UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended: December 31, 2001
[ ] TRANSITION REPORT UNDER TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______ to _______
Commission File Number: 0-30275
I-TRAX, INC.
------------------------------------------
(Name of small business issuer in its charter)
Delaware 23-3057155
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Logan Square
130 N. 18th Street, Suite 2615
Philadelphia, Pennsylvania 19103
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (215) 557-7488
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock,
$.001 par value
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. [X] Yes [ ] No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $ 613,070.
The aggregate market value of the voting stock held by non-affiliates computed
by reference to the price at which the stock was sold on March 26, 2002 on the
Over the Counter Bulletin Board was $23,597,341. As of March 26, 2002, the
number of shares outstanding of each class of common equity was 46,358,856
shares of Common Stock, $.001 par value.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the issuer's definitive proxy
statement for its 2002 Annual Meeting of Stockholders are incorporated by
reference in Part III of this report.
Transitional Small Business Disclosure Format (Check one): [ ] Yes [X] No
I-TRAX, INC.
FORM 10-KSB ANNUAL REPORT
FOR THE YEAR ENDED DECEMBER 31, 2001
TABLE OF CONTENTS
Item Page No.
PART I
1. Description of Business............................................................................ 3
2. Description of Properties..........................................................................21
3. Legal Proceedings..................................................................................21
4. Submissions of Matters to a Vote of Security Holders...............................................21
PART II
5. Market for Common Equity and Related Stockholder Matters...........................................22
6. Management's Discussion and Analysis of Financial Condition and Results of Operations..............25
7. Financial Statements...............................................................................34
8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...............60
PART III
9. Directors, Executive Officers, Promoters and Control Persons; Compliance with
Section 16(a) of the Exchange Act .................................................................60
10. Executive Compensation.............................................................................60
11. Security Ownership of Certain Beneficial Owners and Management.....................................60
12. Certain Relationships and Related Transactions.....................................................60
13. Exhibits and Reports on Form 8-K...................................................................60
14. Signatures.........................................................................................64
PART I
ITEM 1. DESCRIPTION OF BUSINESS
This report includes and incorporates forward-looking statements. All
statements, other than statements of historical facts, included or incorporated
in this report regarding our strategy, future operations, financial position,
future revenues, projected costs, prospects, plans and objectives of management
are forward-looking statements. The words "anticipates," "believes,"
"estimates," "expects," "intends," "may," "plans," "projects," "will," "would"
and similar expressions are intended to identify forward-looking statements,
although not all forward-looking statements contain these identifying words. We
cannot guarantee that we actually will achieve the plans, intentions or
expectations disclosed in our forward-looking statements and you should not
place undue reliance on our forward-looking statements. Actual results or events
could differ materially from the plans, intentions and expectations disclosed in
the forward-looking statements we make. We have included important factors in
the cautionary statements included or incorporated in this report, particularly
under the heading "Risk Factors" beginning on page 14 that we believe could
cause actual results or events to differ materially from the forward-looking
statements we make. Our forward-looking statements do not reflect the potential
impact of any future acquisitions, mergers, dispositions, joint ventures or
investments we may make.
Business Overview
I-trax, Inc. ("I-trax" or the "Company") has historically developed
enterprise and client server applications for collecting disease specific data
at the point-of-care for several large hospitals and medical centers. In 2001,
the Company expanded its product lines by developing additional software
applications, adding services and completing several strategic acquisitions. The
Company now offers total population health management solutions. Our mission is
to combine real time Internet-based software technology and targeted personal
interventions by healthcare professionals to improve the quality of care,
increase patient satisfaction, improve clinical outcomes, reduce practice
variances, improve operating efficiencies and lower medical costs.
Our products range from stand-alone software applications to total
health management solutions. We believe that our software applications and total
healthcare management solutions enable true coordination of care through
utilization of shared records by all caregivers--specialists, primary care,
critical care, nursing staff, diagnostic providers, pharmacy and, most
importantly, patients. This is made possible by our flexible disease management
engine and database architecture. We believe that our software is the key
ingredient in effective population health management because we deliver the
right information to the right person at the right time.
Our stand-alone software applications assist physicians, patients and
the entire healthcare community in assessing, preventing and managing all stages
of disease and wellness. Currently, our stand-alone software applications
include four clinical applications: AsthmaWatch(R), an asthma tracking tool,
Health-e-Coordinator(TM), a disease management tool, C-trax(TM), a
cardiovascular point-of-care tool, and eImmune(TM), an immunization management
system; and two web portals: MyFamilyMD(TM) for consumers and CarePrime(TM) for
physicians. We license our software applications as client-managed integrated
applications or as an application service provider from our secure web hosting
facility.
Our population health management solutions assist public health
agencies, hospitals, health plans, self-insured employers, and colleges and
universities to manage the healthcare of their populations as outsourced
services through I-trax. We deliver these service solutions by integrating
Health-e-Coordinator(TM) disease management tool, our web portals Care Prime(TM)
and MyFamilyMD(TM) and our patient contact center staffed by skilled nurses and
other healthcare professionals 24 hours per day, 7 days per week. Our service
solutions are flexible. Without significant modifications to our software
applications, our solutions currently serve the diverse needs of university and
college student health centers, indigent care coordination programs and disease
management programs for acutely ill patient with co-morbidities.
Our approach to the delivery of healthcare services is
multi-disciplinary and promotes wellness, proactively identifies individuals at
risk for or with a disease and empowers such individuals to become an integral
part of their healthcare team. We believe that this approach supports the
individual-physician relationship, emphasizes the
3
importance of prevention of complications by utilizing evidence based practice
guidelines and continuously evaluates clinical, behavioral and economic outcomes
with the goal of improving health. We believe that we have particularly strong
expertise in managing the care for individuals suffering from asthma, coronary
artery disease, diabetes, heart failure, lower back pain and hypertension.
All of our software applications and health management solutions are
built on a common platform--Medicive(R) Medical Enterprise Data System--our
proprietary, intelligent software architecture. Medicive(R) is a proprietary
system developed to collect, store, retrieve and analyze a broad range of
information used in the healthcare industry. Medicive(R) is capable of handling
all data necessary to operate one or many medical treatment facilities. We
believe that this software architecture provides the platform for development of
many additional healthcare applications. Medicive(R) facilitates the real time
delivery of the right information to the right person at the right time.
We have identified three groups of users for our software applications
and health management solutions: (1) Federal and state governments and
quasi-governmental institutions; (2) managed care organizations, such as health
plans, self-insured employers and insurers; and (3) colleges and universities.
We are focusing our marketing and sales resources on these groups.
Corporate History
I-trax, Inc.
I-trax was incorporated in the State of Delaware on September 15, 2000
at the direction of the Board of Directors of I-trax Health Management
Solutions, Inc. ("Health Management"), I-trax's then parent company. On February
5, 2001, I-trax became the holding company of Health Management at the closing
of a reorganization pursuant to Section 251(g) of Delaware General Corporation
Law. The holding company reorganization was described in greater detail in
I-trax'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 I-trax and Health Management became a
wholly owned subsidiary of I-trax. Further, all outstanding shares of Health
Management were converted into shares of I-trax 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, I-trax 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.
The holding company structure has allowed us greater flexibility in our
operations and expansion and diversification plans, including in the acquisition
of iSummit Partners, LLC, doing business as "MyFamilyMD" ("iSummit"), on
February 7, 2001 and WellComm Group, Inc., an Illinois corporation ("WellComm"),
on February 6, 2002.
I-trax acquired iSummit effective as of 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 iSummit
and the owners contributed to the Company all of the issued and outstanding
ownership interests in iSummit. At closing, of the total 4,222,500 shares I-trax
agreed to issue, 2,086,250 shares were delivered to the owners of iSummit and
2,136,250 shares were deposited with an escrow agent. Effective as of December
31, 2001, a total of 1,289,184 shares held in escrow were returned to the
Company and cancelled. Accordingly, the aggregate number of shares issued by
I-trax to acquire iSummit has been reduced to 2,933,316 shares. This number may
be further reduced by an additional 50,000 shares, as negotiations regarding
such a further reduction are ongoing.
I-trax Health Management Solutions, Inc.
Health Management is a predecessor to I-trax. It was incorporated in
the State of Delaware under the name of Marmac Corporation in May 1969. In
December 1979, it changed its name to Ibex Industries International, Inc.
4
On April 1, 1996, Health Management purchased the assets of certain physician
practices, changed its name to U.S. Medical Alliance, Inc., and commenced
operations as a physician practice management company.
As U.S. Medical Alliance, Health Management completed one additional
physician practice acquisition. However, it did not have adequate liquidity or
capital resources to withstand the downturn in the physician practice management
industry, nor the ability to acquire profitable physician practices. In January
1997, the Board of Directors, in an effort to reorganize Health Management,
elected Frank A. Martin as its President. Mr. Martin negotiated the return of
the previously acquired physician practice assets to the physicians in exchange
for the cancellation of any Health Management capital stock or notes associated
with those acquisitions. Health Management changed its name to I-Trax.com, Inc.
on August 27, 1999.
On September 3, 1999, Health Management entered into a Software and
Proprietary Product Corporate License Agreement with Member-Link Systems, Inc.,
a health information technology company. The license agreement gave Health
Management the exclusive right to use certain software in an immunization
tracking system (which we now call eImmune(TM)), and to develop an application
allowing public and private health systems, among others, to track immunizations
over the Internet. Concurrently with entering into the license agreement, the
parties also entered into a technical services agreement, related to the
technology licensed pursuant to the license agreement, and a management services
agreement, related to the management and implementation of our business plan. As
consideration for these agreements, Health Management issued 3,000,000 shares of
Health Management common stock to Member-Link and 2,000,000 shares of Health
Management common stock to certain executive officers of Member-Link.
Effective as of December 30, 1999, Member-Link merged with and into
Health Management pursuant to a Merger Agreement dated as of December 14, 1999.
In the merger, Health Management issued an aggregate of 7,771,841 shares (as
adjusted) of its common stock. The 3,000,000 shares of Health Management common
stock held of record by Member-Link at the time of the merger were cancelled.
Also, each of the license agreement, the technical services agreement and
management services agreement were canceled.
On February 7, 2001, Health Management and I-trax completed the
previously described holding company reorganization. Health Management assumed
its current name on March 21, 2001.
WellComm Acquisition
On February 6, 2002, I-trax acquired WellComm. WellComm is a healthcare
services company that offers a broad array of expertise including a nurse
contact center specializing in disease management, triage, health information
survey, and research services for the healthcare industry.
The WellComm acquisition was a two-step reorganization pursuant to a
Merger Agreement dated as of January 28, 2002 (the "WellComm Merger Agreement")
by and among I-trax, WC Acquisition, Inc., an Illinois corporation and a
wholly-owned subsidiary of I-trax ("Acquisition"), WellComm, John Blazek and
Carol Rehtmeyer. The initial step of the reorganization transaction involved a
merger of Acquisition with and into WellComm, in which merger WellComm continued
as the surviving corporation. The second step of the reorganization transaction
involved a statutory merger of WellComm with and into I-trax, in which merger
I-trax continued as the surviving corporation.
At the closing of this merger, I-trax delivered to the WellComm
stockholders $2,000,000 in cash and 7,440,000 shares of I-trax Common Stock and
to each of Ms. Rehtmeyer and Jane Ludwig, both senior officers of WellComm prior
to this merger, options to acquire 280,000 shares of I-trax Common Stock at an
exercise price of $0.001 per share. I-trax also agreed to deliver to the
WellComm stockholders additional contingent merger consideration either in cash
or, at the election of John Blazek as a representative of the WellComm
stockholders, in shares of I-trax Common Stock. The additional contingent merger
consideration will be equal to 10% of revenues that may be generated by sales of
new services to an existing WellComm client during a 12-month period beginning
on the date such new services begin to be delivered. Such new services, however,
must commence by February 5, 2003, but have not been commenced as of March 25,
2002. If the additional contingent merger consideration is paid in shares of
I-trax Common Stock, the shares will valued at the lesser of $1.23 per share and
the average of the
5
closing price of I-trax Common Stock for twenty 20 consecutive trading days
ending on the day prior to the day a contingent merger consideration payment is
due.
After the merger, each of Mr. Blazek and Ms. Rehtmeyer joined I-trax as
a Managing Director and Ms. Ludwig joined I-trax as a Vice President pursuant to
employment agreements with Health Management. In addition, Mr. Blazek and Ms.
Rehtmeyer were elected to I-trax's Board of Directors.
I-trax granted to the WellComm stockholders the following registration
rights under the Securities Act of 1933, as amended, with respect to the shares
of I-trax Common Stock issued in the merger: (i) two demand registration rights
exercisable after February 5, 2005; and (ii) unlimited "piggy back" registration
rights (subject to underwriter cut back) in the event I-trax registers I-trax
Common Stock for its own account.
