United
States
Securities
And Exchange Commission
Washington,
D.C. 20549
FORM
10-Q
(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, 2005
|
[
] |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
Commission
File Number: 001-31584
I-TRAX,
INC.
(Exact
name of registrant as specified in its charter)
|
Delaware |
|
23-3057155 |
|
(State
or other jurisdiction of incorporation
or organization) |
|
(I.R.S.
Employer Identification Number) |
4
Hillman Drive, Suite 130
Chadds
Ford, Pennsylvania 19317
(Address
of principal executive offices)
(Zip
Code)
(610)
459-2405
(Registrant’s
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 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
[ ]
Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act). Yes
[ ]
No
[X]
As
of May 13, 2005, there were 30,562,465 shares of the registrant’s $0.001 par
value common stock outstanding.
TABLE
OF CONTENTS
|
Part
I - Financial Information |
|
|
1. |
Financial
Statements |
3 |
| |
Report
of Independent Registered Public Accounting Firm |
3 |
| |
Condensed
Consolidated Balance Sheets at March 31, 2005 and December 31,
2004 |
4 |
| |
Condensed
Consolidated Statements of Operations for the three months ended March 31,
2005 and 2004 |
5 |
| |
Condensed
Consolidated Statements of Cash Flows for the three months ended
March 31, 2005 and 2004 |
7 |
| |
Notes
to Condensed Consolidated Financial Statements |
8 |
|
2. |
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations |
16 |
|
3. |
Quantitative
and Qualitative Disclosure About Market Risks |
23 |
|
4. |
Controls
and Procedures |
23 |
| |
|
|
|
Part
II - Other Information |
|
| |
|
|
|
1. |
Legal
Proceedings |
23 |
|
2. |
Unregistered
Sales of Equity Securities and Use of Proceeds |
24 |
|
3. |
Defaults
Upon Senior Securities |
24 |
|
4. |
Submission
of Matters to a Vote of Security Holders |
24 |
|
5. |
Other
Information |
24 |
|
6. |
Exhibits |
24 |
PART
I. FINANCIAL
INFORMATION
Item
1. Financial
Statements
Report
of Independent
Registered Public Accounting Firm
To
the Board of Directors and Stockholders
of
I-trax, Inc.
We
have reviewed the accompanying condensed consolidated balance sheet of I-trax,
Inc. (a Delaware corporation) and Subsidiaries as of March 31, 2005, and the
related condensed consolidated statements of operations, and cash flows for the
three month periods ended March 31, 2005 and 2004. These interim financial
statements are the responsibility of the company’s management.
We
conducted our reviews in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board, the objective of
which is the expression of an opinion regarding the condensed consolidated
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based
on our reviews, we are not aware of any material modifications that should be
made to the condensed consolidated financial statements referred to above for
them to be in conformity with United States generally accepted accounting
principles.
We
have previously audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the balance sheet as of December 31,
2004, and the related consolidated statements of operations, stockholders’
equity and cash flows for the year then ended (not presented herein); and in our
report dated February 4, 2005 (except for the last two paragraphs of Note 13, as
to which the date is February 15, 2005), we expressed an unqualified opinion on
those consolidated financial statements. In our opinion, the information set
forth in the accompanying condensed consolidated balance sheet as of December
31, 2004 is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
GOLDSTEIN
GOLUB KESSLER LLP
New
York, New York
April
27, 2005
I-TRAX,
INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(in
thousands, except share data)
|
ASSETS |
|
| |
|
March
31,
2005
(Unaudited) |
|
December
31,
2004 |
|
Current
assets |
|
|
|
|
|
Cash
and cash equivalents |
|
$ |
4,774 |
|
$ |
3,805 |
|
Accounts
receivable, net |
|
|
19,678 |
|
|
13,959 |
|
Deferred
tax asset |
|
|
1,054 |
|
|
1,198 |
|
|
Other
current assets |
|
|
1,418 |
|
|
1,978 |
|
Total
current assets |
|
|
26,924 |
|
|
20,940 |
|
|
|
|
|
|
|
|
|
Property
and equipment, net |
|
|
7,295 |
|
|
6,719 |
|
Goodwill |
|
|
60,044 |
|
|
61,390 |
|
Customer
list, net |
|
|
20,753 |
|
|
21,182 |
|
Other
intangible assets, net |
|
|
1,583 |
|
|
1,860 |
|
|
Other
long term assets |
|
|
61 |
|
|
61 |
|
|
|
|
|
|
|
|
|
|
Total
assets |
|
$ |
116,660 |
|
$ |
112,152 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Current
liabilities |
|
|
|
|
|
|
|
Accounts
payable |
|
$ |
7,015 |
|
$ |
6,118 |
|
Accrued
expenses |
|
|
5,020 |
|
|
3,896 |
|
Net
liabilities of discontinued operations |
|
|
1,299 |
|
|
1,299 |
|
|
Other
current liabilities |
|
|
12,259 |
|
|
9,601 |
|
Total
current liabilities |
|
|
25,593 |
|
|
20,914 |
|
|
|
|
|
|
|
|
|
Note
payable |
|
|
10,758 |
|
|
8,308 |
|
Deferred
tax liability |
|
|
1,526 |
|
|
1,526 |
|
Accrued
purchase price (Note 5. Business Combination) |
|
|
5,596 |
|
|
7,294 |
|
Other
long term liabilities |
|
|
2,347 |
|
|
2,347 |
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities |
|
|
45,820 |
|
|
40,389 |
|
|
|
|
|
|
|
|
|
Stockholders’
equity |
|
|
|
|
|
|
|
Preferred
stock - $.001 par value, 2,000,000 shares authorized, 1,058,283 and
1,070,283 issued and outstanding, respectively |
|
|
1 |
|
|
1 |
|
Common
stock - $.001 par value, 100,000,000 shares authorized 26,382,703 and
26,226,818 shares issued and outstanding, respectively |
|
|
25 |
|
|
25 |
|
Additional
paid in capital |
|
|
129,896 |
|
|
130,399 |
|
|
Accumulated
deficit |
|
|
(59,082 |
) |
|
(58,662 |
) |
|
Total
stockholders’ equity |
|
|
70,840 |
|
|
71,763 |
|
| |
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity |
|
$ |
116,660 |
|
$ |
112,152 |
|
The
accompanying notes are an integral part of these financial
statements.
