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: March 31, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT
Commission File Number: 0-30275
I-TRAX, INC.
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(Exact name of small business issuer in its charter)
Delaware 23-3057155
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(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
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(Address of principal executive offices)
(215) 557-7488
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(Issuer's telephone number)
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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 [ ] No [X]
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 10, 2001, the Registrant had
23,705,584 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. Financial Statements .........................................3
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................13
PART II. OTHER INFORMATION....................................................17
Item 1. Legal Proceedings............................................17
Item 2. Changes in Securities........................................17
Item 3. Defaults upon Senior Securities..............................18
Item 4. Submission of Matters to a Vote of Security Holders..........18
Item 5. Other Information............................................18
Item 6. Exhibits and Reports on Form 8-K.............................18
2
PART I. FINANCIAL STATEMENTS
Item 1. Financial Statements
I-TRAX, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Page Number
Balance sheets at March 31, 2001 (un-audited) and December 31, 2000 4
Statements of operations for the three months ended March 31, 2001 and 2000 (un-audited) 5
Statement of stockholders' equity (deficiency) for the three months ended March 31, 2001 (un-audited) 6
Statements of cash flows for the three months ended March 31, 2001 and 2000 (un-audited) 7
Notes to financial statements (un-audited) 8
3
I-TRAX, INC. AND SUBSIDIARIES
BALANCE SHEETS
ASSETS
March 31, 2001 December 31,
(unaudited) 2000
--------------- ---------------
Current Assets:
Cash $ 12,640 $ 132,806
Accounts receivables, net 46,652 217,145
Prepaid expenses 22,287 36,706
Other receivables, net of allowance for doubtful accounts
of $73,534 16,009 4,581
Note receivable 350,000 --
--------------- ---------------
Total current assets 447,588 391,238
--------------- ---------------
Office equipment and furniture, net 383,342 409,172
Note receivable -- 350,000
Deposit on acquisition of intellectual property 100,000 --
Goodwill and intangibles 3,488,041 --
Security deposits 114,995 128,382
--------------- ---------------
Total Assets $4,533,966 $1,278,792
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities
Accounts payable $ 542,046 $ 427,150
Accrued expenses 818,539 444,342
Convertible note payable, net of discounts 1,550,458 1,284,540
Due to officers 475,000 --
Capital lease payable 31,183 39,240
Deferred revenue 187,092 375,234
--------------- ---------------
Total current liabilities 3,604,318 2,570,506
--------------- ---------------
Capital lease obligation, net of current portion 78,599 81,613
Promissory notes payable, net of discount 217,848 --
--------------- ---------------
Total liabilities 3,900,765 2,652,119
--------------- ---------------
Commitments and contingencies (Note 9)
Stockholders' Equity (Deficiency)
Preferred stock - $.001 par value, 2,000,000 shares authorized,
-0- issued and outstanding -- --
Common Stock - $.001 par value, 50,000,000 shares authorized,
22,851,084 and 19,483,084 issued and outstanding, respectively 22,851 19,483
Additional paid in capital 12,389,194 6,668,809
Accumulated deficit (10,779,344) (7,062,119)
Notes receivable - officers (999,500) (999,500)
--------------- ---------------
Total stockholders' equity (deficiency) 633,201 (1,373,327)
--------------- ---------------
Total Liabilities and Stockholders' Equity (Deficiency) $ 4,533,966 $1,278,792
=============== ===============
See accompanying notes to financial statements (unaudited).
4
I-TRAX, INC. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(UNAUDITED)
Three months Three months
ended ended
March 31, 2001 March 31, 2000
(unaudited) (unaudited)
--------------- ---------------
Revenue $ 189,940 $ --
--------------- ---------------
Operating expenses:
Cost of revenue 15,546 --
General and administrative 1,605,273 616,571
Acquired in progress research and development 1,642,860 --
Research and development 227,264 583
Amortization of goodwill 102,300 --
Marketing and advertising 66,137 31,015
--------------- ---------------
Total operating expenses 3,659,380 648,169
--------------- ---------------
Operating loss (3,469,440) (648,169)
--------------- ---------------
Other income (expenses):
Miscellaneous income 6,636 11,253
Interest income 2,161 --
Interest expense (256,582) (24)
--------------- ---------------
Total other income (expenses) (247,785) 11,229
--------------- ---------------
(Loss) before provision for income taxes (3,717,225) (636,940)
--------------- ---------------
Provision for income taxes -- --
--------------- ---------------
Net (loss) (3,717,225) (636,940)
=============== ===============
Loss per common share:
Basic and Diluted (.17) (.03)
=============== ===============
Weighted average number of shares outstanding: 21,429,040 16,928,084
=============== ===============
See accompanying notes to financial statements (un-audited).