I-trax funded the acquisition of WellComm by selling a 6% convertible
senior debenture in the aggregate principal amount of $2,000,000 (the
"Debenture") to Palladin Opportunity Fund LLC ("Palladin") pursuant to a
Purchase Agreement dated as of February 4, 2002 between I-trax and Palladin.
Pursuant to the purchase agreement, I-trax also issued Palladin a warrant to
purchase an aggregate of up to 1,538,461 shares of I-trax Common Stock at an
exercise price of $1.10 per share (the "Warrant"). The outstanding principal and
any interest under the Debenture are payable in full on or before February 3,
2004. Further, outstanding principal and any interest may be converted at any
time at the election of Palladin into I-trax Common Stock at an initial
conversion price of $1.00 per share. The initial conversion price is subject to
"reset" as of the dates that are 12 months and 18 months after the issue date
(each such date, a "Reset Date"). With respect to each Reset Date, the
conversion price will only be reduced if the closing bid price for I-trax Common
Stock, averaged during a period of 20 consecutive trading days ending on the
date that immediately precedes the applicable Reset Date, is less than the then
applicable conversion price, in which case, the reset conversion price is equal
to such average.
Pursuant to the Purchase Agreement, Palladin also received an option to
purchase an additional 6% convertible senior debenture in the face amount of $1
million and received an additional warrant to purchase an aggregate of up to
769,230 shares of I-trax Common Stock. If issued, the terms of the optional
debenture and warrant will be substantially similar to those of the Debenture
and the Warrant. Finally, pursuant to a related registration rights agreement,
I-trax agreed to register all of the shares of I-trax Common Stock underlying
the Debenture and the Warrant on a registration statement on Form SB-2 or, if
I-trax is then eligible, on a registration statement on Form S-3.
Our Products and Services - Technology Solutions
Our software applications are both enterprise network and web-enabled.
They provide a secure and confidential repository of clinical health information
for public health agencies, private health organizations, health care providers,
and the public at large. Our applications provide a platform for collecting
certain disease-specific data at the point-of-care and offer a secure and
confidential repository of clinical health information, which is fully
accessible with proper authorization by any branch of the health care community.
More specifically, our software applications can enable every individual or
entity, such as the family physician, the specialist, the school nurse, the
emergency room nurse or the pharmacist, who may be called upon to administer
care to an individual, or the individual, with proper authorization, to enter
data into or view such individual's medical records. As further described in
Management's Discussion and Analysis, the Company did not generate significant
sales of these products in 2001.
Although each of our software applications is designed to manage a
particular disease or clinical situation, all of our applications integrate with
one another. Further, all of our software applications are built on a common
platform--Medicive(R) Medical Enterprise Data System--our proprietary,
intelligent software architecture.
Medicive(R) Medical Enterprise Data System
The Medicive(R) Medical Enterprise Data System is a proprietary
software architecture developed to collect, store, retrieve and analyze a broad
range of information used in the healthcare industry. This architecture was
created from the Functional Area of Management for Data and Activity data model
(FAM-D and FAM-A), originally designed under U.S. Government contract.
6
Medicive(R) is capable of handling all data necessary to operate one or
many medical treatment facilities. It is also designed to receive information
for both the most complex and the simplest tasks encountered in a medical
setting. It currently accommodates over 1,000 standard data elements containing
in excess of 4,000 data sub-elements. We believe that this software architecture
provides the platform for development of many additional healthcare
applications. A key feature of Medicive(R) is its open architecture, which
permits it to accept new data elements, and is an important feature for an
industry experiencing rapid advances in clinical and laboratory research, as
well as changes in treatment protocols.
The flexibility of Medicive(R) Medical Enterprise Data System's
construction is due primarily to the effort that went into its architecture
design. Medicive(R) has been structured to capture information about the general
health care process or activity and then to narrow the health care process or
activity to the most specific level. Thus, the architecture permits new data to
be added to the database because in the predominate majority of instances new
data elements are extensions of data already addressed in the database. We
believe that Medicive(R) Medical Enterprise Data System's flexibility in easily
accommodating new health care processes or activities gives us an advantage over
competitors which may need to spend far more time to modify their systems to
accommodate new healthcare processes or activities. The Medicive(R) Medical
Enterprise Data System contains and organizes several industry standard medical
data elements and is capable of producing ICD9 diagnosis codes, CPT procedure
codes, SNOMED, or Medcin coded medical data. These codes are commonly used in
the medical profession to identify specific disease states.
Medicive(R)'s schema is completely platform independent. Deployed
systems have utilized Microsoft SQL Server 7.0. However, I-trax can create
execution files to put Medicive(R) on any SQL platform available today,
including, Oracle(R) 8i, Sybase(R) Adaptive Server, or IBM(R) DB2.
eImmune(TM)
eImmune(TM) is the first product we designed and built. It is a
comprehensive immunization software product for processing, recording and
tracking all immunizations and related adverse events. The application was
developed in conjunction with Walter Reed Army Medical Center, Allergy and
Immunology Department, in Washington, DC to maintain all military immunizations
at that site. First installed at Walter Reed Medical Center in January 1998, it
now handles medical records for over 2.5 million individuals, with over 2
million immunization entries. The Intranet and Internet enabled version of
eImmune(TM) was released in August 2001 and has been updated regularly since
then to add functionality. eImmune(TM) is designed for use by state registries,
physician networks, managed care plans, school nurses and individual physicians.
Further, public health agencies and private health organizations can use
eImmune(TM) to create secure online immunization records that can be accessed
over the Internet by parents, schools, primary care physicians, and other health
providers. Finally, we believe that eImmune(TM) can also serve as a foundation
for a bio-terrorism surveillance system as states begin to improve their
healthcare applications.
eImmune(TM) supports information flow required during the patient
encounter and facilitates many aspects of the immunization process. eImmune(TM):
o retrieves and records vital patient information such as medical
history, medication history and allergies;
o orders vaccines, tracks administration of vaccines, generates
vaccination schedules and records adverse events;
o allows for quick reminders and recall of patients who are behind
on vaccinations;
o captures standardized data that can be later used to generate
outcome studies;
o generates a record of all immunizations, makes those records
permanently available and thereby avoids lost records and
consequent re-immunizations; and
7
o Orders, records and tracks testing for Tuberculosis (PPD
testing), including results and related reporting for
Occupational Health to comply with Occupational Safety and Health
Administration regulations.
AsthmaWatch(R)
AsthmaWatch(R) asthma and respiratory disease management system is the
second application we designed and built. AsthmaWatch(R) was developed in
conjunction with the University of Southern California Los Angeles County
Medical Center and the Asthma and Allergy Foundation of America and is based on
National Institute of Health guidelines. AsthmaWatch(R) is an information system
developed to support community based asthma intervention programs. This
information system models the flow of the health process so data is entered at
time of the encounter, at point-of-care. AsthmaWatch(R):
o captures complete medical and asthma history, including current
and past medical conditions, medications and diagnostic results;
o tracks disease related morbidity, asthma and allergy triggers,
lung function testing and the relationship between health status
and changes in therapy over time;
o supports comprehensive staff assessments, including documentation
of vital signs, medication, materials and device training and
environmental assessment;
o generates printed and electronic forms, including prescriptions,
diagnostic tests, encounter reports, multi-lingual asthma action
plans and patient education guidelines;
o captures a comprehensive provider assessment which includes
asthma activity, asthma severity, and upper airway disease
assessment; records results of general medical exam and ICD9 and
CPT coding; and orders skin tests and medications; and
o automates development of personalized care plans and
pharmaceutical plans.
This application facilitates team asthma care management by permitting
specialists, nurses, care managers, acute and primary care providers and
pharmacists up-to-the-minute access to disease and patient information. Because
our software permits real-time access to each patient's complete history by
logging into AsthmaWatch(R), none of the participants in the asthma care
delivery process makes a decision in a vacuum. AsthmaWatch(R) delivers to all
participating providers all data necessary to make the best patient care
decision in real-time. Furthermore, AsthmaWatch(R) is designed to match the
protocol expected to be followed by the applicable provider, thus preventing
skipped steps.
C-trax(TM)
C-trax(TM) is a comprehensive client server software application
designed to manage delivery of cardiovascular care and all related information
at the point-of-care. C-trax(TM) was developed in conjunction with Walter Reed
Army Medical Center. C-trax(TM) supports numerous clinical functions within a
cardiology practice, which enables efficient collection and accurate
reproduction of information and results in significant savings of time and
clinical and administrative resources. The system can meet the needs of large
and small hospitals as well as individual cardiology practices. C-trax(TM):
o supports and properly documents patient encounters, diagnostic
tests, patient-flow through the clinic, pharmacological therapy
plans, exam orders, and lab results reviews;
o provides the cardiologist with the ability to access digital
imaging, echocardiography tests, electrophysiologic studies, and
nuclear lab tests;
8
o completes charts and notes, generates repots, including
longitudinal data graphing, and facilitates analysis of outcomes
data; and
o Documents risk for cardiac disease using a risk assessment tool
based on the Framingham study.
MyFamilyMD(TM)
MyFamilyMD(TM) is a web-based software application that allows
individuals to chronicle their daily health progress, medications, allergies,
exercise and health goals and communicate with their physician or other health
care provider via secure, private messaging. MyFamilyMD(TM)'s health assessment
tools, called MedWizards(R), allow users to determine their level of risk for
various health conditions and provide users with guidelines on early risk
prevention. MyFamilyMD(TM) empowers users to monitor and control their health by
reviewing trends in their healthcare regimen by using dynamic and easy-to-use
graphs and reports. MyFamilyMD(TM):
o provides each user a secure personal home page, inbox and
personal health profile to record health interests, medical
conditions, symptoms, medications, diet and exercise habits,
immunizations and other health related issues;
o helps users, utilizing interactive MedWizards(R), to monitor
every area of users' health, including blood glucose, insulin
dosing, blood pressure, weight, height, pulse, peak flow, lab
values and other variables; users can design customized journals
or daily diaries to keep track of symptoms and other healthcare
issues;
o supports secure messaging between users, I-trax's clinical staff
and, if desired, the users' physicians or other care providers;
o delivers to users daily personalized content about their medical
concerns and health interests, alerts about medication and
consumer product recalls and notifications and reminders about
upcoming appointments, refills, prevention and screening tests;
and
o automatically completes health forms, including state mandated
immunization forms.
CarePrime(TM)
CarePrime(TM) is a web-based software application that allows
physicians and their staff to enhance relationships with, and improve the care
of, their patients. CarePrime(TM) permits secure messaging between the
physicians and their staff and patients, facilitates on-line appointment
requests and referrals. In addition, CarePrime(TM) promotes informed and
therefore better management of health activities by enabling providers, with
patient authorization, to access patient's MyFamilyMD(TM) personal health
profile and health tracking tools and streamline office procedures with
automated forms and notifications. CarePrime(TM) and MyFamilyMD(TM) promote a
partnership between patients and physicians. CarePrime(TM):
o permits physicians and their staff to send patients secure
individualized messages, group notices, messages and alerts and
custom automated notifications, such as exam reminders, at
specific times based on patient demographics, medical condition,
or health concerns;
o allows physicians and their staff to view and edit the patient's
personal health profile and MedWizard(R) generated health
assessment results, with the information entered by the patient
and the physician easily distinguishable;
o accepts electronic information contained on health forms and
immunization records completed by patients using MyFamilyMD(TM),
and, after physician's verification, adds such information to the
patients' electronic medical record;
o tracks vaccine dosing schedules and generates reports when
patients are not compliant; and
9
o tracks and reports easy-to-use vaccine recalls, adverse reactions
and practice compliance.
Health-e-Coordinator(TM)
Health-e-Coordinator(TM) is a web-based software application designed
to support the disease management process including referral, enrollment,
assessment, documentation and care coordination, according to current published
clinical guidelines. At this time, Health-e-Coordinator(TM) supports congestive
heart failure ("CHF") and diabetes disease states. The application facilitates
the recording of medications, immunizations, problem lists, diet and exercise
histories, and disease-specific parameters, such as weight, New York Heart class
(a common parameter for evaluating the patient's functional status), ejection
fraction (a measurement of heart function), blood pressure, hemoglobin A1c (a
blood test that reflects control of blood glucose levels), and lipid panel,
during patient assessments. The recorded information can be viewed from a
variety of screens. In addition, the application's patient snapshots and flow
sheets allow users a quick look at the patient profile over time.