I-TRAX,
INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
For
the three months ended March 31, 2005 and 2004
(Unaudited)
(in
thousands, except share data)
| |
|
2005 |
|
2004 |
|
| |
|
|
|
|
|
|
|
|
Net
revenue |
|
$ |
27,465 |
|
$ |
1,447 |
|
| |
|
|
|
|
|
|
|
Costs
and expenses |
|
|
|
|
|
|
|
Operating
expenses |
|
|
21,151 |
|
|
697 |
|
General
and administrative expenses |
|
|
5,503 |
|
|
2,021 |
|
|
Depreciation
and amortization |
|
|
1,052 |
|
|
435 |
|
|
Total
costs and expenses |
|
|
27,706 |
|
|
3,153 |
|
| |
|
|
|
|
|
|
|
|
Operating
loss |
|
|
(241 |
) |
|
(1,706 |
) |
| |
|
|
|
|
|
|
|
Other
expenses |
|
|
|
|
|
|
|
Interest
expense |
|
|
127 |
|
|
613 |
|
Amortization
of financing costs |
|
|
45 |
|
|
35 |
|
|
Other
expenses |
|
|
-- |
|
|
350 |
|
|
Total
other expenses |
|
|
172 |
|
|
998 |
|
| |
|
|
|
|
|
|
|
|
Loss
before provision for income taxes |
|
|
(413 |
) |
|
(2,704 |
) |
| |
|
|
|
|
|
|
|
|
Provision
for income taxes |
|
|
7 |
|
|
-- |
|
| |
|
|
|
|
|
|
|
Net
loss |
|
|
(420 |
) |
|
(2,704 |
) |
| |
|
|
|
|
|
|
|
Less
preferred stock dividend |
|
|
(525 |
) |
|
-- |
|
| |
|
|
|
|
|
|
|
|
Less
deemed dividends applicable to preferred stockholders |
|
|
-- |
|
|
(15,820 |
) |
| |
|
|
|
|
|
|
|
|
Net
loss applicable to common stockholders |
|
$ |
(945 |
) |
$ |
(18,524 |
) |
| |
|
|
|
|
|
|
|
|
Loss
per common share, basic and diluted |
|
$ |
(0.04 |
) |
$ |
(1.20 |
) |
| |
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding, basic and diluted |
|
|
26,319,748 |
|
|
15,405,353 |
|
The
accompanying notes are an integral part of these financial
statements.
I-TRAX,
INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For
the three months ended March 31, 2005 and 2004
(Unaudited)
(in
thousands, except share data)
| |
|
2005 |
|
2004 |
|
Operating
activities: |
|
|
|
|
|
Net
loss |
|
$ |
(420 |
) |
$ |
(2,704 |
) |
Adjustments
to reconcile net loss to net cash used in operating
activities: |
|
|
|
|
|
|
|
Depreciation
and amortization |
|
|
1,052 |
|
|
435 |
|
Accretion
of discount on notes payable charged to interest expense and beneficial
conversion value of debenture |
|
|
-- |
|
|
573 |
|
Increase
in fair value of common stock warrants |
|
|
-- |
|
|
350 |
|
Amortization
of financing costs |
|
|
45 |
|
|
34 |
|
|
|
|
|
|
|
|
|
Changes
in operating assets and liabilities, net of effects of
acquisition: |
|
|
|
|
|
|
|
Increase
in accounts receivable |
|
|
(5,719 |
) |
|
(668 |
) |
Decrease
in deferred tax asset |
|
|
144 |
|
|
-- |
|
Decrease
in other current assets |
|
|
560 |
|
|
20 |
|
Increase/(decrease)
in accounts payable |
|
|
897 |
|
|
(102 |
) |
Increase
in accrued expenses |
|
|
1,124 |
|
|
70 |
|
|
Increase
in other current liabilities |
|
|
1,808 |
|
|
236 |
|
|
Net
cash used in operating activities |
|
|
(509 |
) |
|
(1,756 |
) |
|
|
|
|
|
|
|
|
Investing
activities: |
|
|
|
|
|
|
|
Purchases
of property, plant and equipment |
|
|
(967 |
) |
|
(169 |
) |
|
Acquisition
of CHD Meridian, net of acquired cash |
|
|
-- |
|
|
(18,134 |
) |
|
Net
cash used in investing activities |
|
|
(967 |
) |
|
(18,303 |
) |
|
|
|
|
|
|
|
|
Financing
activities: |
|
|
|
|
|
|
|
Principal
payments on capital leases |
|
|
(5 |
) |
|
(18 |
) |
Repayment
to related parties |
|
|
-- |
|
|
(280 |
) |
Repayment
of note payable |
|
|
-- |
|
|
(618 |
) |
Proceeds
from exercise of warrants |
|
|
-- |
|
|
30 |
|
Proceeds
from bank credit facility, net of issuance costs |
|
|
2,450 |
|
|
11,850 |
|
Proceeds
from sale of preferred stock, net of issuance costs |
|
|
-- |
|
|
23,510 |
|
|
Redemption
of preferred stock |
|
|
-- |
|
|
(5,000 |
) |
|
Net
cash provided by financing activities |
|
|
2,445 |
|
|
29,474 |
|
Net
increase in cash and cash equivalents |
|
|
969 |
|
|
9,415 |
|
|
Cash
and cash equivalents at beginning of period |
|
|
3,805 |
|
|
574 |
|
|
Cash
and cash equivalents at end of period |
|
$ |
4,774 |
|
$ |
9,989 |
|
(Continues
on following page.)
The
accompanying notes are an integral part of these financial
statements.
I-TRAX,
INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS
For
the three months ended March 31, 2005 and 2004
(Unaudited)
(in
thousands, except share data)
(Continues
from previous page.)
Supplemental
disclosure of cash flow information: |
|
|
|
|
|
Cash
paid during the period for: |
|
|
|
|
|
|
Interest |
|
$ |
157 |
|
$ |
209 |
|
|
Income
taxes |
|
$ |
115 |
|
$ |
-- |
|
|
|
|
|
|
|
|
|
Schedule
of non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification
of common stock warrants to paid in capital |
|
$ |
-- |
|
$ |
3,110 |
|
|
Issuance
of common stock in connection with conversion of promissory note and other
settlement |
|
$ |
-- |
|
$ |
71 |
|
|
Issuance
of common stock in connection with conversion of debenture
payable |
|
$ |
-- |
|
$ |
747 |
|
|
Beneficial
conversion feature in connection with issuance of preferred
stock |
|
$ |
-- |
|
$ |
15,820 |
|
|
Issuance
of common and preferred stock in connection with the acquisition of CHD
Meridian |
|
$ |
-- |
|
$ |
46,300 |
|
|
Reduction
in Accrued purchase price (see Note 5. Business
Combination) |
|
$ |
1,346 |
|
$ |
-- |
|
|
Preferred
stock dividend |
|
$ |
525 |
|
$ |
79 |
|
|
Conversion
of accrued dividends to common stock |
|
$ |
22 |
|
$ |
-- |
|
Purchase
of all capital stock of CHD Meridian and assumption of liabilities in the
acquisition as follows: |
|
|
|
|
|
|
|
Fair
value of non-cash tangible assets acquired |
|
$ |
-- |
|
$ |
17,257 |
|
Goodwill |
|
|
-- |
|
|
36,814 |
|
Customer
list |
|
|
-- |
|
|
29,184 |
|
Other
intangibles |
|
|
-- |
|
|
1,167 |
|
Cash
paid, net of cash acquired (includes $85 of transaction costs incurred in
a prior period) |
|
|
-- |
|
|
(18,219 |
) |
Common
stock issued |
|
|
-- |
|
|
(36,300 |
) |
|
Preferred
stock issued |
|
|
-- |
|
|
(10,000 |
) |
|
Liabilities
assumed |
|
$ |
-- |
|
$ |
19,903 |
|
The
accompanying notes are an integral part of these financial
statements.