5
I-TRAX, INC. AND SUBSIDIARIES
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE THREE MONTHS ENDED MARCH 31, 2001
(UNAUDITED)
Total
Additional Notes Stockholders'
Common Stock Paid-in Accumulated Receivable Equity
---------------------------
Shares Amount Capital Deficit Officers (Deficiency)
------------- ------------ -------------- -------------- ------------ --------------
Balances at December 31, 2000 19,483,084 $ 19,483 $ 6,668,809 $ (7,062,119) $ (999,500) $(1,373,327)
Common Stock issued in
connection with acquisition 3,368,000 3,368 5,250,712 -- -- 5,254,080
Fair market value of detachable
warrants issued in connection
with amended and restated
promissory notes -- -- 410,072 -- -- 410,072
Fair market value of detachable
warrants issued in connection
with convertible promissory notes -- -- 45,600 -- -- 45,600
Grant of non-qualified and non-plan
options to consultants as
consideration for services
rendered -- -- 14,001 -- -- 14,001
Net loss for the three months ended
March 31, 2001 -- -- -- (3,717,225) -- (3,717,225)
------------- ------------ -------------- -------------- ------------ --------------
Balances at March 31, 2001 22,851,084 $ 22,851 12,389,194 $(10,779,344) $ (999,500) $ 633,201
============= ============ ============== ============== ============ ==============
See accompanying notes to financial statements (un-audited).
6
I-TRAX, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(UNAUDITED)
Three months Three months
ended ended
March 31, 2001 March 31, 2000
(unaudited) (unaudited)
--------------- ---------------
Operating activities:
Net loss $(3,717,225) $ (636,940)
Adjustments to reconcile net loss to net
cash used for operating activities:
Accretion of discount on notes payable charged to interest 210,331
expense
Depreciation and amortization 140,307 7,204
Issuance of various securities for consideration of services 14,001 112,500
Write-off of in progress research and development acquired
in MyFamilyMD acquisition 1,642,860 --
Decrease (increase) in:
Accounts receivable 170,493 198,855
Prepaid expenses 14,419 (144,754)
Other current receivables (11,428) --
Security deposits -- (9,500)
(Decrease) increase in:
Accounts payable 114,896 (27,713)
Accrued expenses 374,197 (20,000)
Deferred revenue (188,142) --
--------------- ---------------
Net cash used for operating activities (1,235,291) (520,348)
--------------- ---------------
Investing activities:
Deposit on acquisition of intellectual property (100,000) --
Proceeds from partial release of security deposit 13,387 --
Purchase of office equipment and furniture -- (27,213)
--------------- ---------------
Net cash used for investing activities (86,613) (27,213)
--------------- ---------------
Financing activities:
Repayment of notes payable -- (37,500)
Repayments to related parties -- (18,000)
Principal payments on capital leases (11,071) --
Proceeds from issuance of promissory notes payable 617,809 --
Proceeds from officers 475,000 --
Proceeds from sale of common stock -- 1,794,880
Proceeds from issuance of convertible promissory notes 120,000
--------------- ---------------
Net cash provided by financing activities 1,201,738 1,739,380
--------------- ---------------
Net (decrease) increase in cash (120,166) 1,191,819
Cash and cash equivalents at beginning of period 132,806 195,728
--------------- ---------------
Cash and cash equivalents at end of period 12,640 1,387,547
=============== ===============
Supplemental disclosure of non-cash flow information:
Cash paid during the period for:
Interest $ -- $ 24
=============== ===============
Income taxes $ -- $ --
=============== ===============
Schedule of non-cash investing activities:
Issuance of 3,368,000 shares of Common Stock in connection
with acquisition of MyFamilyMD $5,254,080 $ --
=============== ===============
See accompanying notes to financial statements (un-audited).
7
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1--ORGANIZATION
I-trax, Inc. (the "Company") was incorporated in the State of Delaware on
September 15, 2000. On February 5, 2001, the Company and I-trax Health
Management Solutions, Inc. (formerly known as I-Trax.com, Inc.) ("Health
Management") completed a holding company reorganization. The holding company
reorganization was accomplished through a merger under Delaware law. At the
effective time of the reorganization, all of the stockholders of Health
Management became the stockholders of the Company and Health Management became a
wholly owned subsidiary of the Company. The holding company reorganization was
described in greater detail in the Company's registration statement on Form S-4
(Registration Number 333-48862). Effective February 5, 2001, all outstanding
shares of Health Management were converted into shares of the Company, in a
non-taxable transaction. Health Management no longer files reports with the
Securities and Exchange Commission, and the price for its common stock is no
longer quoted on the Over-the-Counter Bulletin Board. However, the Company does
file reports with the Securities and Exchange Commission, and the price for its
Common Stock is quoted on the Over-the-Counter Bulletin Board under the symbol
"IMTX". The shares of the Company are represented by the same stock certificates
that represented shares of Health Management prior to the holding company
reorganization.
NOTE 2--INTERIM RESULTS AND BASIS OF PRESENTATION
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As of March 31, 2001, the Company's
accumulated deficit amounted to $10,779,344. Additionally, as of March 31, 2001,
the Company had a working capital deficiency of $3,156,730.
Beginning in the fourth quarter of 2000 and continuing through this date, in an
effort to conserve its available cash, the Company established a salary
deferment program whereby certain executive officers and certain other employees
agreed to defer all or a portion of their salaries until the Company reaches
positive cash flows or secures financing either from equity or debt instruments.