Health-e-Coordinator(TM) serves as an over-arching application to view
and manage all information that resides in our Medicive(R) Medical Enterprise
Data System, irrespective of which of our other software applications was used
to store the information. For example, one I-trax client uses a combination of
Health-e-Coordinator(TM) and C-trax(TM) to manage CHF patients in a clinic
setting to standardize the health assessment process, maximize data collection
for outcomes reporting and optimal patient care.
Health-e-Coordinator(TM) enables disease management by providing
caregivers with assessment questions, printable education material, and
recommendations for interventions to prevent morbidity and improve outcomes for
patients with chronic illnesses such as CHF and diabetes.
Health-e-Coordinator(TM) also supports workflow by incorporating a schedule task
list to alert users to activities that are due for a given patient population
based on the care plan for that disease management program. A client can
customize activities such as follow up visits and educational interventions. The
Resource Library included in Health-e-Coordinator is specific to each disease
and can also be customized by each client. It provides clients with live links
to on-line resources such as national guidelines, professional education, and
consumer education. Health-e-Coordinator(TM):
o allows the system to be tailored to the needs of individual
healthcare systems, accepting customized protocols for referrals
and supporting disease management programs for chronic illness
such as asthma, cardiovascular care and eventually diabetes; and
o when combined with the MyFamilyMD(TM), helps healthcare
professionals to identify and assess health risks and if
necessary enroll patients into health management program(s), thus
providing for them the ability to observe the patient's progress
and development.
Our Products and Services -- Service Solutions
Health-e-Life Program--Disease and Population Health Management
Programs
I-trax's health management solutions are total solutions. Through our
Health-e-Life Program, we can:
o using our existing software applications and data interfaces with
third party applications, collect and aggregate raw healthcare
data of a defined population, including hospital, emergency
department, outpatient, pharmacy and similar data, into single
data platform--Medicive(R) Medical Enterprise Data System;
o analyze aggregated data using proprietary and licensed electronic
modeling tools, and stratify the defined population into
categories based on risk of certain health related conditions;
o allow individuals using MyFamilyMD(TM), primary care physicians
and their staff using CarePrime(TM) and specialists using our
specialist applications including AsthmaWatch(R), C-trax(TM) and
eImmune(TM), to access the aggregated data, supplement that data
with current information, which may include current results,
emerging health conditions and results self risk assessments and
other data collected by our MedWizards(R);
10
o allow individuals using MyFamilyMD(TM) and primary care
physicians and their staff using CarePrime(TM) to implement
individual care initiatives using secure messaging and population
health management using automatic group alerts and notifications;
o allow individuals using MyFamilyMD(TM)to request prescription
refills and make medical appointments;
o allow I-trax's care management professionals, based on nationally
recognized disease management protocols, to coordinate the care
of any subgroup of a defined population utilizing
Health-e-Coordinator(TM), telephonic interventions, audiofax,
mail and other outreach programs, which may include health
education about disease recognition and disease progression, with
specific emphasis on asthma, coronary artery disease, diabetes,
heart failure, low back pain and hypertension;
o allow members of the defined population access to I-trax's care
management professionals 24 hours per day, 7 days per week;
o provide triage service; and
o integrate our program with electronic home monitoring devices and
home visits as needed.
We tailor our program to serve various segments of the healthcare
community, including public health agencies, hospitals, health plans,
self-insured employers and colleges and universities. We can scale our
applications and operations to serve a broad range of needs.
Student Health Solutions
I-trax has adapted a combination of MyFamilyMD(TM) and CarePrime(TM)
software applications to serve America's colleges and universities. The
combination of the two products provides a powerful and valuable means for
student health centers to execute their missions of education and outreach,
prevention, and care management for their students. Our student health solutions
provide a mechanism to streamline data management at student enrollment, improve
communications between the health centers and students after they are enrolled,
aggregate health information seamlessly and provide a secure, confidential and
open communication channel between student health centers and students about
their health. Our student health applications:
o permit students to complete required immunization records and
medical history forms online, replacing manual distribution of
forms, handling their return, and manually inputting the data;
o provide private, secure electronic communication for all student
health services including online appointment requests and
prescription refill requests;
o automate routine student health service tasks, including
intercollegiate athletic physical and re-certification forms,
initial and annual women's health visit information requirements,
routine pre-visit forms or related information requirements,
o provide students with a home health web page with personal health
record;
o deliver news, articles, and health/wellness education based on
demographic and health profile criteria, using students preferred
mode of communication;
o provide students online health risk assessments based on the
American College Health Association- National College Health
Assessment, Center for Disease Control-National College Health
11
Risk Behavior Survey and, if necessary, the institutions specific
needs, with aggregated outcomes reported to the student health
services; and
o if agreed upon, provide access to our other population health
management solutions and software applications.
Our Market and Business Strategy
We believe that the market for our population health management
solutions is large and continues to grow. The Disease Management Purchasing
Consortium & Advisory Council ("DMC2") estimates that in 1997, the disease
management industry generated $77 million in contracted fees. DMC2 also
estimates that in 2001, those contracted fees grew to $480 million. As the costs
of medical care continue to grow and medical errors increase, there is a growing
recognition throughout the healthcare community of the need for targeted,
coordinated, and effective healthcare management solutions. Because our solution
is scalable and can be tailored to fit into most healthcare organizations, we
feel we have a competitive advantage. We have identified, and are targeting, the
following segments of the healthcare industry as purchasers of our solutions:
o Self-Insured Employers. As the ultimate payor for health related
costs, self-insured employers have a significant stake in making
sure that employees and their dependents are empowered with tools
to make the best and most educated healthcare decisions. We
believe that correct and informed decisions will not only reduce
direct healthcare costs, but also reduce employee absenteeism and
improve employee's focus at work. Where employees are older or
retired and at risk for chronic diseases, the ability to do early
risk identification and targeted interventions will not only help
reduce costs, but improve quality of life as well.
o Military and Government. eImmune(TM) is the first application we
designed and built. It now serves as a repository of immunization
records for 2 million individuals. With recent increased funding
to state health programs, this application is now very
expandable.
o Public Health Agencies. Public health agencies are charged with
coordinating care to a significant portion of America's uninsured
population. Our care coordination tools and disease management
programs are well suited to benefit this segment of the
healthcare market. Furthermore, eImmune(TM) and our other
software applications are ideally suited for aggregating and
analyzing vast of amounts of data required to, among other
things, track immunizations and detect trends that can provide
important surveillance information in the event of an outbreak of
infectious diseases associated with bio-terrorism.
o Health Plans and Health Insurers. We believe that the era of
Health Maintenance Organizations denying access to care as a
measure to reduce costs is over. We believe that health plans and
health insurers are under increasing pressure to revise their
methods to reduce medical errors, coordinate care and implement
technology enabled population health management solutions and
disease management programs. We believe that denial of access was
a short-term solution that is now causing escalated costs.
Population health management is a long-term solution with proven
return on investment.
o Colleges and Universities. Students are the most Internet enabled
segment of our population and America's colleges and universities
have an increasing need to communicate with their students,
streamline and automate the collection of medical histories
during the enrollment process, and improve communication between
the student and student health services in a secure, confidential
manner.
We make our services available to our clients on a periodic
subscription basis or, for certain software applications, on a subscription or
for a one-time license fee basis. Although we have historically licensed out
software applications on a one-time licenses fee basis, we believe that the
subscription sales will represent a more significant portion of our sales in the
future. We typically price self-insured employer solutions on a per covered
member per month basis. A single covered member typically includes an employee
and the employee's dependents. The actual per covered person price typically
reflects the level of services we are contracted to provide. Solutions offered
12
to health plans and health insurers are priced on a per member per month basis.
And college health services products are priced with reference to the number of
enrolled students in a given semester. Finally, we seek to price products we
offer to public health agencies and military and government installations with
reference to the number of records that will be retained in the system.
Customer Service
We obtain new business, in part, based upon referrals from satisfied
customers, such as Walter Reed Army Medical Center and Los Angeles County. We
have received referrals from Walter Reed Medical Center in two primary forms.
First, the immunology department at Walter Reed has referred its own departments
to us for possible product purchase. Second, Walter Reed has provided some of
our prospective customers with positive information relating to our products and
our commitment to customer service. In addition, customers, such as Walter Reed
Army Medical Center, have returned to purchase some of our new products and
upgrades on our existing products. We attribute this success, in part, on our
high level of customer service. We intend to continue this high level of
customer service, as we believe it is a key factor for its success in this
market. Management has recently implemented a staffing plan in advance of growth
to assure that premier standards in customer service are met.
Competition
Numerous companies are operating in the disease management segment of
the larger healthcare industry. Many of these companies are larger than we are
and have greater resources, including access to capital. We believe, however,
that our total population health management solutions are unique. We also
believe that our software applications and our broad based expertise in
designing and deploying scalable, military grade software applications allow us
to compete effectively against these larger competitors. We consider the
following types of companies to compete with us in providing a similar product:
o Disease management and care enhancement companies, such as
American Healthways, Lifemasters, Matira, Allere and McKesson
HBOC.
o Established providers of existing, healthcare information
technology. These firms have competencies in hospital information
systems but also offer general electronic medical records,
practice management systems, clinical data repositories, hospital
information systems, accounting systems. E.g. Cerner Corporation,
Siemens, McKesson HBOC, GE Medical Systems, Philips, IDX and
Epic.
o Health-related, on-line services or websites targeted at
consumers, such as careenhance.com, drweil.com,
healthcentral.com, healthgate.com, intelihealth.com,
mayoclinic.com, thriveonline.com, webmd.com and wellmed.
o Established software and computer companies that have publicly
expressed plans to develop medical information software, such as
IBM, Oracle and Microsoft.
o Hospitals, HMOs, pharmaceutical companies, managed care
organizations, insurance companies, other healthcare providers
and payors that offer disease management solutions.
One or more of these companies could choose to expand their markets so
as to compete more directly with us. Most of them are better capitalized than we
are, and therefore such an entry into our niche would add to the competitive
pressures of our business. Nonetheless, we believe we enjoy two primary
competitive advantages. First, we have standing strategic relationships with two
early adopters of our technology: Walter Reed Army Medical Center and LA
County/USC Medical Center, two entities that have used our custom applications
since 1995 and 1996, respectively. We believe the use of our software
applications by these customers has proved that our products add value to the
delivery of healthcare to patients with specific diseases. Second, we have a
time advantage in software and database development over any new direct
competitor.
13
Intellectual Property
Our proprietary software applications are protected by United States
copyright laws. We have registered the use of certain of our trade names and
service names in the United States. We also have the rights to a number of
Internet domain names, including I-trax.com and .net, MyFamilyMD.com and .net,
eImmune.com and .net, AsthmaWatch.com and .net, CarePrime.com and .net and
healthecoordinator.com. In addition, we continuing to explore potential
availability of patent protection for our business processes and innovations.
Research and Development
We conduct research and development on three levels on a continuing
basis. First, we continually study the business process in the medical
community. A pivotal part of the success of our products is understanding the
exact needs of our customers, and applying that knowledge to the graphic user
interface, thus allowing our systems to integrate into the user's workflow
without disruption. The Company was founded on this principle. We are constantly
studying the changing work environment and clinical landscape of our customers
and the industry as a whole. New disease modules, such as a diabetes-tracking
module, are under development and modifications and additional functionality
will continue to be added to currently available software applications.
Second, as a by-product of the business process study, the invention
and development of unique problem solving tools embedded in our software
applications make possible the process of entering and retrieving vast amounts
of information in short periods of time. Constant development, re-engineering
and implementation of these tools is a priority of the design and engineering
staff and will continue to be our focus, allowing us to maintain a leading role
in information systems development.
Third, further technology platform research, development and
engineering are conducted on a continual basis. New technologies, such as
Internet applications and the commercial software that support it, lack certain
capabilities and functionalities required to allow the medical and health care
industry to migrate to a total eHealth strategy. We believe we are in the
process of creating software components to solve these problems and are
constantly educating ourselves on available and emerging technologies that will
help support and enhance our products.
We have spent approximately $ 1.4 million on research and development
activities over the past two fiscal years, the majority of which was
attributable to the build out of the MyFamilyMD(TM) health assessment tools
called MedWizards(R), Health-e-Coordinator(TM) and CarePrime(TM). We expect to
continue to spend funds on adding functionality to MyFamilyMD(TM) by adding
MedWizards(R), on CarePrime(TM), which interacts with MyFamilyMD(TM) and its
MedWizards(R), and on Health-e-Coordinator(TM) by adding additional disease
capabilities.
Employees
We believe our success depends to a significant extent on its ability
to attract, motivate and retain highly skilled, vision-oriented management and
employees. To this end, we focus on incentive programs for our employees and
endeavor to create a corporate culture that is challenging, rewarding and fun.