I-TRAX,
INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.
ORGANIZATION
I-trax,
Inc. (the “Company”)
was incorporated in the State of Delaware on September 15, 2000. On March 19,
2004, the Company consummated a merger with Meridian Occupational Healthcare
Associates, Inc., a private company, which did business as CHD Meridian
Healthcare (“CHD
Meridian”).
(See Note 5. Business Combination.)
Following
the merger, the Company offers services ranging from on-site health related
services such as occupational health, primary care, corporate health, and
pharmacy to personalized health management programs.
The
Company conducts its on-site services through CHD Meridian Healthcare, LLC, a
Delaware limited liability company (“CHD
Meridian LLC”),
and its subsidiary companies, and its personalized health management programs
through I-trax Health Management Solutions, LLC, a Delaware limited liability
company, and I-trax Health Management Solutions, Inc., a Delaware
corporation.
Physician
services at the Company’s on-site locations are provided under management
agreements with affiliated physician associations, which are organized
professional corporations that hire licensed physicians who provide medical
services (the “Physician
Groups”).
The Physician Groups provide all medical aspects of the Company’s on-site
services, including the development of professional standards, policies and
procedures. The Company provides a wide array of business services to the
Physician Groups, including administrative services, support personnel,
facilities, marketing, and non-medical services.
2.
BASIS OF PRESENTATION AND INTERIM RESULTS
The
condensed consolidated financial statements include the accounts of the Company
and its subsidiaries and have been prepared by the Company, without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
The results of operations and cash flows for the three months ended March 31,
2004 do not include the operations of CHD Meridian even though the merger was
consummated on March 19, 2004 because the Company and CHD Meridian agreed for
accounting purposes to consolidate results of operations effective as of April
1, 2004.
Certain
information and footnote disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the financial
information presented not misleading. These condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements and the notes thereto included in the Company’s Annual Report on Form
10-KSB for the year ended December 31, 2004, filed with the Securities and
Exchange Commission on March 30, 2005. In the opinion of management, all
adjustments necessary for a fair statement of the results of operations for the
interim period have been included. All adjustments are of a normal, recurring
nature. The results of operations for such interim periods are not necessarily
indicative of the results for the full year.
I-TRAX,
INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2.
BASIS OF PRESENTATION AND INTERIM RESULTS (continued)
These
condensed consolidated financial statements also include the balance sheet of
CHD Meridian LLC, its wholly owned subsidiaries, the Physician Groups and Green
Hills Insurance, a risk retention group (see Note 9. Risk Retention Group). The
financial statements of the Physician Groups are consolidated with CHD Meridian
LLC in accordance with the nominee shareholder model of Emerging Issues Task
Force (“EITF”)
Issue No. 97-2, “Application of FASB Statement No. 94 and APB Opinion No. 16 to
Physician Practice Management Entities and Certain Other Entities with
Contractual Management Arrangements.” CHD Meridian LLC has unilateral control
over the assets and operations of the Physician Groups. Control of the Physician
Groups is perpetual and other than temporary because of the nominee shareholder
model and the management agreements between the entities. The net tangible
assets of the Physician Groups were not material at March 31, 2005 and 2004.
The
Company records pass-through pharmaceutical purchases on a net basis in
compliance with EITF Issue No. 99-19, “Reporting Gross Revenue as a Principal
vs. Net as an Agent.” The amounts of pass-through pharmaceuticals purchased by
the Company for the three months ended March 31, 2005 and 2004 were $31,800,110
and $21,531,000, respectively.
As
shown in the condensed consolidated financial statements, the Company has
suffered recurring losses from operations and has an accumulated deficit. The
Company has borrowed funds under its senior secured credit facility (see Note 6.
Long Term Debt) and has entered into agreements with new customers which
management expects to provide increased revenue. The Company believes these
measures will sustain operations through December 31, 2005.
3.
INCOME (LOSS) PER SHARE
Loss
per common share is computed pursuant to Statement of Financial Accounting
Standards (“SFAS”)
No. 128, “Earnings Per Share.” Basic loss per share is computed as net loss
available to common stockholders divided by the weighted average number of
common shares outstanding for the period. Diluted loss per share reflects the
potential dilution that could occur from common shares issuable through stock
options, warrants and convertible preferred stock. As of March 31, 2005 and
2004, 17,868,999 and 17,822,929 shares, respectively, issuable upon exercise of
options, warrants and convertible preferred stock were excluded from the diluted
loss per share computation because their effect would be
anti-dilutive.
I-TRAX,
INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4.
STOCK-BASED COMPENSATION COST
At
March 31, 2005, the Company had equity incentive plans, which are described more
fully in the Company’s Annual Report on Form 10-KSB for the year ended December
31, 2004. The
Company accounts for its stock-based compensation programs according to the
provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock
Issued to Employees.” Accordingly, compensation expense is recognized based on
the intrinsic value of compensatory options or shares granted under the plans.
If
the Company had measured compensation cost for the stock options granted under
the fair value based method subscribed by SFAS 123, “Accounting for Stock-Based
Compensation,” net loss per share would have been increased to the following pro
forma amounts:
| |
|
For
the three months ended March 31, 2005 |
|
For
the three months ended March 31, 2004 |
|
| |
|
|
|
|
|
Net
loss as reported |
|
$ |
(420,000 |
) |
$ |
(2,704,000 |
) |
| |
|
|
|
|
|
|
|
|
Deduct
stock based employee compensation expense determined under fair value
based methods for all awards |
|
|
(339,000 |
) |
|
(217,000 |
) |
| |
|
|
|
|
|
|
|
|
Pro
forma net loss |
|
$ |
(759,000 |
) |
$ |
(2,921,000 |
) |
| |
|
|
|
|
|
|
|
|
Basic
and diluted net loss per share as reported |
|
$ |
(0.04 |
) |
$ |
(1.20 |
) |
| |
|
|
|
|
|
|
|
|
Pro
forma basic and diluted net loss per share |
|
$ |
(0.05 |
) |
$ |
(1.22 |
) |
The
above pro forma disclosure may not be representative of the effects on reported
net operations for future years as options vest over several years and the
Company may continue to grant options to employees.
The
fair market value of each option grant is estimated at the date of grant using
the Black-Scholes valuation model with the following weighted-average
assumptions:
|
Dividend
yield |
0.00% |
|
Expected
volatility |
80%
- 112% |
|
Risk-free
interest rate |
4% |
|
Expected
life |
5
years |
I-TRAX,
INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5.