As consideration for such deferrals, the Company agreed to pay interest at the
rate of 8% per annum on the deferred salary. Furthermore, at the time the
Company is in a position to repay such accrued salary, the participating
employees will receive an option to receive all or a portion of the accrued pay
in cash or the Company's Common Stock. Additionally, at the completion of the
salary deferment program, the Company agreed to grant such employees warrants to
purchase the Company's Common Stock. The conversion factor for converting all
accrued salary into Common Stock and the exercise price on the warrants are
determined on the same basis as the conversion price and the exercise price on
the securities issued in the note and warrants offering described in Note 6
below.
Despite its negative cash flows, the Company has been able to secure financing
to support its operations to date. Such support has been received primarily from
its Chief Executive and Operating Officers. Going forward, significant amounts
of cash will be needed to enable the Company to finish the development of its
core products, liquidate its short-term liabilities and implement its revised
marketing strategy.
Additionally, during the quarter the Company engaged an investment banker in
order to seek up to $5,000,000 of financing either through issuance of
securities or via a debt instrument with potential conversion features into the
Company's Common Stock. The Company has estimated that these funds will be
sufficient to finish the development of its core products and initiate its
marketing campaign.
Although management is optimistic that it will be able to raise additional
capital, there can be no assurance that it will be able to do so. These facts
raise substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include adjustments relating to the
recoverability and realization of assets and classification of liabilities that
might be necessary should the Company be unable to continue in operation.
8
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2--INTERIM RESULTS AND BASIS OF PRESENTATION (Cont'd)
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles 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, 2001 and the results of
the operations and cash flows for the three month periods ended March 31, 2001
and 2000. The results for the three month period ended March 31, 2001 are not
necessarily indicative of the results to be expected for any subsequent quarter
or the entire fiscal year ending December 31, 2001. The balance sheet at
December 31, 2000 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 generally accepted accounting principles
have been condensed or omitted pursuant to the Securities and Exchange
Commission's rules and regulations.
Net loss per share is computed in accordance with Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings Per Share". Basic net loss per
share is computed by dividing net loss per share by the weighted average number
of shares outstanding. Diluted loss per share is computed based on the
assumption that all of the convertible debt and related warrants are converted
in common stock. For the three months ended March 31, 2001, the Company's basic
and diluted earnings per share were the same.
It is suggested that these un-audited financial statements be read in
conjunction with our audited financial statements and notes thereto for the year
ended December 31, 2000 as included in the Company's report on Form 10-KSB for
the fiscal year ended December 31, 2000 filed on April 2, 2001.
NOTE 3--NOTE RECEIVABLE
Pursuant to a promissory note and a security agreement dated December 19, 2000,
the Company loaned Diabetex Corporation ("Diabetex"), a Maryland corporation in
the business of managing the healthcare of diabetes patients, $350,000 with a
maturity date of February 19, 2002 or within 60 days of termination of merger
discussions, bearing interest at 8% per annum. In March 2001, the parties
terminated the merger discussions. Further, on April 30, 2001, the Company
demanded that, pursuant to the terms of the promissory note, Diabetex repay the
principal amount of the promissory note and all accrued interest thereon on or
before June 29, 2001.
NOTE 4--DEPOSIT ON ACQUISITION OF INTELLECTUAL PROPERTY
On March 9, 2001 the Company entered into an intellectual property letter of
intent with Disease Management Holdings, Inc., doing business as CardioContinuum
("CardioContinuum"), a company in the business of providing disease management
services to patients suffering from cardiac disease. Among other things, the
letter of intent contemplates a license by CardioContinuum to the Company of
certain protocols and work flows that facilitate efficient treatment of patients
suffering from cardiac disease. The letter of intent also contemplates that a
promissory note in the principal amount of $100,000, and all accrued but unpaid
interest thereunder, issued by CardioContinuum to the Company on January 8, 2001
would be surrendered by the Company to CardioContinuum for cancellation as an up
front license fee for the intellectual property license. The Company and
CardioContinuum are continuing to negotiate a binding license agreement. The
Company has recorded the principal amount of the promissory note as a deposit
for the intellectual property that will be the subject of a binding license
agreement.
9
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5--ACQUISITION OF ISUMMIT PARTNERS, LLC
Effective as of February 7, 2001, the Company completed the acquisition of
iSummit Partners, LLC, doing business as MyFamilyMD ("iSummit Partners"), as
stipulated in the Contribution and Exchange Agreement dated as of September 22,
2000, as amended, by issuing a total of 4,222,500 shares of its Common Stock to
the owners of iSummit Partners in exchange for the assignment by the owners to
the Company of all of the issued and outstanding limited liability company
membership interests of iSummit Partners. For accounting purposes, of the total
4,222,500 shares, the Company recorded 3,368,000 shares (which have been valued
at $5,254,080) as immediate consideration in the merger. Furthermore, of the
total 4,222,500 shares, 854,500 shares will be released to the former owners of
iSummit Partners, and recorded as an expense for accounting purposes, only if
and when the Company meets agreed upon revenue targets generated by MyFamilyMD's
products. Contemporaneously with recording 3,368,000 shares, the Company
recorded goodwill and intangibles of $3,590,341, after allocating $1,642,860 to
in-progress research and development and 20,879 to tangible assets. The
allocation of purchase price was prepared on a preliminary basis pending the
completion of a formal valuation.
The Company is amortizing the goodwill over a five-year period on a
straight-line basis. Accordingly, for the period beginning on February 7, 2001
and ending on March 31, 2001, the Company recorded an amortization expense of
$102,300.