As of December 31, 2001, we had 31 full-time employees. Immediately following
the closing of the WellComm transaction on February 6, 2002, we had 64 full-time
and 42 part-time employees.
Risk Factors
In addition to other information in this report, you should carefully
consider the following risks and the other information in evaluating I-trax and
its business. Our business, financial condition and results of operations could
be materially and adversely affected by each of these risks. Such an adverse
effect could cause the market price of our Common Stock to decline, and you
could lose all or part of your investment.
We May be Unable to Raise Necessary Capital to Continue As A Going
Concern
Additional funds are required to complete our planned product
development efforts, expand our sales and marketing activities, and to cover
cash shortfalls until our current and projected pipeline materializes. At
14
present, we have funds to cover our operating expenses. However, we will
probably need additional funds in the future. We are continuously seeking out
investors who will provide additional funds, but there is no assurance that we
will succeed in obtaining sufficient amounts of capital. In addition, we have
incurred losses from operations and although we have stockholders' equity of
approximately $1.7 million as of December 31, 2001, because our expenses
continue to exceed our sales there is substantial doubt that we will be able to
continue as a going concern.
Our future capital requirements and the adequacy of available funds
will depend on numerous factors, including:
o successful commercialization of our existing services and
products,
o progress in our product development efforts,
o the growth and success of effective sales and marketing
activities, and
o the cost of filing, prosecuting, defending and enforcing
intellectual property rights.
We will have to obtain such funds through an equity or debt financing, strategic
alliances with corporate partners and others, or through other sources. We do
not have any committed sources of additional financing, and we cannot provide
assurance that additional funding, if necessary, will be available on acceptable
terms, if at all. If adequate funds are not available, we may have to delay,
scale-back or eliminate certain aspects of our operations or attempt to obtain
funds through arrangements with collaborative partners or others. Moreover, if
we continue to have operating losses and are unable to obtain capital to cover
them, we may be unable to remain in business. These results, in turn, could
cause the relinquishment of our rights to certain of our technologies, products
or potential markets, dilution of your ownership in our business, or our loss of
what we believe is a current competitive advantage in technology enabled
population health management field. Therefore, the inability to obtain adequate
funds could have a material adverse impact on our business, financial condition
and results of operations.
We Have a History of Operating Losses, Anticipate We Will Incur
Continued Operating Losses for the Following Twelve Months and
Therefore May Eventually be Unable to Continue Our Operations
We have used substantial cash to fund our operating losses, and we have
never earned a profit. Through December 31, 2001, we have used approximately $10
million of cash to fund our operating activities. Moreover, we expect to use
additional cash to fund our operating losses for the reasonably foreseeable
future. Our ability to achieve profitability will depend, in part, on:
o the market's accepting our service and software applications;
o successful deployment and retention of our services and software
applications by our customers; and
o our sales and marketing activities.
The success of our business model depends on customers, such as public
health agencies, hospitals, health plans, self insured employers, and colleges
and universities being attracted to and using our population health management
solutions. Although we believe that this business model will be successful, we
cannot assure you that we will achieve or sustain profitability or that our
operating losses will not increase in the future. There is substantial
uncertainty as to our ability to continue as a going concern due to our
historical negative cash flow and because we may not have access to sufficient
capital to meet our projected operating needs for at least the next twelve
months.
The Segment of the Healthcare Industry in Which We Operate is
Relatively New and Our Sales Cycle Is Long and Complex
Disease and population health management business, which is growing
rapidly, is a relatively new segment of the overall healthcare industry and has
many entrants which are marketing various services and products labeled as
15
disease and population health management. Many companies use the generic label
of "disease management" to characterize a wide range of activities from the sale
of medical supplies and drugs to services aimed at managing demand for
healthcare services. Because this segment of the industry is relatively new,
potential purchasers take a long time to evaluate and purchase such services,
lengthening our sales cycle. Further, the sales and implementation process for
our services and software applications is lengthy, involves a significant
technical evaluation and requires our customers to commit a great deal of time
and money. Finally, the sale and implementation of our solutions are subject to
delays due to our customers' internal budgets and procedures for approving large
capital expenditures and deploying new services and software applications within
their organizations. The sales cycle for our solutions, therefore, is
unpredictable and has generally ranged from three to twenty-four months from
initial contact to contract signing. The time it takes to implement our
solutions is also difficult to predict and has lasted as long as eighteen months
from contract execution to the commencement of live operation. During the sales
cycle and the implementation period, we may expend substantial time, effort and
money preparing contract proposals, negotiating the contract and implementing
the solution without receiving any related revenue.
Our Limited Operating Experience May Cause Us to Misjudge the Segment
of the Healthcare Industry in Which We Are Operating
We have only recently begun to design, build and offer technology
enabled population health management solutions. Our enterprise software
applications have been operational for less than three years, our web-based
solutions have been operational for less than one year, and we have just begun
to offer technology enabled population health management solutions. Accordingly,
we have a limited operating history in our business. Furthermore, we are also
facing other risks and challenges, including a lack of meaningful historical
financial data upon which to plan future budgets, increasing competition, the
need to develop strategic relationships, and other risks described below. We
cannot guarantee that we will be able successfully to implement our business
model. An investor in our Common Stock must consider the risks, uncertainties,
expenses and difficulties frequently encountered by companies in their early
stages of development. As a result of the absence of meaningful history and
experience in our business, we may easily misjudge the nature or size of our
perceived markets, or the amount of work or capital necessary to complete our
pending products or implement our business plan.
We May Be Unable to Implement Our Business Strategy, Which Requires Us
to Deploy Our Products Effectively and Attract Customers
Although we believe that there is significant demand for our services
and products in the over all healthcare market, there are many reasons why we
may be unable to execute on our business strategy, including our possible
inability to:
o deploy our services and software applications on a large scale;
o attract a sufficiently large number of public health agencies,
hospitals, health plans, self-insured employers and colleges and
universities to subscribe for our services and software
applications;
o increase awareness of our brand;
o strengthen user loyalty;
o develop and improve our services and software applications;
o continue to develop and upgrade our services and software
applications; and
o attract, retain and motivate qualified personnel.
The Healthcare Industry Is Subject to Cost Pressures And Government
Regulation
The healthcare industry is currently subject to significant cost
reduction pressures as a result of constrained revenues from governmental and
16
private revenue sources as well as from increasing underlying medical care
costs. These pressures will continue and possibly intensify. Although we believe
that our services and software applications assist public health agencies,
hospitals, health plans and self-insured employers to control the high costs
associated with the treatment of chronic diseases, the pressures to reduce costs
immediately may have a negative effect in certain circumstances on our ability
(or the length of time we require) to obtain new contracts. In addition, the
focus on cost reduction may pressure our customers to restructure contracts and
reduce our fees.
Many of our existing and potential clients are subject to considerable
state and Federal government regulation. Many of these regulations are vaguely
written and subject to differing interpretations that may, in certain cases,
result in unintended consequences that may affect our ability to effectively
deliver our services. The current focus on regulatory and legislative efforts to
protect the confidentiality of patient identifiable medical information, as
evidenced by the Health Insurance Portability and Accountability Act of 1996
("HIPAA"), is one such example. While we believe that our ability to obtain
patient identifiable medical information for disease management purposes from
certain of our clients is protected in recently released Federal regulations
governing medical record confidentiality, state legislation or regulations will
preempt Federal legislation if it is more restrictive. Accordingly, new Federal
or state legislation or regulations that restricts the availability of this
information to us or leaves uncertain whether disease management is an allowable
use of patient identifiable medical information would have a material negative
effect on us.
Government Regulation Could Adversely Affect Our Business
Although we are not directly subject to many of the governmental and
regulatory requirements affecting healthcare delivery, our clients, such as
public health agencies, hospitals, health plans, and self-insured employers must
comply with a variety of regulations including the licensing and reimbursement
requirements of Federal, state and local agencies. Further, certain our
professional healthcare employees, such as doctors and nurses, are subject to
individual licensing requirements. All of our healthcare professionals who are
subject to licensing requirements are licensed in the state in which they are
physically present. Multiple state licensing requirements for healthcare
professionals who provide services telephonically over state lines may require
us to license some of our healthcare professionals in more than one state. We
continually monitor the developments in telemedicine. There is no assurance,
however, that new judicial decisions or Federal or state legislation or
regulations would not increase the requirement for multi-state licensing of all
central operating unit call center health professionals, which would
significantly increase our administrative costs.
We are indirectly affected by changes in the laws governing health
plan, hospital and public health agency reimbursement under governmental
programs such as Medicare and Medicaid. There are periodic legislative and
regulatory initiatives to reduce the funding of the Medicare and Medicaid
programs in an effort to curtail or reduce overall Federal healthcare spending.
Federal legislation has and may continue to significantly reduce Medicare and
Medicaid reimbursements to most hospitals. These reimbursement changes are
negatively affecting hospital revenues and operations. There can be no assurance
that such legislative initiatives or government regulations would not adversely
affect our operations or reduce the demand for our services.
Various Federal and state laws regulate the relationship among
providers of healthcare services, other healthcare businesses and physicians.
The "fraud and abuse" provisions of the Social Security Act provide civil and
criminal penalties and potential exclusion from the Medicare and Medicaid
programs for persons or businesses who offer, pay, solicit or receive
remuneration in order to induce referrals of patients covered by Federal health
care programs (which include Medicare, Medicaid, TriCare and other Federally
funded health programs). Although we believe that our business arrangements with
our clients are in compliance with these statutes, these fraud and abuse
provisions are broadly written and the full extent of their application is not
yet known. We are therefore unable to predict the effect, if any, of broad
enforcement interpretation of these fraud and abuse provisions.
Our Dependence on the Internet and Internet Related Technologies
Subjects Us to Frequent Change and Risks
Our web-based software applications depend on the continuous, reliable
and secure operation of Internet servers and related hardware and software. In
the past, several large Internet commerce companies have suffered highly
publicized system failures, which resulted in adverse reactions in their stock
prices, significant negative publicity and, in certain instances, litigation. It
17
is possible that we may also suffer service outages from time to time. To the
extent that our service is interrupted, our users will be inconvenienced and our
reputation may be diminished. If access to our system becomes unavailable at a
critical time, users could allege we are liable as a result. Some of these
outcomes could directly result in a reduction in our stock price, significant
negative publicity and litigation. Although our computer and communications
hardware is protected by physical and software safeguards, they are still be
vulnerable to fire, storm, flood, power loss, telecommunications failures,
physical or software break-ins and similar events. We will not have one hundred
percent redundancy for all of our computer and telecommunications facilities. A
catastrophic event could have a significant negative effect on our business,
results of operations, and financial condition.
We also depend on third parties to provide our certain of our clients
with Internet and on-line services necessary for access to our servers. It is
possible that our clients will experience difficulties with Internet and other
on-line services due to system failures, including failures unrelated to our
systems. Any sustained disruption in Internet access provided by third parties
could have a material adverse effect on our business, results of operations and
financial condition.
Finally, we retain confidential healthcare information on our servers.
It is, therefore, critical that our facilities and infrastructure remain secure
and that our facilities and infrastructure are perceived by clients to be
secure. Although we operate our software applications from a secure facility
managed by a reputable third party, our infrastructure may be vulnerable to
physical break-ins, computer viruses, programming errors or similar disruptive
problems. A material security breach could damage our reputation or result in
liability to us.
If Our Platform Infrastructure and its Scalability Cannot be Proven,
Customers May Be Reluctant to Purchase our Products
We are just beginning to implement our Internet based products. If the
system is used by an increasing number of users, we will need to expand our
network infrastructure from time to time. In addition, we will need to
accommodate changing consumer and customer requirements. We are unable to
project accurately the rate or timing of increases, if any, in the use of our
website and may be unable to expand and upgrade our systems and infrastructure
to accommodate such changes on a timely basis, at a commercially reasonable
cost, or at all. Our systems may not accommodate increased use while maintaining
acceptable overall performance. Service lapses could cause our users to instead
use the on-line services of our competitors.
We May be Sued by Our Users if We Provide Inaccurate Health Information
on Our Website or Inadvertently Disclose Confidential Health
Information to Unauthorized Users
Because users of our website will access health content and services
relating to a medical condition they may have or may distribute our content to
others, third parties may sue us for defamation, negligence, copyright or
trademark infringement, personal injury or other matters. We could also become
liable if confidential information is disclosed inappropriately. These types of
claims have been brought, sometimes successfully, against on-line services in
the past. Others could also sue us for the content and services that will be
accessible from our website through links to other websites or through content
and materials that may be posted by our users in chat rooms or bulletin boards.
Any such liability will have a material adverse effect on our reputation and our
business, results of operations or financial position.