BUSINESS COMBINATION
On
March 19, 2004, the Company merged with CHD Meridian, a privately held company
and a major provider of outsourced, employer-sponsored healthcare services.
As
of December 31, 2004, the Company had recorded a liability of $7,294,000 as
accrued purchase price on the condensed consolidated balance sheet for the value
of 3,859,200 shares of common stock issuable pursuant to the merger agreement.
Please see the Company’s Annual Report on Form 10-KSB for the year ended
December 31, 2004 for further information. The liability was recorded using the
market value of the shares on December 31, 2004, or $1.89. On April 5, 2005, the
shares held in escrow pursuant to the merger agreement were released. The market
value of the Company’s common stock on April 5, 2005 was $1.45. Consequently,
the Company reduced its liability for the issuance of these shares by
$1,698,000, approximating the liability for the fair value of the shares
released on April 5, 2005, which was offset against goodwill.
During
the three months ended March 31, 2005, the Company established an additional
liability for a cash bonus plan for certain non-executive employees of CHD
Meridian. The total liability of the cash bonus plan was estimated at $352,000,
which was recorded as an increase to goodwill pursuant to the merger agreement.
In March 2005, the Company paid $268,000 pursuant to the cash bonus plan. The
remaining $84,000 is classified in other current liabilities in the condensed
consolidated balance sheet and was distributed in April 2005.
The
following are the Company’s unaudited pro forma results of operations for the
three months ended March 31, 2004, giving effect to the acquisition of CHD
Meridian as though the transaction had occurred on January 1, 2003. The results
exclude transaction costs of $1,938,000 and transaction related bonuses and
termination pay of $832,000 included in the CHD Meridian and the Company’s
statements of operations, respectively. The pro forma results also include
adjustments to amortization expense associated with the intangibles acquired and
interest expense related to the new senior secured credit facility.
| |
|
March
31, 2005
(Actual) |
|
March
31, 2004
(Pro
Forma) |
|
| |
|
|
|
|
|
|
Net
revenue |
|
$ |
27,465,000 |
|
$ |
24,802,000 |
|
| |
|
|
|
|
|
|
|
|
Operating
loss |
|
|
(241,000 |
) |
|
(264,000 |
) |
| |
|
|
|
|
|
|
|
|
Net
loss |
|
|
(420,000 |
) |
|
(1,413,000 |
) |
| |
|
|
|
|
|
|
|
|
Loss
per share |
|
$ |
(0.04 |
) |
$ |
(0.06 |
) |
I-TRAX,
INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6.
LONG TERM DEBT
The
Company, certain of its direct and indirect subsidiaries, and Bank of America,
N.A., are parties to a senior secured credit facility pursuant to a Credit
Agreement dated March 19, 2004, as amended from time to time. The parties
entered into a Fifth Amendment to the Credit Agreement effective March 31, 2005.
Under the Fifth Amendment, the aggregate amount available under the facility was
increased temporarily by $3,000,000 from $14,000,000 to $17,000,000. The amount
available under the facility decreased to $16,000,000 on April 30, 2005, and
will decrease to $15,000,000 on May 31, 2005 and to $14,000,000 on June 30,
2005.
As
of March 31, 2005, the Company had $10,758,000 outstanding under the credit
facility, which was classified as long term, and an aggregate of $3,000,000
under letters of credit. The Company had $3,242,000 available under the credit
facility at March 31, 2005.
7.
COMMITMENTS AND CONTINGENCIES
Litigation
CHD
Meridian is a defendant in a lawsuit seeking a return of approximately $556,000
in payments received in the ordinary course of business from a client that filed
for protection under bankruptcy laws during 2003. Management believes that such
amounts were not preference payments, and as such are not subject to repayment.
The outcome of this lawsuit, however, cannot be determined.
CHD
Meridian is also involved in certain legal actions and claims on a variety of
matters related to the normal course of business. Management believes that such
legal actions will not have a material effect on the results of operations or
the financial position of the Company. (See also Note 9. Risk Retention Group.)
Compliance
with Healthcare Regulations
Because
the Company operates in the healthcare industry, it is subject to numerous laws
and regulations of Federal, state, and local governments. These laws and
regulations include, but are not limited to, matters regarding licensure,
accreditation, government healthcare program participation requirements,
reimbursement for patient services, and Medicare and Medicaid fraud and abuse.
Recently, government activity has increased with respect to investigations and
allegations concerning possible violations of fraud and abuse statutes and
regulations by healthcare providers. Violations of these laws and regulations
could result in, among other things, expulsion from government healthcare
programs together with the imposition of significant fines and penalties, as
well as significant repayments for patient services previously billed.
I-TRAX,
INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7.
COMMITMENTS AND CONTINGENCIES (continued)
Management
believes that the Company is in compliance with fraud and abuse statutes as well
as other applicable government laws and regulations. Compliance with such laws
and regulations can be subject to future government review and interpretation as
well as regulatory actions unknown or unasserted at this time.
Significant
Customers
As
of March 31, 2005, two customers represented 21% and 12% of the Company’s
accounts receivable as reflected on the condensed consolidated balance sheets.
As of March 31, 2004, one customer represented 39% of the total accounts
receivable.
For
the three months ended March 31, 2005, one customer accounted for 13% of the
Company’s revenue as reflected on the condensed consolidated statement of
operations. For the three months ended March 31, 2004, one customer of the
Company accounted for 33% of the Company’s revenue (which excludes any CHD
Meridian revenue) as reflected on the condensed consolidated statements of
operations.
For
the three months ended March 31, 2004, one customer of the Company accounted for
15%
of the Company’s revenue on a pro forma basis as if the merger had been
effective as of January 1, 2003.
Risk-Sharing
Contracts
From
time to time the Company enters into risk-sharing contracts. A risk-sharing
contract generally requires the Company to manage the health and wellness of a
predetermined set of individuals for a term of three to five years. A
risk-sharing contract provides that the Company is required to refund to its
client a percentage of the Company’s fees if its program does not save the
client an agreed upon percentage of the client’s healthcare costs. At March 31,
2005, the Company estimated $412,000 of revenue was at risk, an increase of
$92,000 from December 31, 2004. This amount was classified as deferred revenue
in other current liabilities on the condensed consolidated balance sheet and was
not included in revenue.
8.
STOCKHOLDERS’ EQUITY
Common
Stock
The
Company has 100,000,000 authorized shares of common stock. As of March 31, 2005,
the Company had issued and outstanding 26,382,703 shares, which excludes
3,859,200 shares held in escrow for purposes of the CHD Meridian merger earn out
(see Note 5. Business Combination).
I-TRAX,
INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8.