NOTE 6--CONVERTIBLE PROMISSORY NOTES PAYABLE
From November 2000 through January 2001, the Company issued several Convertible
Promissory Notes ("Promissory Notes") with an aggregate face amount of
$2,050,000. Of such total, $500,000 represented bridge financing provided to the
Company by its Chief Executive Officer and Chief Operating Officer in October
2000. The principal amount of the Promissory Notes and accrued and unpaid
interest thereon are convertible into the Company's Common Stock at an initial
conversion price of $2 per share. The Promissory Notes mature one year from the
date of issuance and bear interest at 8% per annum or 12% per annum in an event
of default.
Concurrently with the sale of the Promissory Notes, the Company issued to the
holders of the Promissory Notes detachable warrants to purchase an additional
2,050,000 shares of the Company's Common Stock at an initial exercise price of
$2 per share. As of March 31, 2001, the proceeds allocated to the detachable
purchase warrants amounted to $788,650, which was valued using the Black-Sholes
pricing model. Such amount was recorded as a discount to the Promissory Notes.
The discount is being accreted as expense over the life of the underlying
Promissory Notes. For the three months ended March 31, 2001, the Company
recorded $191,518 of the discount accreted to interest expense. In addition, as
of March 31, 2001, the Company has accrued $60,099 of interest on the
outstanding Promissory Notes.
The conversion price of the Promissory Notes and the exercise price of the
detachable purchase warrants shall (a) initially equal $2 and (b) in the event
of a qualified sale defined as the issuance of Common Stock for proceeds of not
less than $3,000,000, shall be adjusted to equal the lesser of (i) $2 or (ii)
the per share price sold in a qualified sale.
Lastly, the conversion price may also be adjusted if the Company at any time
after issuance of the Promissory Notes shall declare a stock split, stock
dividend, a reverse stock split or other similar events.
10
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 7--PROMISSORY NOTES PAYABLE
In December 2000, the Company entered into non-binding letters of intent to
acquire two related corporations known as XL Health--CardioContinuum and
Diabetex. CardioContinuum and Diabetex are engaged in the business of providing
disease management services to cardiac and diabetes patients, respectively.
Further, the Company announced that the preferred stockholders of
CardioContinuum led by Psilos Group Partners, L.P. and its affiliates (the "C2
Investor Group") had agreed to loan the Company up to $1,000,000 to facilitate
the transactions. Upon further due diligence, the Company elected not to acquire
CardioContinnum. Instead, on March 2, 2001 the Company entered into an Amended
and Restated Promissory Note and Warrant Purchase Agreement with the C2 Investor
Group pursuant to which the C2 Investor Group agreed to loan the Company up to
$1,000,000 and granted the Company a one year option to acquire all
CardioContinuum preferred stock and debt held by the C2 Investor Group for a
nominal consideration. As consideration, the Company granted the C2 Investor
Group detachable warrants to acquire 2.632 shares of its Common Stock at $.10
per share for each $1 of the face amount of the loan. 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. As of March 31, 2001, the C2 Investor Group funded
$617,809 of the $1,000,000 and had received warrants to purchase 1,626,074
shares of the Company's Common Stock.
The Company valued the detachable warrants issued to the C2 Investor Group at
$410,072 using the Black-Scholes pricing model and after allocating a portion of
the proceeds from the debt to the warrants utilizing the relevant fair value of
the debt and warrants to the actual proceeds from the debt. This amount was
recorded as a discount to the related promissory notes, which discount has been
netted against the related debt. Furthermore, the discount is being accreted to
interest expenses over the life of the underlying promissory notes, which is
five years. For the quarter ended March 31, 2001, $10,111 of such discount was
accreted to interest expense.
NOTE 8--ADVANCES FROM OFFICERS
During the quarter ended March 31, 2001, the Company's Chief Executive Officer
and Chief Operating Officer advanced an aggregate of $475,000 to the Company for
working capital. In addition, subsequent the March 31, 2001, the Company's Chief
Executive Officer and Chief Operating Officer advanced an additional $305,000 to
the Company for working capital. The Company and the above officers are
currently negotiating repayment terms.
NOTE 9--COMMITMENTS AND CONTINGENCIES
Nature of Business
The Company is subject to risks and uncertainties common to growing
technology-based companies, including rapid technological developments, reliance
on continued development and acceptance of the Internet, intense competition and
a limited operating history.
Significant customers and vendors
Financial instruments which potentially expose the Company to concentrations of
credit risk consist primarily of accounts receivable. For the three months ended
March 31, 2001, the Company had one unrelated customer, which accounted for 100%
of total revenues. As of March 31, 2001, the Company had two unrelated
customers, which accounted for 98% of accounts receivables.