Our Business Will Be Adversely Affected If We Lose Key Employees or
Fail to Recruit and Retain Other Skilled Employees
Our Chairman, Frank A. Martin, is an integral part of our business and
our future success greatly depends upon his retention. Similarly, other officers
and directors provide us with key relationships, such as Dr. Michael O'Connell
with Walter Reed Medical Center and Dr. Craig Jones with Breathmobile and the
University of Southern California School of Medicine. Finally, our Chief
Technology Officer, David C. McCormack is an essential part of our technology
development efforts. Our failure to retain these individuals could have a
significant adverse impact on our ability to compete and succeed in the future.
Our future success also depends to a significant extent on our ability
to attract, retain and motivate highly skilled employees. As we secure new
contracts for our services and implement our products, we will need to hire
18
additional personnel in all operational areas. We may be unable to attract,
assimilate or retain such highly qualified personnel. We have from time to time
in the past experienced, and we expect to continue to experience in the future,
difficulty in hiring and retaining highly skilled employees with appropriate
qualifications. If we do not succeed in attracting new personnel or retaining
and motivating our current personnel, our business will be adversely affected.
We May Be Unable to Compete Successfully Against Companies Offering
Similar Products
A large number of health care companies are offering disease management
services and healthcare focused software solutions. Further, the number of
Internet websites offering users health care content, products and services is
vast. In addition, traditional health care providers compete for consumers'
attention both through traditional means as well as through new Internet
initiatives. Although we believe our technology enabled service solutions are
unique and better than our competitors', we compete for customers with numerous
other businesses.
Many of these potential competitors are likely to enjoy substantial
competitive advantages compared to us, including:
o greater name recognition and larger marketing budgets and
resources;
o larger customer and user bases;
o larger production and technical staffs;
o substantially greater financial, technical and other resources;
and
o the ability to offer a wider array of on-line products and
services;
To be competitive, we must continue to enhance our products and
services, as well as our sales and marketing channels.
We May be Exposed to Uninsured Liability Claims
We maintain professional malpractice, errors and omissions and general
liability insurance for all of our locations and operations. Although we believe
that these insurance policies are adequate in amount and coverage for our
current operations, there can be no assurance that coverage is sufficient to
cover all future claims or will continue to be available in adequate amounts or
at a reasonable cost.
Health Management, our operating subsidiary, had engaged in the
physician practice management business. While we are no longer engaged in that
business, Health Management may be subject to unknown liabilities arising from
such prior business operations, which may have a material adverse effect on our
business, operations, financial condition, or prospects.
Prior to the merger with Health Management, Member-Link was engaged in
the business of marketing, selling and installing eImmune(TM) and
AsthmaWatch(R). Since beginning its operations in 1996 until March 15, 2000,
Member-Link and Health Management did so without obtaining product or
professional liability insurance. Accordingly, if any customer of Member-Link or
Health Management should in the future claim that the software applications
Member-Link and/or Health Management sold prior to obtaining insurance on March
15, 2000 was defective, we would not have the protection of insurance in
satisfying or defending against such claims. At this time we are not aware of
any such claims. Any such claims, however, could have a material adverse effect
on our business, results of operations, financial condition and prospects.
Our clients may sue us if any of our software applications or services
is defective, fails to perform properly or injures the user. Even though we
currently have insurance, claims could require us to spend significant time and
money in litigation, to pay significant damages and to reserve for such
liability on our financial statements. At this time we are not aware of any such
claims. However, any such claims, whether or not successful, could seriously
damage our reputation and our business, results of operations or financial
position.
19
If Our Intellectual Property Rights Are Undermined By Third Parties Our
Business Will Suffer
Our intellectual property is important to our business. We rely on a
combination of copyright, trademark and trade secret laws, confidentiality
procedures and contractual provisions to protect our intellectual property. Our
efforts to protect our intellectual property may not be adequate. Our
competitors may independently develop similar technology or duplicate our
products or services. Unauthorized parties may infringe upon or misappropriate
our products, services or proprietary information. In addition, the laws of some
foreign countries do not protect proprietary rights as well as the laws of the
United States do, and the global nature of the Internet makes it difficult to
control the ultimate destination of our products and services. In the future,
litigation may be necessary to enforce our intellectual property rights or to
determine the validity and scope of the proprietary rights of others. Any such
litigation would probably be time-consuming and costly. We could be subject to
intellectual property infringement claims as the number of our competitors grows
and the content and functionality of software applications and services overlap
with competitive offerings. Defending against these claims, even if not
meritorious, could be expensive and divert our attention from operating our
company. If we become liable to third parties for infringing their intellectual
property rights, we could be required to pay a substantial damage award and
forced to develop noninfringing technology, obtain a license or cease selling
the applications that contain the infringing technology. We may be unable to
develop noninfringing technology or obtain a license on commercially reasonable
terms, or at all. We also intend to rely on a variety of technologies that we
will license from third parties, including any database and Internet server
software, which will be used to operate our applications to perform key
functions. These third-party licenses may not be available to us on commercially
reasonable terms. The loss of or inability to obtain and maintain any of these
licenses could delay the introduction of enhancements to our software
applications, interactive tools and other features until equivalent technology
could be licensed or developed. Any such delays could materially adversely
affect our business, results of operations and financial condition.
Provisions of Our Certificate of Incorporation Could Impede a Takeover
of Our Company Even Though a Takeover May Benefit Our Stockholders
Our Board of Directors has the authority, without further action by the
stockholders, to issue from time to time, up to 2,000,000 shares of preferred
stock in one or more classes or series, and to fix the rights and preferences of
such preferred stock. We are subject to provisions of Delaware corporate law
which, subject to certain exceptions, will prohibit us from engaging in any
"business combination" with a person who, together with affiliates and
associates, owns 15% or more of our Common Stock (referred to as an interested
stockholder) for a period of three years following the date that such person
became an interested stockholder, unless the business combination is approved in
a prescribed manner. Additionally, our bylaws establish an advance notice
procedure for stockholder proposals and for nominating candidates for election
as directors. These provisions of Delaware law and of our certificate of
incorporation and by-laws may have the effect of delaying, deterring or
preventing a change in our control, may discourage bids for our Common Stock at
a premium over market price and may adversely affect the market price, and the
voting and other rights of the holders of our Common Stock.
Our Officers Have Effective Control of the Company and Other
Stockholders May Have Little or No Voice in Corporate Management
Our Chairman, Vice-Chairman, the venture capital firm with which our
Chairman is affiliated, and three members of our Office of the President
beneficially own, in the aggregate, approximately 32% of the outstanding shares
of our Common Stock. As a result, these stockholders, acting together,
effectively control the election of directors and matters requiring approval by
our stockholders. Thus, they may be able to prevent corporate transactions such
as future mergers that might be favorable from our standpoint or the standpoint
of the other stockholders.
The Loss of Any of Our Very Limited Number of Customers Will Have a
Material Adverse Effect On Our Business
Historically, a very limited number of customers has accounted for a
significant percentage of our revenues. In 2000, our largest customers, Office
of the Attending Physician and Walter Reed Army Medical Center, accounted for
20
55% and 25% of our revenues, respectively. In 2001, our largest customer, Walter
Reed Army Medical Center, accounted for 84% of our revenues. We anticipate that
our results of operations in any given period will continue to depend to a
significant extent upon revenues of a small number of customers. Accordingly, if
we were to lose the business of even a single customer, our results of
operations would be materially and adversely affected.
The Price of Our Common Stock Is Volatile
Our stock price has been and we believe will continue to be volatile.
The stock's volatility may be influenced by the market's perceptions of the
healthcare sector in general, or other companies believed to be similar to us or
by the market's perception of our operations and future prospects. Many of these
perceptions are beyond our control. In addition, our stock is not heavily traded
and therefore the ability to achieve relatively quick liquidity without a
negative impact on our stock price is limited.
ITEM 2. DESCRIPTION OF PROPERTIES
Our executive, administrative and sales offices are located in
Philadelphia, Pennsylvania, where we lease approximately 4,659 square feet of
office space pursuant to a lease expiring in June 2005 at a current annual rate
of $123,463. The property is in good condition.
Our technology development offices are located in Reston, Virginia,
where, effective as of February 2, 2002, we lease approximately 1,381 square
feet of office space pursuant to a lease expiring in August 2003 at a current
annual rate of $41,430. The property is in good condition.
Our call center is located in Omaha, Nebraska, where, subsequent to the
closing of the WellComm acquisition on February 6, 2002, we lease approximately
3,751 square feet of office space pursuant to a lease expiring in August 2003,
at a current annual rate of $48,000. The property is in good condition.
We do not invest in real estate, interest in real estate, real estate
mortgages or in persons primarily engaged in real estate activities
ITEM 3. LEGAL PROCEEDINGS
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, the present Chief Executive Officer of Health
Management. Health Management is identified in the caption as a defendant. The
complaint alleges 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. See Nazir Memon v. Frank
Martin, et al, CAM-L-04026-98. 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, the present Chief Executive Officer 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 commence a new action. The stipulated time
period for commencing a new action has expired. By Opinion-Letter/Order dated
August 22, 2001, the New Jersey Superior Court, Civil Division, ruled that
Plaintiff is barred from reactivating the civil action by the bankruptcy
stipulation. The Plaintiff is appealing the Civil Division Opinion-Letter/Order
and the appeal is pending. As of December 31, 2001, the Company made no accrual
for accounting purposes because the Plaintiff's success in this matter is not
deemed probable nor could the Company reasonably estimate any adverse effect
based on the current facts.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of our stockholders during the
quarter ended December 31, 2001.
21
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market and Stockholder Information
I-trax Common Stock is quoted on the OTC Bulletin Board under the symbol "IMTX."
The following table sets forth the high and low closing bid information for the
Common Stock for the periods indicated:
High Low
2002
First Quarter (through March 25, 2002) $1.4700 $1.0200
2001
Fourth Quarter $1.6500 $0.3600
Third Quarter 0.7000 0.3600
Second Quarter 0.7800 0.5500
First Quarter 1.7500 0.5625
2000
Fourth Quarter $3.0000 $1.7500
Third Quarter 5.0000 2.3770
Second Quarter 3.5000 1.2500
First Quarter 5.2500 1.2500
The information presented above was supplied to I-trax by Nasdaq
Trading and Market Services and reflects inter-dealer prices, without retail
mark-up, markdown or commission and may not represent actual transactions.
As of March 1, 2002, there were approximately 855 registered holders
and approximately 527 "street name" holders of I-trax Common Stock. On March 26,
2002 the last reported sales price of I-trax Common Stock was $1.02.
I-trax has never paid or declared any cash dividends on I-trax Common
Stock or other securities and does not anticipate paying cash dividends in the
foreseeable future.
Recent Sales of Unregistered Securities
From November 2000 through May 2001, the Company completed 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 had 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 were convertible into I-trax Common
Stock. The stock purchase warrants grant holders a right to purchase 2 shares of
I-trax 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 were $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, $250,000 previously advanced to us by Frank A.
Martin, our Chief Executive Officer, and $250,000 previously advanced to us by
Gary Reiss, our Chief Operating Officer, in each case in October 2000, was
converted into this offering. As of June 30, 2001 the Company raised a total of
$2,200,000 pursuant to this offering. The Company filed a Form D with the
Securities and Exchange Commission in connection with the issuance the
convertible promissory notes and stock purchase warrants.
22
I-trax acquired iSummit effective as of February 7, 2001 in an exchange
transaction pursuant to a Contribution and Exchange Agreement dated as of
September 22, 2000, as amended. The Company issued a total of 4,222,500 shares
of its Common Stock to acquire iSummit. Effective as of December 31, 2001, this
number of shares of I-trax Common Stock was reduced to 2,933,316 shares on
account of post closing adjustments to the purchase price. In undertaking this
offering, the Company relied on an exemption from registration under Section
4(2) of the Securities Act and Regulation D thereunder. All iSummit members are
accredited investors. The Company filed a Form D with the Securities and
Exchange Commission in connection with the issuance of its Common Stock in this
transaction.
On June 25, 2001 and pursuant to an Exchange Agreement dated May 14,
2001, the holders of the convertible promissory notes, including Mr. Martin, our
Chief Executive Officer, and Mr. Reiss, our Chief Operating Officer, agreed to
exchange the principal amount of such promissory notes and interest accrued
thereon through May 15, 2001 in the aggregate amount of $2,280,157 for I-trax
Common Stock at the exchange price of $.50 per share. As consideration for the
exchange, the Company reset the exercise price of the warrants to acquire
2,200,000 shares of its Common Stock, originally issued together with the
convertible promissory notes, to $.50 per share. Accordingly, the Company issued
a total of 4,560,314 shares of I-trax Common Stock in the exchange. In
undertaking this exchange, the Company relied on an exemption from registration
under Section 4(2) of the Securities Act and Regulation D thereunder.