STOCKHOLDERS’ EQUITY (continued)
Stock
Options
The
table below summarizes the activity in the Company’s stock option plans for the
three months ended March 31, 2005:
| |
Incentive
Options |
|
Non-Qualified
Options |
|
Non-Plan
Non-Qualified Options |
|
Total |
|
|
Outstanding
as of January 1, 2005 |
533,188 |
|
725,973 |
|
493,998 |
|
1,753,159 |
|
|
Granted |
1,602,381 |
|
653,619 |
|
-- |
|
2,256,000 |
|
|
Exercised |
-- |
|
-- |
|
-- |
|
-- |
|
|
Forfeited/Expired |
(57,507 |
) |
(20,000 |
) |
-- |
|
(77,507 |
) |
|
Outstanding
as of March 31, 2005 |
2,078,062 |
|
1,359,592 |
|
493,998 |
|
3,931,652 |
|
As
of March 31, 2005, exercisable plan and non-plan options to purchase an
aggregate of 1,509,920 shares, with exercise prices ranging from $.01 to $10.00,
were outstanding.
On
February 2, 2005, the Company granted options to acquire 1,856,000 shares of
common stock to certain employees with an exercise price of $1.40 per share,
which equaled the market value at the date of grant.
Effective
February 15, 2005, the Company granted options to acquire 400,000 shares of
common stock to a director in connection with his appointment as Chief Executive
Officer with an exercise price of $1.41 per share, which equaled the market
value at the date of grant.
Plan
activity is summarized as follows:
| |
|
Options
Outstanding |
|
Options
Exercisable |
|
|
Range
of
Exercise
Price |
|
Number
Outstanding |
|
Weighted
Average
Remaining
Contractual
Life |
|
Weighted
Average
Exercise
Price |
|
Number
Exercisable |
|
Weighted
Average
Exercise
Price |
|
|
$.01 |
|
|
112,000 |
|
|
|
6.85 |
|
$ |
.01 |
|
|
112,000 |
|
|
$ |
.01 |
|
|
$1.40-$1.77 |
|
|
2,744,331 |
|
|
|
9.59 |
|
$ |
1.42 |
|
|
461,662 |
|
|
$ |
1.49 |
|
|
$2.60-$3.00 |
|
|
660,050 |
|
|
|
6.59 |
|
$ |
2.76 |
|
|
601,702 |
|
|
$ |
2.75 |
|
|
$3.10-$5.00 |
|
|
305,571 |
|
|
|
7.27 |
|
$ |
4.22 |
|
|
224,856 |
|
|
$ |
4.37 |
|
|
$5.50-$7.50 |
|
|
66,700 |
|
|
|
6.65 |
|
$ |
6.00 |
|
|
66,700 |
|
|
$ |
6.00 |
|
|
$10.00 |
|
|
43,000 |
|
|
|
5.14 |
|
$ |
10.00 |
|
|
43,000 |
|
|
$ |
10.00 |
|
| |
|
|
3,931,652 |
|
|
|
8.73 |
|
$ |
2.00 |
|
|
1,509,920 |
|
|
$ |
2.76 |
|
I-TRAX,
INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9.
RISK RETENTION GROUP
Since
2004, the Company has secured medical malpractice and general liability
insurance for certain of its direct and indirect subsidiaries through Green
Hills Insurance Company, a Risk Retention Group (“GHIC”),
incorporated as a subsidiary of CHD Meridian LLC under the laws of the State of
Vermont. In years prior to 2004, the Company secured such insurance in the
commercial market.
On
an annual basis, the Company uses independent actuaries to estimate its
exposures for claims obligations (for both asserted and unasserted claims)
related to deductibles and exposures in excess of coverage limits, and the
Company maintains reserves for these obligations. Loss and loss adjustment
expense reserves are recorded monthly and represent management’s best estimate
of the ultimate net cost of all reported and unreported losses incurred. The
reserves for unpaid losses and loss adjustment expenses are estimated using
individual case-basis valuations and statistical analyses. Those estimates are
subject to the effects of trends in claim severity and frequency. Although
considerable variability is inherent in such estimates, management believes the
reserves for losses and loss adjustment expenses are adequate. The estimates are
reviewed and adjusted continuously as experience develops or new information
becomes known; such adjustments are included in current operations.
As
of March 31, 2005, the loss reserve for unreported claims prior to the inception
of GHIC was $2,000,000, which was included in other long term liabilities on the
condensed consolidated balance sheet. As of March 31, 2005, the reserve for
unreported losses insured by GHIC was $1,058,000, which was included in other
current liabilities on the condensed consolidated balance sheet. The Company
maintains a reserve of $1,611,000 for cost and settlement amounts of reported
claims prior to the inception of GHIC which is also included in other current
liabilities on the condensed consolidated balance sheet.
|
Item
2. |
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations |
The
following Management’s Discussion and Analysis of Financial Condition and
Results of Operations of I-trax, Inc. and its subsidiaries should be read in
conjunction with our unaudited condensed consolidated financial statements and
related notes appearing on the preceding pages as well as our audited financial
statements and related notes included in our Annual Report on Form 10-KSB for
the year ended December 31, 2004 filed on March 30, 2005.
Forward
Looking Statements
The
following discussion also contains forward-looking statements. All statements,
other than statements of historical facts, included in this quarterly report
regarding our strategy, future operations, financial position, future revenues,
projected costs, prospects, plans and objectives of management are
forward-looking statements. The words “anticipates,” “believes,” “estimates,”
“expects,” “intends,” “may,” “plans,” “projects,” “will,” “would” and similar
expressions are intended to identify forward-looking statements, although not
all forward-looking statements contain these identifying words. We cannot
guarantee that we actually will achieve the plans, intentions or expectations
disclosed in our forward-looking statements, and readers of this report should
not place undue reliance on our forward-looking statements. Actual results or
events could differ, possibly materially, from the plans, intentions and
expectations disclosed in our forward-looking statements. We have identified
important factors in the cautionary statements below and in our Annual Report on
Form 10-KSB for the fiscal year ended December 31, 2004 that we believe could
cause actual results or events to differ, possibly materially, from our
forward-looking statements. Our forward-looking statements do not reflect the
potential impact of any future acquisitions, mergers, dispositions, joint
ventures or investments we may make. We undertake no duty to update these
forward-looking statements, even though our situation may change in the future.
Risk
Considerations
You
are cautioned not to place undue reliance on the statements and other discussion
set forth in this quarterly report. These statements and other discussion, speak
only as of the date this quarterly report is filed with the Securities and
Exchange Commission, and these statements are based on management’s current
expectations and are subject to uncertainty and changes in circumstances.