11
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 9--COMMITMENTS AND CONTINGENCIES (Cont'd)
Threatened Litigation
In 1998, a former Chief Executive Officer, stockholder and creditor of Health
Management (the "Plaintiff") commenced an action in New Jersey state court
against, among others, Health Management and its present Chief Executive Officer
alleging breach of contract, breach of fiduciary duty, breach of the covenant of
good faith and fair dealing, securities fraud, common law fraud, negligent
misrepresentation and racketeering activity. The allegations in this action
reference circumstances relating to Health Management's prior line of business
of physician practice management. In 1999, the court entered two orders
dismissing the action "without prejudice" for procedural reasons. Furthermore,
in 1999 the Plaintiff filed for bankruptcy protection. As part of the bankruptcy
proceedings, the Plaintiff and Health Management entered into a stipulation
limiting the period within which the Plaintiff can bring a new action alleging
Plaintiff's claims. Plaintiff sought to reactivate his prior state court action
in January 2001 (within the stipulated period), rather than instituting a new
action. The court has not thus far permitted reactivation of the suit, and
Plaintiff has not commenced a new suit. The stipulated time period for
reinstating the action has now expired. Although to date the Plaintiff has not
successfully reinstated the action, there is no assurance that he will not be
able to do so. Furthermore, although Health Management believes that it has
adequate defenses against all of the Plaintiff's claims, including pursuant to a
settlement agreement entered into by the Plaintiff, Health Management and
certain others in 1997, there is no assurance that these defenses will prevail.
In the event the action is reinstated and in the event Health Management cannot
assert successfully its defenses, it is possible that the court may compel
Health Management to repay an alleged loan in an amount of $825,000 and that the
outcome of the action would have a material adverse effect on Health Management
and the Company and the Company's financial condition. As of March 31, 2001, the
Company made no accrual since the probability and an estimate of the outcome
could not be determined based on the current facts.
NOTE 10--STOCKHOLDERS' EQUITY (DEFICIENCY)
2001 Equity Compensation Plan
On March 20, 2001, the Company's Board of Directors adopted the 2001 Equity
Compensation Plan (the "2001 Plan"). The Board of Directors amended the 2001
Plan on April 10, 2001. Four separate types of equity compensation may be issued
under the 2001 Plan. First, stock options may be granted to eligible
individuals, including employees, consultants, advisors and non-employee members
of the Board of Directors. Stock options give optionees the right to purchase
shares of Common Stock at an exercise price determined at the time the option is
granted. Second, a salary investment option grant program may be implemented
under the 2001 Plan. The salary investment option grant program permits eligible
employees to reduce their salary voluntarily as payment of two-thirds of the
fair market value of the underlying stock subject to the option, with the
remaining one-third of the fair market value payable as the exercise price for
the option. Third, direct issuances of stock may be made to eligible persons
under the 2001 Plan. Persons receiving direct issuances of restricted stock may
purchase shares of Common Stock at a price less than, equal to or greater than
the fair market value of the Common Stock or may receive such shares of Common
Stock for past services rendered or as a bonus for the performance of services.
In addition, if specifically implemented, the Plan permits non-employee members
of the Board of Directors to automatically receive options to purchase shares of
Common Stock at periodic intervals.
The number of shares of Common Stock that may be currently issued under the 2001
Plan shall not exceed 5,000,000. The number of available shares subject to the
2001 Plan is increased automatically on the first day of each calendar year
beginning with the year 2002 by an amount equal to the lesser of (i) three
percent (3%) of the shares of Common Stock then outstanding and (ii) 1,000,000
shares. No one person participating in the 2001 Plan may receive options for
more than 400,000 shares of Common Stock per calendar year.
As of March 31, 2001, the Company has not granted any option or issued any
restricted stock pursuant to the 2001 Plan.
12
Item 2. Management's Discussion And Analysis Of Financial Condition And
Results Of Operations
The following discussion of the financial condition and related results
of operations of I-trax, Inc. (the "Company") and its subsidiaries should be
reviewed in conjunction with the financial statements of the Company and related
notes appearing on the preceding pages as well as the audited financial
statement of I-trax Health Management Solutions, Inc. (formerly known as
I-Trax.com, Inc.) ("Health Management"), the Company's wholly-owned operating
subsidiary, for the fiscal year ended December 31, 2000, incorporated into
Health Management's Form 10-KSB, filed on April 2, 2001.
Un-audited results of operations for the three month period ended March
31, 2001 are compared to the un-audited results of operations for the comparable
period ended March 31, 2000. Such information is based upon the historical
financial information available as of the dates indicated. Results of operations
for the three month period ended March 31, 2001 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
On September 13, 2000, the Board of Directors of Health Management
directed the formation of the Company to facilitate the formation of a holding
company structure pursuant to Section 251(g) of the Delaware General Corporation
Law. The reorganization was consummated on February 5, 2001 pursuant to an
Agreement and Plan of Merger dated as of September 22, 2000 among the Company,
Health Management and I-Trax.com Acquisition Co., a special purpose subsidiary
of the Company. The holding company reorganization was described in greater
detail in the Company's registration statement on Form S-4 (Registration Number
333-48862). At the effective time of the reorganization, all of the stockholders
of Health Management became the stockholders of the Company and Health
Management became a wholly owned subsidiary of the Company. Further, all
outstanding shares of Health Management were converted into shares of the
Company, in a non-taxable transaction. Health Management no longer files reports
with the Securities and Exchange Commission, and the price for its common stock
is no longer quoted on the Over-the-Counter Bulletin Board. However, the Company
does file reports with the Securities and Exchange Commission, and the price for
its Common Stock is quoted on the Over-the-Counter Bulletin Board under the
symbol "IMTX". The shares of the Company are represented by the same stock
certificates that represented shares of Health Management prior to the holding
company reorganization.