During the first and second quarters of 2001, Mr. Martin, the Company's
Chief Executive Officer, loaned the Company $515,000 to fund the Company's
working capital deficiency. Of such amount, the Company repaid $240,000 in June
2001. On June 25, 2001, Mr. Martin exchanged the outstanding portion of the loan
in the amount of $275,000, and interest thereon in the amount of $9,163, into
I-trax Common Stock at the exchange price of $.50 per share. The Company issued
an aggregate of 568,324 shares of its Common Stock in this exchange. In
addition, the Company issued Mr. Martin a stock purchase warrants to acquire
515,000 shares of I-trax Common Stock at an exercise price of $.50 per share as
consideration for this bridge financing. The terms of this exchange transaction
and warrant issuance, including the exchange price and the calculation of the
number of warrants granted, were intended to be identical to those applicable to
the debt exchange transaction closed by the Company on June 25, 2001 and
described above. In undertaking this offering, the Company relied on an
exemption from registration under Section 4(2) of the Securities Act and
Regulation D thereunder.
During the first and second quarters of 2001, Mr. Reiss, the Company's
Chief Operating Officer, loaned the Company $240,000 to fund the Company's
working capital deficiency. The Company repaid this amount in June 2001. On June
25, 2001, as consideration for the loan, the Company issued Mr. Reiss stock
purchase warrants to acquire 240,000 shares of I-trax Common Stock at an
exercise price of $.50 per share. The terms of the warrant issuance, including
the calculation of the number of warrants granted, were intended to be identical
to those applicable to the debt exchange transaction closed by the Company on
June 25, 2001 and described above. In undertaking this offering, the Company
relied on an exemption from registration under Section 4(2) of the Securities
Act and Regulation D thereunder.
On March 2, 2001, the Company entered into an Amended and Restated
Promissory Note and Warrant Purchase Agreement with a group of investors led by
Psilos Group Partners, L.P. (collectively, the "Psilos Group") pursuant to which
the Psilos Group agreed, among other things, to loan the Company up to
$1,000,000. The Psilos Group included Nantucket Healthcare Ventures I, L.P.
("Nantucket"), a venture fund managed by Mr. Martin, the Company's Chief
Executive Officer. As consideration, the Company granted the Psilos Group
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. The Psilos Group funded $692,809 of the $1,000,000 and received
warrants to purchase 1,823,474 shares of I-trax Common Stock. Of such total
amounts, Nantucket funded $75,000 and received warrants to purchase 197,400
shares of I-trax 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. All Psilos Group investors are accredited investors.
Effective as of January 4, 2002, all Psilos Group investors exercised their
warrants using a cashless exercise feature and received an aggregate of
1,701,584 shares of I-trax Common Stock.
23
In May 2001, the Company issued 9,000 shares of its Common Stock to an
investment banker, representing a portion of such banker's fees. The investment
banker is an accredited investor. In undertaking this offering, we relied on an
exemption from registration under Section 4(2) of the Securities Act and
Regulation D thereunder.
Effective as of June 25, 2001, the Company completed a private
placement of 2,200,000 shares of its Common Stock at $.50 to two investors,
yielding to the Company a total of $1,100,000. As consideration for completing
the private placement, the Company issued to the participating investors stock
purchase warrants to purchase 1 one share of I-trax Common Stock for each $2
invested in this private placement at an exercise price of $1.00 per share. The
Company, therefore, issued warrants to acquire a total of 550,000 shares of its
Common Stock. Both participants in the private placement are 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 Company filed a Form D with the Securities and Exchange
Commission in connection with the issuance of its Common Stock in this
transaction.
Effective as of July 13, 2001, the Company issued 107,560 shares of its
Common Stock to an investment banker. These shares were issued in satisfaction
of accrued consulting fees of $76,798. For purposes of this issuance, each
shares of Common Stock was valued at $.71 per share. In addition, the Company
granted the investment banker a five year warrant to purchase up to 180,000
shares of Common Stock at a per share price of $.75. The investment banker is an
accredited investor. In undertaking this issuance, we relied on an exemption
from registration under Section 4(2) of the Securities Act and Regulation D
thereunder.
Effective as of September 30, 2001, the Company issued 10,973 shares of
its Common Stock to a consultant. These shares were issued in satisfaction of
accrued consulting fees of $21,946. For purposes of this issuance, each share of
Common Stock was valued at $2.00 per share. The consultant is an accredited
investor. In undertaking this issuance, we relied on an exemption from
registration under Section 4(2) of the Securities Act and Regulation D
thereunder.
In October 2001, the Company initiated a private placement of up to
6,000,000 shares of its Common Stock to accredited investors at $.50 per share,
seeking to raise approximately $2,500,000 in cash and to convert into I-trax
Common Stock approximately $500,000 accrued by the Company on account of
services rendered to the Company by certain of its consultants and vendors. As
of December 31, 2001, we sold an aggregate of 3,901,000 shares, yielding to us
$1,950,500, issued an aggregate of 784,975 shares in exchange for previously
rendered services and issued an aggregate of 669,000 in exchange for surrender
of debt held by the Company's Chief Executive Officer and Chief Operating
Officer. During the month of January 2002, we sold an additional 110,000 shares,
yielding to us $55,000. We closed the private placement on January 31, 2002. The
funds raised in this private placement, with the exception of a portion of the
proceeds used to cover related expense, have been used to fund the Company's
operations. In issuing shares in this private placement, we relied on an
exemption from registration under Section 4(2) of the Securities Act and
Regulation D thereunder. We filed with the Securities and Exchange Commission a
Form D in connection with the issuance of our shares in this private placement.
Beginning in November 2000, in an effort to conserve cash, the Company
established a salary deferment program whereby certain executive officers,
including Messrs. Martin and Reiss, and other employees agreed to defer all or a
portion of their salaries. To induce employees to participate in the salary
deferment program the Company agreed to pay interest at the rate of 8% per annum
on the deferred salary. In addition, the Company promised participating
employees that they would receive (i) an option to convert deferred salary into
equity on the same basis as third-party investors in the Company and (ii)
"coverage warrants" to the extent such were granted to third-party investors
while participating employees were deferring pay. The Company ended the salary
deferment program on December 31, 2001. As of December 31, 2001, the Company
accrued $1,038,876 on account of deferred salaries and interest thereon. Certain
participating employees, including Messrs. Martin and Reiss, agreed to exchange
a total of $814,595 of accrued salary, together with interest thereon, for
warrants to acquire 2,327,415 shares of Common Stock with an exercise price of
$0.15 per share. The number of warrants issued to each employee electing to
surrender accrued salary was calculated by dividing such employee's total
accrued salary and interest thereon by $0.35. Accordingly, if an employee
elected to exchange accrued salary for warrants and later exercised these
warrants, the effective per share price for the shares of I-trax Common Stock
that such employee would receive would be $.50. The price of $.50 per share was
intended to equal the price per share paid by third-party investors purchasing
I-trax Common Stock in several private placements completed by I-trax in 2001.
24
The Company also granted the participating employees warrants to acquire an
aggregate of 710,983 shares of Common Stock at an exercise price of $.50 per
share and warrants to acquire an aggregate of 102,073 shares of Common Stock at
an aggregate of $1.00 per share. These extra warrants were issued to all
employees that participated in the salary deferment program because similar
warrants were issued by the Company to third-party investors in connection with
the several private placement completed by the Company in 2001. In undertaking
these private placements, the Company relied on an exemption from registration
under Section 4(2) of the Securities Act.
Effective as of December 31, 2001, Mr. Martin, the Company's Chief
Executive Officer, exercised 470,066 warrants by surrendering to the Company for
cancellation a portion of a loan in the amount of $70,510 payable by the Company
to Mr. Martin. The Company issued the warrants to Mr. Martin as part of the
Company's salary deferment program described above. In undertaking this
issuance, the Company relied on an exemption from registration under Section
4(2) of the Securities Act.
During the third and fourth quarters of 2001, Mr. Reiss, the Company's
Chief Operating Officer, loaned the Company $296,000, Mr. Martin, the Company's
Chief Executive Officer, loaned the Company $280,000 and Alan Sakal, the
Company's Senior Vice President, loaned the Company $100,000, in each case, to
fund the Company's working capital deficiency. The Company repaid Mr. Sakal's
loan in January 2002. On December 20, 2001, as consideration for the loans, the
Company issued Messrs. Reiss, Martin and Sakal stock purchase warrants to
acquire 148,000 shares, 140,000 shares and 50,000 shares of I-trax Common Stock,
respectively, at an exercise price of $1.00 per share. The terms of the warrant
issuance, including the calculation of the number of warrants granted, were
intended to be identical to those applicable to the warrants issued in
connection with the Company's private placement of $1,100,000 of I-trax Common
Stock and warrants on June 25, 2001 and described above. In undertaking this
offering, the Company relied on an exemption from registration under Section
4(2) of the Securities Act and Regulation D thereunder.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
You should read the following discussion and analysis together with our
financial statements and the notes to our financial statements included
elsewhere in this report.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements, which are based upon
current expectations and involve a number of risks and uncertainties. In order
for I-trax, Inc. (the "Company" or "I-trax") to utilize the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995, investors
are hereby cautioned that these statements may be affected by important factors,
which are set forth below and elsewhere in this report, and consequently, actual
operations and results may differ materially from those expressed in these
forward-looking statements. The important factors include the Company's ability
to continue as a going concern and the Company's ability to execute contracts
for disease management services and software technology.
The Company's financial statements have been prepared assuming that it
will continue as a going concern. As of December 31, 2001, the Company's working
capital deficiency amounted to $624,863. During the past two years, cash flow
deficits have amounted to approximately $400,000 per month on average. Through
December 31, 2001 and the date of this report, the Company has been able to
secure financing to fund these deficits. Most recently, the Company secured such
funding from unrelated parties, and in the past, from its Chief Executive
Officer, Chief Operating Officer and other employees of the Company. In the near
future, additional cash will be required to enable the Company to finish the
development of its core products, liquidate its short-term liabilities and
continue to implement its marketing strategy. Management is optimistic that it
will be able to raise additional capital to fund these initiatives and also to
fund cash flow deficits; however, there can be no assurance that it will be able
to do so.
Further, during the fourth quarter of 2001 and immediately subsequent
thereto, the Company executed several sales contracts and two joint marketing
agreements with organizations that have the ability to market the Company's
products and services to their existing clients. The Company expects that these
key agreements will generate revenue in 2002 and that in the second half of 2002
the Company will have sufficient cash flow to fund its cash flow deficits.
25
Nonetheless, the Company may require additional funding to fund its cash flow
deficits until then. 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.
Corporate History Overview
I-trax was incorporated in the State of Delaware on September 15, 2000
at the direction of the Board of Directors of I-trax Health Management
Solutions, Inc. ("Health Management"), I-trax's then parent company. On February
5, 2001, I-trax became the holding company of Health Management at the closing
of a reorganization pursuant to Section 251(g) of Delaware General Corporation
Law. The holding company reorganization was described in greater detail in
I-trax'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 I-trax and Health Management became a
wholly owned subsidiary of I-trax. Further, all outstanding shares of Health
Management were converted into shares of I-trax 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, I-trax 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.
The holding company structure has allowed us greater flexibility in our
operations and expansion and diversification plans, including in the acquisition
of iSummit Partners, LLC, doing business as "MyFamilyMD" ("iSummit"), on
February 7, 2001 and WellComm Group, Inc., an Illinois corporation ("WellComm"),
on February 6, 2002.
I-trax acquired iSummit effective as of 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 iSummit
and the owners contributed to the Company all of the issued and outstanding
ownership interests in iSummit. At closing, of the total 4,222,500 shares I-trax
agreed to issue, 2,086,250 shares were delivered to the owners of iSummit and
2,136,250 shares were deposited with an escrow agent. Effective as of December
31, 2001, a total of 1,289,184 shares held in escrow were returned to the
Company and cancelled. Accordingly, the aggregate number of shares issued by
I-trax to acquire iSummit has been reduced to 2,933,316 shares. This number may
be further reduced by an additional 50,000 shares, as negotiations regarding
such a further reduction are ongoing. Since February 7, 2001, iSummit has been a
passive, wholly-owned entity of the Company with certain intellectual property
as its only assets.
Business Overview
I-trax has historically developed enterprise and client server
applications for collecting disease specific data at the point-of-care for
several large hospitals and medical centers. In 2001, the Company expanded its
product lines by developing additional software applications, adding services
and completing several strategic acquisitions. The Company now offers total
population health management solutions. Our mission is to combine real time
Internet-based software technology and targeted personal interventions by
healthcare professionals to improve the quality of care, increase patient
satisfaction, improve clinical outcomes, reduce practice variances, improve
operating efficiencies and lower medical costs.