Factors that may cause actual results to differ materially from management
expectations include, but are not limited to:
| · |
effects
of increasing competition for contracts to establish and manage
employer-dedicated pharmacies and clinics; |
| · |
loss
of advantageous pharmaceutical pricing; |
| · |
inability
to meet covenants and financial tests related to our senior secured credit
facility; |
| · |
long
and complex sales cycle; |
| · |
loss
of a major client; |
| · |
cost
pressures in the healthcare industry; |
| · |
exposure
to professional liability claims and a failure to manage effectively our
professional liability risks; |
| · |
economic
uncertainty; and |
| · |
each
of the factors discussed under “Item 1 - Description of Business - Risk
Factors” in our Annual Report on Form 10-KSB for the year ended December
31, 2004. |
Basis
of Presentation
The
accompanying unaudited financial statements have been prepared in accordance
with accounting principles
generally accepted in the United States of America for interim financial
information, the instructions to Form 10-Q and Regulation S-X. In
our opinion, the unaudited financial statements have been prepared on the same
basis as the annual financial statements and reflect all adjustments necessary
to present fairly our financial position as of March 31, 2005 and the results of
the operations and cash flows for the three months ended March 31, 2005. The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets and liabilities and the
reported amounts of revenues and expenses during the covered periods. We base
our estimates and judgments on our historical experience and on various other
factors that we believe are reasonable under the circumstances. We evaluate our
estimates and judgments, including those related to revenue recognition, bad
debts, and goodwill and other intangible assets on an ongoing basis.
Notwithstanding these efforts, there can be no assurance that actual results
will not differ from the respective amount of those estimates.
Business
Overview
I-trax
is an integrated health and productivity management company formed by the merger
on March 19, 2004 of I-trax, Inc. and Meridian Occupational Healthcare
Associates, Inc., which did business as CHD Meridian Healthcare. We
offer a range of health and productivity-related services to large, self-insured
employers. Our services can be integrated or blended as necessary or appropriate
based on each client’s needs. They include on-site health related services such
as occupational health, primary care, corporate health, and pharmacy, which were
historically offered by CHD Meridian Healthcare. We believe we are the nation’s
largest provider of on-site corporate health management services. Our services
also encompass various personalized health management programs, which were
historically offered by I-trax.
We
believe our service offerings improve the health status of employee populations
and manage the upward claim trend experienced by employers and employees,
self-insured employers and government agencies. By proactively managing our
clients’ existing healthcare needs, we believe our programs reduce later need
for critical care and related costs, increase productivity, reduce absenteeism,
improve health status of both active employees and retirees, and reduce overall
costs.
Our
services are designed to allow employers to contract directly for a wide range
of employee healthcare needs. We can deliver these services at or near the
client’s work site by opening, staffing and managing a clinic or pharmacy
dedicated to the client and its employees, or remotely by using the Internet and
our state-of-the-art Care Communication Center staffed with trained nurses and
other healthcare professionals who are available 24 hours per day, 7 days per
week. Our array of services provides each client with flexibility to meet its
specific pharmacy, primary care, occupational health, corporate health,
wellness, lifestyle management or disease management needs.
We
provide services to approximately 127 clients, including automotive and
automotive parts manufacturers, consumer products manufacturers, large financial
institutions, health plans, integrated delivery networks, and third party
administrators. For 90 of such clients, we operated 181 on-site facilities in 30
states, and, for 37 of such clients, we provided a variety of health management
programs. Our client retention rate has been high because we establish strong
client relationships that are supported by the critical nature of our services,
the benefits achieved by employer and employee constituents, and the utilization
of multi-year service contracts.
Critical
Accounting Policies
A
summary of significant accounting policies is disclosed in Note 2 to the
consolidated financial statements included in our Annual Report on Form 10-KSB
for the year ended December 31, 2004. Our critical accounting policies are
further described under the caption “Critical Accounting Policies” in
Management’s Discussion and Analysis of Financial Condition and Results of
Operations in our Annual Report on Form 10-KSB for the year ended December 31,
2004. There have been no changes in the nature of our critical accounting
policies or the application of those policies since December 31, 2004.
CHD
Meridian Healthcare Merger
We
merged with CHD Meridian Healthcare on March 19, 2004. The total value of the
merger consideration was approximately $79,232,000. The results of operations
for the three months ended March 31, 2004 do not include the results of
operations for CHD Meridian because we agreed for accounting purposes to
consolidate results of operations effective as of April 1, 2004.
Key
Financial Trends and Analytical Points
Discussion
below, to the extent it concerns our results and performance for the quarter
ended March 31, 2004, assumes that the merger took effect on January 1,
2003.
Revenue
Trend.
Our revenue increased for the second consecutive quarter, particularly in our
primary care and pharmacy lines of business. Excluding early termination fees of
approximately $150,000 and $800,000 we received during the three months ended
March 31, 2005 and December 31, 2004, respectively, revenue increased 6.6% and
6.2% during the quarters as compared to revenues of the immediately preceding
quarters. Including early termination fees, revenue increased 3.9% and 9.5%
during such quarters. Over the last two quarters, we have launched 21 new
on-site facilities, including 6 in the three month period ended March 31, 2005.
We are also seeing an increase in the number of customer inquiry and requests
for feasibility studies and proposals for new facilities.
We
do not include pass-through pharmaceutical sales in our net revenue. For the
three months ended March 31, 2005, these sales were $31,800,000 compared to
$21,531,000 for the three months ended March 31, 2004. This growth in
pass-through pharmacy sales is driven by the increased utilization of our
on-site pharmacies as well as the launch of our new mail-order pharmacy program
in the first quarter of 2005.
Profitability.
Consolidated gross profit contribution, that is net revenue less direct costs of
operations (or operating costs on the condensed consolidated income statements),
was $6,314,000, or 23.0%, for the quarter ended March 31, 2005 as compared to
$6,077,000, or 24.5% for the quarter ended March 31, 2004. The prior year figure
includes technology license fees of $500,000, a business that we have
de-emphasized over the past 12 months. Excluding such revenue, our gross margin
for the quarter ended March 31, 2004 was 22.5%. Over the past four quarters, our
gross margin has ranged from 21.6% to 26.2% and averaged 23.2%. For the quarter
ended March 31, 2005, our gross margin was reduced by
the
implementation costs associated with launching 21 new sites over the past two
quarters. We expect to see a modest improvement in gross margin as these sites
ramp up operations over the next several months.
General
and administrative expenses increased to $5,503,000 for the quarter ended March
31, 2005 from $5,083,000 for the quarter ended March 31, 2004 and from
$5,243,000 for the quarter ended December 31, 2004. This increase is due to a
number of non-compensation related expenses including costs of preparing for
compliance with the requirements arising out of the Sarbanes-Oxley Act of 2002.
Our
net loss for the quarter ended March 31, 2005, remained consistent with our
results for the quarter ended December 31, 2004, after eliminating the effects
of approximately $150,000 and $800,000, respectively, of early termination fees.
Working
Capital.
At March 31, 2005, we had working capital of $1,331,000, as compared to working
capital of $26,000 at December 31, 2004 and a working capital deficit of
$2,765,000 at September 30, 2004. During the quarter ended March 31, 2005, we
amended our credit facility to increase availability on our credit line to
accommodate higher than anticipated start-up costs and the additional working
capital needs of our new on-site facilities. We increased the balance
outstanding under our credit facility to $10,758,000 at March 31, 2005.
Management
Changes.