We expect that the holding company structure will allow us greater
flexibility in our operations and expansion and diversification plans. As an
example, the holding company structure facilitated the acquisition of iSummit
Partners, LLC, doing business as "MyFamilyMD" ("MyFamilyMD"), on February 7,
2001.
The Company's current operating business is a combination of businesses
of two predecessors--Member-Link Systems, Inc. ("Member-Link") and MyFamilyMD.
Health Management acquired Member-Link effective as of December 30, 1999 in a
merger transaction pursuant to a Merger Agreement dated as of December 14, 1999.
In the merger, each of the 1,809,686 outstanding shares of Member-Link common
stock was converted into a right to receive 4.4207 shares of Health Management's
common stock. Accordingly, an aggregate of 8,000,082 shares of Health
Management's common stock were issued in the merger.
The Company acquired MyFamilyMD effective February 7, 2001 in an
exchange transaction pursuant to a Contribution and Exchange Agreement dated as
of September 22, 2000, as amended. In the contribution and exchange the Company
issued a total of 4,222,500 shares of its Common Stock to the owners of
MyFamilyMD and the owners contributed to the Company all of the issued and
outstanding ownership interest in MyFamilyMD. At
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closing, of the total 4,222,500 shares 2,086,250 shares were delivered to the
owners of MyFamilyMD and 2,136,250 shares were deposited with an escrow agent.
The shares held in escrow will be released in part upon the Company receiving
assurances that none of the representations in the Contribution and Exchange
Agreement were breached and in part upon the Company achieving certain agreed
upon revenue targets for MyFamilyMD's products.
Of the total 4,222,500 shares issued, for accounting purposes the
Company recorded 3,368,000 shares as immediate consideration. Furthermore, an
additional 854,500 shares will be released to the former owners of MyFamilyMD,
and recorded as an expense for accounting purposes, only if and when the Company
meets certain agreed upon revenue targets generated by MyFamilyMD's products.
Contemporaneously with recording 3,368,000 shares, the Company recorded goodwill
of $3,590,341, after allocating $1,642,860 to in-progress research and
development and 20,879 to tangible assets. The Company is amortizing the
goodwill over a five-year period on a straight-line basis. Accordingly, for the
period beginning on February 7, 2001 and ending on March 31, 2001, the Company
recorded amortization expense of $102,300.
Since February 7, 2001, MyFamilyMD has been a passive wholly owned
entity of the Company with certain intellectual property as its only assets.
The merger of Member-Link into Health Management and the acquisition of
MyFamilyMD have and will have a substantial impact on the Company's current and
future operating results. The Company's operating results have been negatively
affected for the three month period ended March 31, 2001 as to profitability and
will continue to be affected negatively through the balance of calendar year
2001 since the Company has devoted substantial sums to develop current and new
products, expand sales and marketing resources necessary for a rapid rollout of
such products into additional markets, and attract and retain additional
management personnel. Although the development and enhancements of products is
an ongoing process, the Company expects to release several of its core products,
including eCareCoordinator(TM) and MyFamilyMD(TM)'s MedWizards(TM), in the
second quarter of 2001.
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. We have just recently begun to deploy such Internet applications.
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, we expect to continue to incur substantial operating
losses through the fourth quarter of 2001.
Results of Operations
Three Months Ended March 31, 2001 Compared to Three Months Ended
March 31, 2000
Total revenues for the three months ended March 31, 2001 amounted to
$189,940 whereas total revenues for the three months ended March 31, 2000
amounted to $0. This increase was directly attributable to the Company
fulfilling a portion of a contract with Walter Reed Army Medical Center for
implementation of C-Trax Cardiovascular tracking system. In the future, the
Company expects to generate a significant portion of its revenues from
subscriptions to the Company's products delivered over the Internet.
The product development costs amounted to $227,264 for the three months
ended March 31, 2001 as compared to $583 for the three months ended March 31,
2000. This increase in spending was required to support the migration of the
Company's products to an Internet model and expanding the Company's disease
management services. All product development costs in 1999 and 2000 and through
March 31, 2001 were expensed.
Selling, general and administrative expenses increased materially to
$1,605,273 for the three months ended March 31, 2001 as compared to $616,571 for
the three months ended March 31, 2000. The significant increase, which amounted
to $988,702 net of a decrease for consulting expense amounting to $155,990, is
composed primarily of increased salaries and related benefits amounting to
$867,322. The increase is directly associated with the Company building a strong
management, sales, and software development team. Other major components of
expenses representing the remaining increase in general and administrative
expenses were: recruiting expenses,
14
representing a $43,831 increase; travel expenses, representing a $86,156
increase; and rent expense, representing a $36,358 increase. The remainder of
the increase in the first quarter of 2001 over the first quarter of 2000 of
approximately $111,000 is due to increased general corporate overhead, including
office supplies, insurance expense, telephone, filing fees and depreciation
expense.
For the quarters ended March 31, 2001 and 2000, the Company generated
losses amounting to $3,737,185 and $636,940, respectively. The increase in
losses is directly attributable to the Company's increased general and
administrative expenses, the expensed portion of acquired in-progress research
and development associated with the acquisition of MyFamilyMD of $1,642,860,
amortization of goodwill of $102,300 resulting from such acquisition and a
increase in interest expense of $256,558 which is directly attributable to the
Company's borrowings pursuant to the promissory notes which bear interest at 8%
in addition to accreting the discount to interest expense as a result of the
Company issuing warrants with such promissory notes .