Our products range from stand-alone software applications to total
health management solutions. Our stand-alone software applications assist
physicians, patients and the entire healthcare community in assessing,
preventing and managing all stages of disease and wellness. Currently, our
stand-alone software applications include four clinical applications:
AsthmaWatch(R), an asthma tracking tool, Health-e-Coordinator(TM), a disease
management tool, C-trax(TM), a cardiovascular point-of-care tool, and
eImmune(TM), an immunization management system; and two web portals:
MyFamilyMD(TM) for consumers and CarePrime(TM) for physicians. We license our
software applications as client-managed integrated applications or as an
application service provider from our secure web hosting facility.
26
Our population health management solutions assist public health
agencies, hospitals, health plans, self-insured employers, and colleges and
universities to manage the healthcare of their populations as outsourced
services through I-trax. We deliver these service solutions by integrating
Health-e-Coordinator(TM) disease management tool, our web portals Care Prime(TM)
and MyFamilyMD(TM) and our patient contact center staffed by skilled nurses and
other healthcare professionals 24 hours per day, 7 days per week. Our service
solutions are flexible and adoptable. Without significant modifications to our
software applications, our solutions address the specific needs of several
segments of the healthcare industry, including, as examples, university and
college student health plans, indigent care coordination and disease management
initiatives and disease management of acutely ill patient with co-morbidities.
Recent Developments
Recent Acquisition
On February 6, 2002, I-trax acquired WellComm. WellComm is a healthcare
services company that offers a broad array of expertise including a nurse
contact center specializing in disease management, triage, health information
survey, and research services for the healthcare industry. For the fiscal year
ended December 31, 2001, WellComm recognized revenue of $5,287,702 and earnings
before provision for income taxes of $327,159. For the fiscal year ended
December 31, 2000, WellComm recognized revenue of $979,142 and a loss of $
119,954.
The WellComm acquisition was a two-step reorganization pursuant to a
Merger Agreement dated as of January 28, 2002 (the "WellComm Merger Agreement")
by and among I-trax, WC Acquisition, Inc., an Illinois corporation and a
wholly-owned subsidiary of I-trax ("Acquisition"), WellComm, John Blazek and
Carol Rehtmeyer. The initial step of the reorganization transaction involved a
merger of Acquisition with and into WellComm, in which merger WellComm continued
as the surviving corporation. The second step of the reorganization transaction
involved a statutory merger of WellComm with and into I-trax, in which merger
I-trax continued as the surviving corporation. . The parties to the WellComm
Merger Agreement intend to treat the initial step and the second step of the
reorganization as part of an integrated plan, such that the two steps constitute
a single transaction described in Rev. Rule 2001-46, 2001-42 Internal Revenue
Bulletin 321 (Sep. 24, 2001), and thus a tax-free reorganization pursuant to
Section 368 of the Internal Revenue Code of 1986, as amended.
At the closing of this merger, I-trax delivered to the WellComm
stockholders $2,000,000 in cash and 7,440,000 shares of I-trax Common Stock and
to each of Ms. Rehtmeyer and Jane Ludwig, both senior officers of WellComm prior
to this merger, options to acquire 280,000 shares of I-trax Common Stock at an
exercise price of $0.001 per share. I-trax also agreed to deliver to the
WellComm stockholders additional contingent merger consideration either in cash
or, at the election of John Blazek as a representative of the WellComm
stockholders, in shares of I-trax Common Stock. The additional contingent merger
consideration will be equal to 10% of revenues that may be generated by sales of
new services to an existing WellComm client during a 12-month period beginning
on the date such new services begin to be delivered. Such new services, however,
must commence by February 5, 2003, but have not been commenced as of March 25,
2002. If the additional contingent merger consideration is paid in shares of
I-trax Common Stock, the shares will valued at the lesser of $1.23 per share and
the average of the closing price of I-trax Common Stock for twenty 20
consecutive trading days ending on the day prior to the day a contingent merger
consideration payment is due. Any additional shares distributed will be
recognized as compensation expense in the period earned.
After the merger, each of Mr. Blazek and Ms. Rehtmeyer joined I-trax as
a Managing Director and Ms. Ludwig joined I-trax as a Vice President pursuant to
employment agreements with Health Management. In addition, Mr. Blazek and Ms.
Rehtmeyer were elected to I-trax's Board of Directors.
I-trax granted to the WellComm stockholders the following registration
rights under the Securities Act of 1933, as amended, with respect to the shares
of I-trax Common Stock issued in the merger: (i) two demand registration rights
exercisable after February 5, 2005; and (ii) unlimited "piggy back" registration
rights (subject to underwriter cut back) in the event I-trax registers I-trax
Common Stock for its own account.
I-trax funded the acquisition of WellComm by selling a 6% convertible
senior debenture in the aggregate principal amount of $2,000,000 (the
"Debenture") to Palladin Opportunity Fund LLC ("Palladin") pursuant to a
27
Purchase Agreement dated as of February 4, 2002 between I-trax and Palladin.
Pursuant to the purchase agreement, I-trax also issued Palladin a warrant to
purchase an aggregate of up to 1,538,461 shares of I-trax Common Stock at an
exercise price of $1.10 per share (the "Warrant"). The outstanding principal and
any capitalized interest under the Debenture are payable in full on or before
February 3, 2004. Further, outstanding principal and any capitalized interest
may be converted at any time at the election of Palladin into I-trax Common
Stock at an initial conversion price of $1.00 per share. The initial conversion
price is subject to "reset" as of the dates that are 12 months and 18 months
after the issue date (each such date, a "Reset Date"). With respect to each
Reset Date, the conversion price will only be reduced if the closing bid price
for I-trax Common Stock, averaged during a period of 20 consecutive trading days
ending on the date that immediately precedes the applicable Reset Date, is less
than the then applicable conversion price, in which case, the reset conversion
price is equal to such average.
Pursuant to the Purchase Agreement, Palladin also received an option to
purchase an additional 6% convertible senior debenture in the face amount of $1
million and received an additional warrant to purchase an aggregate of up to
769,230 shares of I-trax Common Stock. The terms of the optional debenture and
warrant will be substantially similar to those of the Debenture and the Warrant.
Finally, pursuant to a related registration rights agreement, I-trax agreed to
register all of the shares of I-trax Common Stock underlying the Debenture and
the Warrant on a registration statement on Form SB-2 or, if I-trax is then
eligible, on a registration statement on Form S-3.
Results of Operations
For the two years ended December 31, 2001, the Company did not generate
significant sales. During the period, the Company expended a predominant portion
of its resources to build and deliver eImmune(TM) and C-Trax(TM) to Walter Reed
Army Medical Center in accordance with prior contractual obligations. Further,
during such period, the Company re-focused its efforts to changing from
developing custom software applications for few clients to: (1) commercializing
existing software applications including eImmune(TM), AsthmaWatch(R) and
C-Trax(TM), (2) web-enabling new applications including MyFamilyMD(TM),
CarePrime(TM) and Health-e-Coordinator(TM), and (3) and attempting to
commercialize these products as a total population health management solution.
This process began in May 2000 when the Company brought together its current
management team. The process continued in 2001, when, in response to demand in
the marketplace, the Company supplemented its technology solutions with disease
management services. The Company has now focused its marketing efforts on three
main markets: (1) college and university student health services; (2) the
Department of Defense/public health sector; and (3) health plans and
self-insured employers.
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000.
Total revenues for 2001 amounted to $613,070, which represents an
increase of $352,425 or 135% from $260,645 for 2000. This increase was primarily
attributable to: (i) a software license for eImmune(TM) to Walter Reed Army
Medical Center and (ii) C-trax(TM) software application, likewise for Walter
Reed Army Medical Center. Although revenue increased, cost of revenue decrease
by 36% from $156,034 for 2000 to $99,584 for 2001. The decrease in the cost of
revenue is directly attributable to the fact that contracts executed in 2001
require delivery of software applications rather than hardware, as was the case
with contracts fulfilled in 2000. In 2002 and beyond, the Company expects to
generate revenues by (i) licensing its software applications on a subscription
basis to customers that rely on their own capabilities to deliver disease
management service or (ii) delivery of total population health/disease
management solutions, encompassing technology and services. Management expects
that its cost of sales will fluctuate depending on the type of contract.
Management also expects that technology based contracts will yield a low cost of
sales whereas disease management contracts coupled with services will increase
the cost of sales. The Company also expects that many of its future licenses
will require the Company to make its software applications accessible by
Internet on a subscription basis to self-insured employers, health plans and
colleges and universities.
The product development costs amounted to $818,176 for 2001,
representing an increase of approximately 15% from prior year. The majority of
this sum is attributable to the build out of the MyFamilyMD(TM) health
assessment tools called MedWizards(R), Health-e-Coordinator(TM) and
CarePrime(TM). We expect to continue to spend funds on adding functionality to
MyFamilyMD(TM) by adding MedWizards(R), on CarePrime(TM), which interacts with
28
MyFamilyMD(TM) and its MedWizards(R), and on Health-e-Coordinator(TM) by adding
additional disease capabilities. All product development costs in 2000 and 2001
were expensed.
General and administrative expenses (excluding salary and related
benefits which are explained separately below) equaled $1,711,430 for 2001, a
decrease of 25% from $2,286,594 for 2000. The decrease was attributable to
several factors. First, in 2000, the Company incurred certain expenses related
to the Company's changed management structure. In addition, the Company incurred
substantial expenses related to its holding company reorganization, acquisition
of iSummit and related Securities and Exchange Commission filings, including a
registration statement on Form S-4. These costs were primarily recruiting fees,
consulting, legal and other professional fees. In the third quarter of 2001, in
order to conserve cash, the Company reassessed its spending budget and
implemented certain cost cutting measures, including an employee head count
reduction. Management anticipates that in 2002 it will maintain a level of
spending similar to that of the fourth quarter of 2001 because management
believes the Company now has the personnel to handle increased revenue with
minimal incremental costs. The Company will also incur additional expenses in
the area of dues, filing fees and maintenance fees in connection with applying
for the listing of its securities on the American Stock Exchange.
Salary and related benefits increased by 140% from $2,903,071 for 2000
to $6,996,108 for 2001. A major component of such increase, $3,100,000, is
attributable to a non-cash charge associated with the Company's issuing stock
purchase warrants to employees and officers in exchange for surrender of accrued
salary under the Company's Salary Deferment Program. The Salary Deferment
Program commenced in November 2000 and terminated on December 31, 2001.
Approximately $1,000,000 was accrued by the Company pursuant to the Salary
Deferment Program. In December 2001, the Company gave program participants the
option of converting their accrued salary into equity or being paid out over
time if and when the Company generated positive cash flows from operations.
Employees that deferred approximately $825,000 agreed to covert this amount into
equity. The Company converted this amount by granting each employee a warrant to
purchase one share of Common Stock at an exercise price of $.15 per share, for
each $.35 of deferred salary. For accounting purposes, the Company valued such
warrants utilizing the Black-Scholes pricing model, which takes in to account
current market price and volatility of the Company's securities along with other
key factors. Such valuation resulted in a charge to earnings of approximately
$3,100,000. The remainder of the increase amounting to a approximately $993,000
(inclusive of payroll taxes and related benefits), relates to the Company adding
senior personnel to, among others things, market the Company's population health
management services and student health solutions. Management believes that the
added expense has improved the Company's marketing strategy significantly and
that the Company is well positioned for the roll out of its products in 2002.
Acquired in progress research and development amounted to $1,642,860
for 2001. This amount was directly attributable to the acquisition of iSummit on
February 7, 2001. An independent, third party, valuation company derived this
amount after a detailed analysis of all the underlying facts.
Debt issuance and conversion costs along with interest expense amounted
to $1,949,320 for 2001. This was a result of the Company's valuing warrants
granted in connection with (i) the conversion of $2,200,000 in principal amount
of convertible promissory notes, (ii) the conversion of certain officer
advances, and (iii) the re-pricing of the exercise price of certain warrants
issued in connection with the convertible promissory notes from $2.00 to $.50
each.
Depreciation and amortization amounted to $799,014 for 2001 as compared
to $75,089 for 2000. This increase of $723,925 is primarily a result of the
amortization of goodwill in connection with the acquisition of iSummit on
February 7, 2001.
Marketing and advertising expenses equaled $989,972 for 2001, an
increase of 160% from $380,277 for 2000. The increase was attributable to the
Company expanding its marketing campaign to penetrate the markets it has
identified along with promoting itself in the financial community for the
purposes of raising additional equity.
The Company recorded a net loss of $ 14,359,432 for 2001 as compared to
a loss of $6,415,484 for 2000. The majority of this loss was attributable to the
aggregate non-cash charges in connection with the issuance and granting of
equity securities.
