settled one
judgment in an original amount of $43,875 for $35,000 during the fiscal quarter
ended June 30, 2000 and will attempt to settle the balance of the judgments
during the second half of fiscal 2000.
The Company believes that it is legally entitled to indemnification by
the two physicians for its costs of settling such judgments pursuant to a
settlement agreement, entered into on March 20, 1997, among several parties,
including US Medical Alliance and such physicians. To preserve its claims under
such settlement agreement against one of these physicians, on May 12, 2000 the
Company filed a proof of claim in a voluntary Bankruptcy Court proceeding
pending in the United Stated Bankruptcy Court, District of New Jersey, initiated
by such physician in February 1999. Despite its belief that it is entitled to
indemnification, the Company does not expect to recover any of its costs in
settling such judgments from such physician.
Factors Affecting the Company's Business and Prospects
The Company expects to experience significant fluctuations in its
future quarterly operating results due to a variety of factors, many of which
are outside the Company's control. These issues are discussed more fully in the
Risk Factors section in Item 1 of this Form 10-SB.
Market Risk
The Company has no material interest-bearing assets or liabilities, nor
does the Company have any current exposure for changes in foreign currency
exchange rates. The Company does not use derivatives or other financial
instruments. The Company's financial instruments consist of cash and
receivables. The market values of these financial instruments approximate book
value.
Inflation
The financial statements are presented on a historical cost basis and
do not fully reflect the impact of prior years' inflation. While the U.S.
inflation rate has been modest for several years, inflation issues may impact
the Company's business in the future. The ability to pass on inflation costs is
an uncertainty due to general economic conditions and competitive situations.
Year 2000 Preparation
Software failures due to calculations using Year 2000 dates are a known
risk. Although the most critical date (January 1, 2000) has occurred without
incident in our software, problems with Year 2000 software could nonetheless
result in system failures or miscalculations causing disruptions of operations,
including, among others, a temporary inability to process transactions, send
invoices or engage in similar normal business activities. To date, the Company
has experienced very few problems related to Year 2000 testing and those
requiring modification have been fixed. The Company does not believe that there
is material exposure to the Year 2000 issue with respect to its electronic
20
commerce transaction processing and online activity since these systems
correctly define the Year 2000. The Company is nonetheless conducting an
analysis to determine whether others with whom the Company does business have
Year 2000 issues on a continual basis.
The Company has not incurred any material expenses in addressing Year
2000 compliance to date.
PART II Other Information
Item 1. Legal Proceedings
During 1998, while the Company was operating as U.S. Medical Alliance,
several judgments were entered against the Company and two physicians who were
at one time the principal executive officers of U.S. Medical Alliance. The
judgments relate to, among other things, the Company's prior line of business of
managing physician practices. The allegations made in the underlying suits
relate to wrongful discharge, general breach of contract, breach of equipment
lease agreements and miscellaneous vendor claims. The aggregate amount of such
judgments entered against the Company and such physicians is approximately
$600,000. None of the plaintiffs in the underlying suits has attempted to
collect from the Company on the judgments.
In an effort to resolve these matters, the Company has settled one
judgment in an original amount of $43,875 for $35,000 during the fiscal quarter
ended June 30, 2000 and will attempt to settle the balance of the judgments
during the second half of fiscal 2000.
The Company believes that it is legally entitled to indemnification by
the two physicians for its costs of settling such judgments pursuant to a
settlement agreement, entered into on March 20, 1997, among several parties,
including US Medical Alliance and such physicians. To preserve its claims under
such settlement agreement against one of these physicians, on May 12, 2000 the
Company filed a proof of claim in a voluntary Bankruptcy Court proceeding
pending in the United Stated Bankruptcy Court, District of New Jersey initiated
by such physician in February 1999. Despite its belief that it is entitled to
indemnification, the Company does not expect to recover any of its costs in
settling such judgments from such physician.
Item 2. Change in Securities
None.
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Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
10.1 Consulting Agreement dated May 18, 2000 between I-Trax.com, Inc.
and Health Industry Investments, LLC.
10.2 Lease Agreement dated April 10, 2000 between I-Trax.com, Inc. and
OLS Office Parnters, L.P.
27.1 Financial data schedule.
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SIGNATURES
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.COM, INC.
Date: February 23, 2001 By: /s/ Frank A. Martin
------------------------
Name: Frank A. Martin
Title: Chief Executive Officer
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