Liquidity and Capital Resources
Working Capital Deficiency
The Company's financial statements have been prepared assuming that the
Company will continue as a going concern. As of March 31, 2001, the Company's
accumulated deficit amounted to $10,779,344 of which $3,737,185 was from its
current quarter's losses, inclusive of a purchased in-progress research and
development of $1,642,860. For the three months ended March 31, 2001, the
Company generated a net loss of $3,717,225, which included a charge to purchased
research and development amounting to $ 1,642,860. Additionally, as of March 31,
2001, the Company has a working capital deficiency amounting to $3,156,730.
Future Capital Requirements
The Company does not believe that its cash on hand as of March 31,
2001, together with additional funds received from collection of accounts
receivables, will be sufficient to meet the Company's immediate cash
requirements. The Company is currently seeking additional capital, but there can
be no assurance that such financing will be available timely and on acceptable
terms, if at all.
During the fiscal quarter ended March 31, 2001, the Company entered
into a letter of intent with an investment banker to secure up to $5,000,000 of
financing either through issuance of equity, debt or a combination. The Company
has estimated that these funds will be sufficient to finish the development of
its products and initiate its marketing campaign.
Despite its negative cash flows for the fiscal year ended December 31,
2000 and the fiscal quarter ended March 31, 2001, the Company has been able to
secure financing to support its operations to date. Such support has been
received primarily from its Chief Executive and Chief Operating Officers. Going
forward, significant amounts of cash will be needed to enable the Company to
finish the development of its products, liquidate its short-term liabilities and
implement its revised marketing strategy.
For the three months ended March 31, 2001 and 2000, the Company used
$1,235,291 and $520,348, respectively, in cash for operating activities funded
by advances from officers and issuance of promissory notes amounting to
$1,212,809 in the quarter ended March 31, 2001 and by proceeds from sale of
Common Stock of $1,794,880 in the quarter ended March 31, 2000.
With regards to investing activities, the Company, for three months
ended March 31, 2001, advanced $100,000 to an entity as an advance payment for
the eventual acquisition of intellectual property.
Employee Salary Deferment Program
In an effort to conserve cash, in the third quarter of 2000, the
Company began a salary deferment program, whereby key officers and certain other
key employees of the Company agreed to defer all or a portion of their salary
until the Company reached positive cash flow or secured an equity or debt
financing. As consideration for such deferrals, the Company agreed to pay such
employees interest at the rate of 8% per annum on all deferred salary.
15
Furthermore, at the time the Company is in the position to repay such accrued
salary, the participating employees will receive an option to receive all or a
portion of the accrued pay in cash or the Company's Common Stock. The conversion
feature of the salary deferment is contingent on compliance with all state and
Federal securities laws. Additionally, at the completion of the salary deferment
program, the Company agreed to grant such employees warrants to purchase the
Company's Common Stock, again subject to compliance with all applicable state
and Federal securities laws. The conversion factor for converting all accrued
salary into Common Stock and the exercise price on the warrants are determined
on the same basis as the conversion price and the exercise price on the
securities issued in the note and warrants offering described below. The Company
has continued the salary deferment program through the first quarter of 2001,
and beyond. As of March 31, 2001, the Company has accrued approximately $583,000
on account of such deferred salaries.
Convertible Promissory Notes
On November 13, 2000, the Company initiated an offering of convertible
promissory notes and stock purchase warrants to accredited investors. The
convertible promissory notes have a maturity date of one year from the date of
issue and accrue interest at 8% per annum with a default rate of 12% per annum.
The principal amount of, and accrued and unpaid interest under, the convertible
promissory notes is convertible into shares of the Company's Common Stock. The
stock purchase warrants grant holders a right to purchase one shares of the
Company's Common Stock for each $1 in original principal amount of convertible
promissory notes. The initial conversion price of the convertible promissory
notes and the exercise price of the stock purchase warrants are $2 per share,
subject, in each case, to full-ratchet anti-dilution adjustment in the event of
a subsequent offering with an effective per share price of less than $2. An
individual and an affiliated fund, which collectively purchased convertible
promissory notes with an aggregate principal amount of $1,000,000, led this
private placement. In addition, an aggregate of $500,000 advanced to the Company
by its Chief Executive Officer and Chief Operating Officer in October 2000 were
converted into this offering. Through March 31, 2001, the Company raised
$2,050,000 pursuant to this offering.
Loans by Officers
At March 31, 2001, the Company had $12,640 in cash. To allow the
Company to meet its monthly operating expenses, the Company's Chief Executive
Officer and Chief Operating Officer advanced to the Company, an aggregate of
$475,000 as of March 31, 2001 and an additional $305,000 through May 10, 2001.