Our board of directors appointed R. Dixon Thayer as chief executive officer, and
Mr. Thayer commenced his duties effective February 15, 2005. Our board of
directors also appointed Raymond
(Ray) J. Fabius, M.D.
as president and chief medical officer, and we expect Dr. Fabius to commence his
duties effective May 16, 2005. Biographical information on Messrs. Thayer and
Fabius is set out in our Current Reports on Form 8-K filed on February 16, 2005
and May 3, 2005, respectively.
Results
of Operations
We
commenced reporting financial results that include CHD Meridian Healthcare
operations beginning as of April 1, 2004, and consequently, our historic results
for the three month period ended March 31, 2004 only reflect the separate
operations of I-trax. Accordingly, in addition to providing comparative analysis
on a historical basis, we are also providing supplemental unaudited pro forma
information that we believe is useful to understand how our results of
operations have performed on a comparative basis as if the acquisition of CHD
Meridian Healthcare occurred on January 1, 2003.
Three
Months ended March 31, 2005 (Actual) Compared to Three Months ended March 31,
2004 (Actual)
Revenue
for the three months ended March 31, 2005 was $27,465,000,
an increase of $26,018,000
from $1,447,000 for the three months ended March 31, 2004. The substantial
increase was the result of the CHD Meridian Healthcare acquisition.
Operating
expenses, which represent our direct costs associated with services to clients,
amounted to $21,151,000
for the three months ended March 31, 2005, an increase of $20,454,000
from $697,000 for the three months ended March 31, 2004. The substantial
increase was the result of the CHD Meridian Healthcare
acquisition.
General
and administrative expenses, which represent our corporate costs, increased to
$5,503,000 for the three months ended March 31, 2005 from $2,021,000 for the
three months ended March 31, 2004. The increase of $3,482,000 is primarily
attributable to an increase of $3,837,000 related to the CHD Meridian Healthcare
operations.
Depreciation
and amortization expenses were $1,052,000 for the three months ended March 31,
2005, an increase of $617,000 as compared to $435,000 for the three months ended
March 31, 2004. Approximately $480,000 of the increase relates to amortization
for the intangibles resulting from the CHD Meridian transaction. An additional
$67,000 is attributable to amortization of certain software investments that
commenced in December 2004.
Interest
expense for the three months ended March 31, 2005 was $127,000, representing a
decrease of $486,000, or 79%, from $613,000 for the three months ended March 31,
2004. For the three months ended March 31, 2005, interest expense includes
interest payable under our senior secured credit facility. For the three months
ended March 31, 2004, interest expense includes a charge of $573,000
attributable to the unamortized portion of the discount and beneficial
conversion value associated with a convertible debenture.
Amortization
of financing costs for the three months ended March 31, 2005 was $45,000,
representing an increase of $10,000, or 29%, from $35,000 for the three months
ended March 31, 2004.
For
the three months ended March 31, 2005, our net loss was $420,000, as compared to
a net loss of $2,704,000 for the three months ended March 31, 2004.
Three
Months ended March 31, 2005 (actual) Compared to Three Months ended March 31,
2004 (pro forma)
The
following are our unaudited pro forma results of operations giving effect to the
acquisition of CHD Meridian Healthcare as though the transaction had occurred on
January 1, 2003. The results exclude transaction costs of $1,938,000 and
transaction related bonuses and termination pay of $832,000 included in CHD
Meridian Healthcare’s and our statements of operations, respectively. The pro
forma results also include adjustments to amortization expense associated with
the intangibles acquired and interest expense related to the new credit
facility.
| |
|
Three
Months Ended
March
31, 2005
(Actual) |
|
Three
Months Ended
March
31, 2004
(Pro
Forma) |
|
| |
|
|
|
|
|
|
Net
revenue |
|
$ |
27,465,000 |
|
$ |
24,802,000 |
|
| |
|
|
|
|
|
|
|
|
Operating
loss |
|
|
(241,000 |
) |
|
(264,000 |
) |
| |
|
|
|
|
|
|
|
|
Net
loss |
|
|
(420,000 |
) |
|
(1,413,000 |
) |
| |
|
|
|
|
|
|
|
|
Loss
per share |
|
$ |
(0.04 |
) |
$ |
(0.06 |
) |
Revenue
for the three months ended March 31, 2005 increased $2,663,000, or
approximately
11%, to $27,465,000
from $24,802,000
for the three months ended March 31, 2004. This growth was generated by
increases from our corporate health, primary care and pharmacy service
lines.
Total
costs and expenses include direct costs of our operations (operating expenses),
corporate overhead (general and administrative expenses), and depreciation and
amortization. Total costs and expenses for the three months ended March 31, 2005
increased $2,640,000, or
approximately 11%, to $27,706,000 from $25,066,000
reported for the three months ended March 31, 2004. This increase is
attributable to growth in our corporate health, primary care and pharmacy
service lines.
Interest
expense and financing costs for the three months ended March 31, 2005 decreased
from the three months ended March 31, 2004. During the three months ended March
31, 2004, we recorded non-recurring charges to interest expense and other
expenses in the amount of $573,000.
Liquidity
and Capital Resources
Operating
Activities
We
used $509,000 of cash to fund our operations during the quarter ended March 31,
2005. The following factors accounted for our operating cash deficit:
(1) Our
accounts receivable balance increased by $5,719,000. As we expanded pharmacy
operations and incurred recoupable start-up costs related to 21 implementations
during the last two quarters, our accounts receivable grew. Additionally, our
accounts receivable turnover ratio (including pass-through pharmacy sales) at
December 31, 2004 was at a 12-month low of 21 days as compared to an average for
the year ended December 31, 2004 of 25 days and to 29 days as of March 31, 2005.
(2) Our liabilities increased by $3,829,000 and other assets
decreased by $704,000, which partially offset the increase in accounts
receivable. Contributing factors to this increase were an increase in
pharmaceutical sales driving higher pharmaceutical purchases, an increase in
accrued benefits due primarily to vacation and payroll timing differences, and
increases in reserves for Green Hills Insurance, our Risk Retention
Group.
(3)
Our
operating loss for the quarter was $420,000 offset by $1,097,000 of non-cash
depreciation and amortization charges.
Investing
Activities
Net
cash used in investing activities was $967,000 for the three months ended March
31, 2005, which consisted $500,000 of capitalized software costs and $467,000 of
capital expenditures.
Financing
Activities
Net
cash provided by financing activities was $2,445,000 for the three months ended
March 31, 2005, substantially all of which represented additional draws of
$2,450,000 under our senior secured credit facility. We used these funds to
finance our working capital requirements, which increased due to increased
revenue, expenses and accounts receivable as a result of launching 21 new
on-site facilities over the past two quarters.
We
amended our credit facility to finance working capital needs associated with
these implementations. The amendment, effective March 31, 2005, increased the
aggregate amount available under the facility by $3,000,000 from $14,000,000 to
$17,000,000. The amount available under the facility decreased to $16,000,000 on
April 30, 2005 and decreases to $15,000,000 on May 31, 2005, and to $14,000,000
on June 30, 2005.