XL Health and Related Transactions
In December 2000, the Company entered into non-binding letters of
intent to acquire two related corporations known as XL Health--Disease
Management Holdings, Inc., doing business as CardioContinuum
("CardioContinuum"), and Diabetex Corporation ("Diabetex"). CardioContinuum and
Diabetex are engaged in the business of providing disease management services to
cardiac and diabetes patients, respectively. Further, the Company announced that
the preferred stockholders of CardioContinuum led by Psilos Group Partners, L.P.
and its affiliates (the "C2 Investor Group") had agreed to loan the Company up
to $1,000,000 to facilitate the transactions. Upon further due diligence, the
Company elected not to acquire CardioContinnum. Instead, on March 2, 2001 the
Company entered into an Amended and Restated Promissory Note and Warrant
Purchase Agreement with the C2 Investor Group pursuant to which the C2 Investor
Group agreed to loan the Company up to $1,000,000 and granted the Company a one
year option to acquire all CardioContinuum preferred stock and debt held by the
C2 Investor Group for a nominal consideration. As consideration, the Company
granted the C2 Investor Group detachable warrants to acquire 2.632 shares of its
Common Stock at $.10 per share for each $1 of the face amount of the loan. 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. As of March 31, 2001, the C2
Investor Group funded $618,000 of the $1,000,000 and had received warrants to
purchase 1,626,074 shares of the Company's Common Stock.
Pursuant to a promissory note and a security agreement dated December 19, 2000,
the Company loaned Diabetex $350,000 with a maturity date of February 19, 2002
or within 60 days of termination of merger discussions, bearing interest at 8%
per annum. In March 2001, the parties terminated the merger discussions.
Further, on April 30, 2001, the Company demanded that, pursuant to the terms of
the promissory note, Diabetex repay the principal amount of the promissory note
and all accrued interest thereon on or before June 29, 2001.
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Factors Affecting the Company's Business and Prospects
We expect to experience significant fluctuations in our future
quarterly operating results due to a variety of factors, many of which are
outside of our control. These issues are discussed more fully in the section
titled "Risk Factors" in Health Management's Form 10-KSB, filed on April 2,
2001.
The Company is susceptible to additional risk because each of its few customers
accounts for a large percentage of revenues. For the three months ended March
31, 2001, the Company had one unrelated customers that accounted for 100% of
total revenues. As of March 31, 2001, the Company had two unrelated customers
that accounted for 98% of accounts receivables.
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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not a party to any material pending legal proceeding.
Litigation threatened against Health Management is described in Note
9--Commitments and Contingencies to the Company's Consolidated Financial
Statements above.
Item 2. Changes in Securities
Effective as of November 13, 2000, we initiated an offering of
convertible promissory notes and stock purchase warrants to accredited
investors. In undertaking this offering, we relied on an exemption from
registration under Section 4(2) of the Securities Act and Regulation D
thereunder. The convertible promissory notes have a maturity date of one year
from the date of issue and accrue interest at 8% per annum with a default rate
of 12% per annum. The principal amount of, and accrued and unpaid interest
under, the convertible promissory notes are convertible into shares of the
Company's Common Stock. The stock purchase warrants grant holders a right to
purchase 2 shares of the Company's Common Stock for each $1 in original
principal amount of convertible promissory notes. The initial conversion price
of the convertible promissory notes and the exercise price of the stock purchase
warrants are $2 per share, subject, in each case, to full-ratchet anti-dilution
adjustment in the event of a subsequent offering with an effective per share
price of less than $2. An individual and an affiliated fund, which collectively
purchased convertible promissory notes with an aggregate principal amount of
$1,000,000, led this private placement. In addition, an aggregate of $500,000
advanced to us by our Chief Executive Officer and Chief Operating Officer in
October 2000 were converted into this offering. As of the December 31, 2000 we
raised $1,930,000 pursuant to this offering. During the quarter ended March 31,
2001, we raised $120,000 pursuant to this offering. We filed with the Securities
and Exchange Commission a Form D in connection with the issuance the convertible
promissory notes and stock purchase warrants.
On March 2, 2001 the Company entered into an Amended and Restated
Promissory Note and Warrant Purchase Agreement with the C2 Investor Group
pursuant to which the C2 Investor Group agreed, among other things, to loan the
Company up to $1,000,000. As consideration, the Company granted the C2 Investor
Group
17
detachable warrants to acquire 2.632 shares of its Common Stock at $.10 per
share for each $1 of the face amount of the loan. 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. As of March 31, 2001, the C2 Investor Group funded
$618,000 of the $1,000,000 and had received warrants to purchase 1,626,074
shares of the Company's Common Stock. In undertaking this offering, we relied on
an exemption from registration under Section 4(2) of the Securities Act and
Regulation D thereunder.
Item 3. Defaults upon Senior Securities
The Company did not default upon any senior securities during the
quarter ended March 31, 2001.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of our stockholders during the
quarter ended March 31, 2001.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 I-trax, Inc. 2001 Equity Compensation Plan. (Incorporated by
reference to Attachment A to I-trax, Inc.'s Preliminary Proxy
Statement filed on April 20, 2001.)
(b) Reports on Form 8-K
The Company filed a current report on Form 8-K with the Securities and
Exchange Commission on February 22, 2001 to report the closing of the
acquisition iSummit Partners, LLC (d/b/a MyFamilyMD) effective as of February 7,
2001.
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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 23, 2001 By: /s/ Frank A. Martin
--------------------------------
Name: Frank A. Martin
Title: Chief Executive Officer
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