As
of March 31, 2005, we had outstanding $10,758,000 under the credit facility,
which was classified as long term debt, and an aggregate of $3,000,000 under
letters of credit. We had $3,242,000 available under the credit facility at
March 31, 2005 subject to the decreases discussed above.
As
of March 31, 2005, we were in compliance with the financial covenants under the
credit facility as follows:
|
Covenant |
|
Required
Ratio |
|
Company’s
Ratio at March 31, 2005 |
| |
|
|
|
|
|
Funded
indebtedness to EBITDA ratio |
|
<=4.00
to 1.00 |
|
3.68 |
| |
|
|
|
|
|
Funded
indebtedness to capitalization ratio |
|
<=0.35
to 1.00 |
|
0.16 |
| |
|
|
|
|
|
Fixed
charge coverage ratio |
|
>=1.10
to 1.00 |
|
1.68 |
| |
|
|
|
|
|
Maximum
capital expenditures |
|
$2,500,000 |
|
$466,090 |
Future
Capital Requirements
Our
primary future cash needs will be to fund working capital, service interest
payments on our credit facility, pay for capital expenditures of approximately
$1,000,000 over the remainder of this fiscal year, and pay for product (mainly
software) development.
We had capital expenditures totaling $967,000 during the three months ended
March 31, 2005.
We
believe that our cash and cash equivalents of approximately $4,774,000 (which
includes approximately $2,000,000 held in Green Hills Insurance Company) and
availability under our credit facility (taking into consideration the impact of
scheduled credit line reductions), will be sufficient to meet the anticipated
cash needs of our current business for the next 12 months despite our current
operating loss history. However, we cannot provide assurance that our actual
cash requirements will not be greater than we currently expect. We will, from
time to time, consider the acquisition of, or investment in, complementary
businesses, products, services and technologies, which might affect our
liquidity requirements or cause us to issue additional equity or debt
securities.
If
sources of liquidity are not available or if we cannot generate sufficient cash
flow from operations during the next 12 months, we might be required to obtain
additional sources of funds through additional operating improvements, capital
market transactions, asset sales or financing from third parties, or a
combination thereof. We cannot provide assurance that these additional sources
of funds will be available or, if available, would have reasonable terms.
Material
Commitments
We
have various contractual obligations which are recorded as liabilities in our
condensed consolidated financial statements. Other items, such as operating
lease contract obligations are not recognized as liabilities in our condensed
consolidated financial statement but are required to be disclosed.
The
following table summarizes our significant contractual obligations at March 31,
2005, and the effect such obligations are expected to have on our liquidity and
cash in future periods:
| |
|
Non-cancelable
operating
leases |
|
Senior
credit
facility |
|
Remainder
of 2005 |
|
$ |
1,079,000 |
|
$ |
-- |
|
2006 |
|
|
1,175,000 |
|
|
-- |
|
2007 |
|
|
1,016,000 |
|
|
10,758,000 |
|
2008 |
|
|
906,000 |
|
|
-- |
|
2009 |
|
|
817,000 |
|
|
-- |
|
|
Thereafter |
|
|
1,000 |
|
|
-- |
|
|
Total
contractual obligations |
|
$ |
4,994,000 |
|
$ |
10,758,000 |
|
Material
Equity Transactions
As
described in our Annual Report on Form 10-KSB for the fiscal year ended December
31, 2004, I-trax had 3,859,200 shares of common stock in escrow for issuance to
former CHD Meridian Healthcare stockholders. CHD Meridian Healthcare achieved
the maximum EBITDA targets and consequently, on April 5, 2005, I-trax released
3,859,200 shares held in escrow to former CHD Meridian Healthcare stockholders.
On April 5, 2005, the market value of our stock was $1.45 per share.
Item
3. Quantitative
and Qualitative Disclosures About Market Risk
As
of March 31, 2005, we did not own any derivative instruments, but we were
exposed to market risks, primarily due to changes in U.S. interest rates. Our
credit facility bears a variable interest rate, and accordingly, the fair market
value of the debt is sensitive to changes in interest rates.
Item
4. Controls
and Procedures
Our
management, under the supervision and with the participation of the principal
executive officer and principal financial officer, has evaluated the
effectiveness of our controls and procedures related to our reporting and
disclosure obligations as of March 31, 2005, which is the end of the period
covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the
principal executive officer and principal financial officer have concluded that
our disclosure controls and procedures are effective.
There
were no changes that occurred during the fiscal quarter ended March 31, 2005
that have materially affected, or are reasonably likely to materially affect,
our internal controls over financial reporting.
PART
II. OTHER
INFORMATION
Item
1. Legal
Proceedings
There
have been no material developments in any of the reported legal proceedings in
our Annual Report on Form 10-KSB for the year ended December 31,
2004.
Subsidiaries
of I-trax are involved in various other claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on I-trax’s
overall consolidated financial position, results of operations or
liquidity.
Item
2. Unregistered
Sales of Equity Securities and Use of Proceeds
Issuance
of Unregistered Securities
Effective
January 14, 2005, an investor and former executive, exercised warrants to
purchase an aggregate of 40,380 shares of our common stock at exercise prices of
$.75 per share. In lieu of paying the exercise price in cash, such investor used
the warrants’ cashless exercise feature, such that the investor received 22,158
shares of our common stock and surrendered to us for cancellation 18,222 shares
of our common stock. In undertaking this issuance, we relied on an exemption
from registration under Section 4(2) of the Securities Act.
Item
3. Defaults
Upon Senior Securities
None.
Item
4. Submission
of Matters to a Vote of Security Holders
We
did not submit any matters to a vote of our security holders during the quarter
ended March 31, 2005.
Item
5. Other
Information
None.
|
Number |
Exhibit
Title |
| |
|
|
10.1 |
Employment
Agreement dated April 15, 2005, between I-trax, Inc. and Raymond J.
Fabius. |
| |
|
|
10.2 |
Fifth
Amendment to Credit Agreement, dated March 31, 2005, by and among I-trax,
Inc., all subsidiaries of I-trax, Inc. that are parties to the Credit
Agreement and Bank of America, N.A. |
| |
|
|
15 |
Awareness Letter
regarding unaudited interim financial information. |
| |
|
|
31.1 |
Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002. |
| |
|
|
31.2 |
Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002. |
| |
|
|
32.1 |
Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002. |
| |
|
|
32.2 |
Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002. |
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
| |
I-TRAX,
INC. |
| |
|
|
Date:
May 16, 2005 |
By:
|
/s/
R. Dixon Thayer |
| |
|
R.
Dixon Thayer, Chief Executive Officer |
| |
|
|
| |
|
|
|
Date:
May 16, 2005 |
By:
|
/s/
David R. Bock |
| |
|
David
R. Bock, Senior Vice President and Chief Financial Officer |
25