29
Liquidity and Capital Resources
Working Capital Deficiency
The Company ended 2001 with over $1,000,000 in cash on its balance
sheet. As of December 31, 2001, the Company has a working capital deficiency
amounting to $624,863. Since December 31, 2001, the Company has raised an
additional $1,425,000 through March 20, 2002, and has received commitments for
additional $575,000 by the first week of April 2002. The Company is optimistic,
although no assurance exists, that if the Company requires additional funding
before its operations produce positive cash flow, it will be able to raise such
funding.
Sources and Uses of Cash
Despite its negative cash flows from operations, which amounted to
approximately $4,900,000 for 2001 and $4,700,000 for 2000, the Company has been
able to secure funds to support its operations to date. During the third quarter
of 2001 and first quarter of 2002, such funds have been received from unrelated
investors. Prior to the fourth quarter of 2001, the Company received such funds
from Frank A. Martin, the Company's Chief Executive Officer, Gary Reiss, the
Company's Chief Operating Officer, and certain other senior officers. Management
believes that additional cash will be required to finish the development of the
Company's products and to implement its revised marketing strategy.
For 2001 and 2000, the Company funded its cash needs primarily from
financing activities (sales of Common Stock and issuance of convertible and
non-convertible promissory notes), which amounted to approximately $5,400,000
for each of 2001 and 2000. In the future, the Company expects to rely less on
equity financing and more on cash flows from operations. The operations of
WellComm are expected to provide a portion of the Company's operating cash flow
needs.
With regards to investing activities for 2001, the Company collected
$312,500, representing a major portion of amounts due under a note issued to the
Company by Diabetex Corporation (as further discussed below) in December 2000.
The original amount of the note before all applicable interest and out-of pocket
costs equaled $350,000. During 2001, the Company's investment in office
equipment and furniture was nominal. The Company invested $324,585 in office
equipment and furniture in 2000.
As of December 31, 2001, the Company's current liabilities amounted to
approximately $1,800,000, of which approximately $700,000 is due to Messrs.
Martin and Reiss, the Company's Chief Executive Officer and Chief Operating
Officer, respectively, for which no repayment terms have been established.
However, management does not expect to repay these loans until the Company
begins to generate cash flows from operations and obtains the consent of
Palladin pursuant to the terms of the Debenture and related documents. The
remainder of current liabilities of approximately $1,100,000 is made up,
primarily, of trade payables amounting to approximately $620,000 and accrued
expenses of approximately $277,000, of which $225,000 is accrued salaries not
converted into warrants pursuant to the Company's salary deferment program. The
Company has good relationships with its vendors and past and current employees.
The Company's long-term debt is made up of 6% convertible senior
debenture in the aggregate principal amount of $2,000,000 held by Palladin, for
which principal and capitalized interest is not due until February 3, 2004, and
$692,809 held by a group of investors led by Psilos Group Partners, L.P., which
includes Nantucket Healthcare Ventures I, L.P., a venture fund managed by Mr.
Martin, our Chief Executive Officer, for which, principal and interest is not
due until March 2006. The Company expects that it will be able to repay these
obligations if they are not converted into equity prior to their due date.
Advances by Officers & Key Employee and Issuance of Securities to
Related Parties
During 2001, Mr. Martin and Mr. Reiss and a key employee of the Company
periodically advanced funds to fund the Company's working capital deficiency. As
of December 31, 2001, the Company owed these individuals $739,598 (inclusive of
accrued interest). As consideration for the advances, the Company issued to such
individuals, detachable stock purchase warrants to acquire an aggregate of
1,093,000 shares of Common Stock at exercise prices ranging from $.50 to $1 per
30
share. The Company valued the detachable warrants using the Black-Scholes
pricing model, thereby recording a charge to earnings for financing costs of
$630,469.
In connection with the Company's Chief Executive Officer and Chief
Operating Officer converting a total of $618,663 of advances at $.50 per share,
the Company issued an aggregate of 1,237,326 shares of its Common Stock.
From November 2000 through May 2001, the Company issued several
convertible promissory notes with an aggregate face amount of $2,200,000. Of
such total, $500,000 was from the Company's Chief Executive Officer and Chief
Operating Officer during October 2000, which was subsequently converted into the
Company's Common Stock.
As of December 31, 2001, a venture fund managed by the Company's Chief
Executive Officer loaned the Company $75,000 and received warrants to purchase
197,400 shares of the Company's Common Stock at $.10 per share.
In connection with signing of their employment agreements, the
Company's Chief Executive and Operating Officers had each purchased from the
Company 250,000 shares of Common Stock for a purchase price of $2 per share. The
shares were purchased pursuant to a subscriptions agreement and a note and
pledge agreement. Each note was for a principal amount of $499,750 (net of a
$250 bonus), bearing interest at approximately 6% per annum, and provided that
the unpaid principal amount shall be due in five equal installments on each
December 29, 2001 and thereafter. Effective during the second quarter 2001,
pursuant to board resolutions, such notes and pledge agreements were canceled.
Further, on April 10, 2001, each of such executive officers was granted 350,000
incentive stock options pursuant to the Company's 2001 Equity Compensation Plan.
Pursuant to FASB Interpretation No. 44, variable accounting at the end of each
interim period must be applied to 250,000 of the 350,000 options granted on
April 10, 2001 since they are deemed a re-price of the cancelled pledge and note
agreements. Accordingly, since the Company's fair market value was $1.25 at
December 31, 2001 and such options have an exercise of $.55, the Company
recorded the intrinsic value of $.70 or a total of $350,000 as compensation
expense on account of the re-pricing. The Company will continue to
mark-to-market these options at the end of each respective interim period until
they are exercised.
On December 31, 2001, the Company's issued 470,066 shares of Common
Stock in connection with the Chief Executive officer exercising 470,066 warrants
by converting $70,510 of advance into equity. Such warrants were granted in
connection with the salary deferment program previously discussed.
Critical Accounting Policies
Legal Contingencies
We are currently involved in a certain threatened litigation. As
discussed in Note 13 of our consolidated financial statements, as of December
31, 2001, we have not accrued a loss contingency because the plaintiff's success
in this matter is not deemed probable nor could the Company reasonably estimate
any adverse effect based on the current facts. We do not believe this proceeding
will have a material adverse effect on our consolidated financial position. It
is possible, however, that future results of operations for any particular
quarterly or annual period could be negatively and materially affected by
changes in our assumptions, of the effectiveness of our strategies, related to
these proceedings.
Impairment of Goodwill
We have evaluated goodwill for impairment indicators and will continue
to do so in the future. Our judgments regarding the existence of impairment
indicators are based on legal factors, market conditions and operational
performance of our acquired businesses. Future events could cause us to conclude
that impairment indicators exist, requiring a write-down of goodwill, which may,
in turn, negatively affect our earnings for any particular period.
31
Revenue Recognition
We derive our revenue pursuant to different type contracts, including
perpetual software licenses, subscription licenses and custom development
services, all of which may also include support services revenue such as
licensed software maintenance, training, consulting and web hosting
arrangements. As described below, significant management judgments and estimates
must be made and used in connection with the revenue recognized in any
accounting period. Material differences may result in the amount and timing of
our revenue for any period if our management made different judgments or
utilized different estimates.
We license our software products for a specific term or on a perpetual
basis. Most of our license contracts also require maintenance and support. We
apply the provisions of Statement of Position 97-2, "Software Revenue
Recognition," as amended by Statement of Position 98-9 "Modification of SOP
97-2, Software Revenue Recognition, With Respect to Certain Transactions" to all
transactions involving the sale of software products and hardware transactions
where the software is not incidental. For hardware transactions where software
is not incidental, we do not bifurcate the fee and we do not apply separate
accounting guidance to the hardware and software elements. For hardware
transactions where no software is involved we apply the provisions of Staff
Accounting Bulletin 101 "Revenue Recognition." In addition, we apply the
provisions of Emerging Issues Task Force Issue No. 00-03 "Application of AICPA
Statement of Position 97-2 to Arrangements that Include the Right to Use
Software Stored on Another Entity's Hardware" to our hosted software service
transactions.
We recognize revenue from the sale of software licenses when persuasive
evidence of an arrangement exists, the product has been delivered, the fee is
fixed and determinable and collection of the resulting receivable is reasonably
assured. Delivery generally occurs when product is delivered to a common
carrier.
At the time of the transaction, we assess whether the fee associated
with our revenue transactions is fixed and determinable and whether or not
collection is reasonably assured. We assess whether the fee is fixed and
determinable based on the payment terms associated with the transaction. If a
significant portion of a fee is due after our normal payment terms, which are 30
to 90 days from invoice date, we account for the fee as not being fixed and
determinable. In these cases, we recognize revenue as the fees become due.
We assess collection based on a number of factors, including past
transaction history with the customer and the credit-worthiness of the customer.
We do not request collateral from our customers. If we determine that collection
of a fee is not reasonably assured, we defer the fee and recognize revenue at
the time collection becomes reasonably assured, which is generally upon receipt
of cash.
For arrangements with multiple obligations (for example, undelivered
maintenance and support), we allocate revenue to each component of the
arrangement using the residual value method based on the fair value of the
undelivered elements. This means that we defer revenue from the arrangement fee
equivalent to the fair value of the undelivered elements.
We recognize revenue for maintenance services ratably over the contract
term. Our training and consulting services are billed based on hourly rates, and
we generally recognize revenue as these services are performed. However, at the
time of entering into a transaction, we assess whether or not any services
included within the arrangement require us to perform significant work either to
alter the underlying software or to build additional complex interfaces so that
the software performs as the customer requests. If these services are included
as part of an arrangement, we recognize the entire fee using the percentage of
completion method. We estimate the percentage of completion based on our
estimate of the total costs estimated to complete the project as a percentage of
the costs incurred to date and the estimated costs to complete.
Material Equity Transactions
For the years ended December 31, 2000 and 2001, the Company executed
numerous equity transactions with related and unrelated parties in connection
with the raising funds for working capital along with issuing securities in lieu
of compensation for services received. The Company believes that it has valued
all such transaction pursuant to the various accounting rules and that they
32
ultimately represent the economic substance of each transaction. In connection
with issuing Common Stock for services and granting warrants to compensate debt
holders to convert debt into equity and to compensate various individuals for
deferring salaries in order to help the Company succeed, the Company has
recognized non-cash costs in excess of $6,700,000 of costs which increased its
loss in excess of $14,000,000.
33
ITEM 7. FINANCIAL STATEMENTS
I-TRAX INC & SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001
AND
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Item Page No.
Independent accountants' report.............................................................................35
Balance sheet at December 31, 2001..........................................................................36
Statements of operations for the years ended December 31, 2001and 2000......................................37
Statement of stockholders' equity (deficiency) for the years ended December 31, 2001 and 2000...............38
Statements of cash flows for the years ended December 31, 2001 and 2000.....................................40
Notes to financial statements...............................................................................41
34
Report of Independent Accountants
To the Board of Directors and
Stockholders of I-trax, Inc:
We have audited the accompanying consolidated balance sheet of I-trax,
Inc. & Subsidiaries (the "Company") as of December 31, 2001, and the related
consolidated statements of operations, stockholders' equity (deficiency) and
cash flows for the years ended December 31, 2001 and 2000. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company at December 31, 2001, and the results of its operations and cash
flows for the two years ended December 31, 2001 and 2000, in conformity with
accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
2 to the financial statements, the Company has a working capital deficiency and
incurred losses from operations for the years ended December 31, 2001 and 2000,
which raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
March 29, 2002
35
I-TRAX, INC. AND SUBSIDIARIES
BALANCE SHEET
DECEMBER 31, 2001
ASSETS
Current assets
Cash $ 1,029,208
Prepaid expenses 99,245
Note receivable 72,437
Other current assets 1,915
-----------------
Total current assets 1,202,805
-----------------
Office equipment and furniture, net 279,635
Goodwill, net 2,224,726
Security deposits 66,896
-----------------
Total assets $ 3,774,062
=================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 619,612
Accrued expenses 276,750
Deferred revenue 148,830
Capital lease payable 42,878
Due to related parties 739,598
-----------------
Total current liabilities 1,827,668
-----------------
Capital lease obligation, net of current portion 55,901
Promissory notes payable, net of discount 312,327
-----------------
Total liabilities 2,195,896
-----------------
Commitments and contingencies (Note 13) --
Stockholders' equity
Preferred stock - $.001 par value, 2,000,000 shares authorized,
-0- issued and outstanding --
Common Stock - $.001 par value, 100,000,000 shares authorized,
34,939,466 shares issued and outstanding 34,939
Additional paid in capital 22,964,778
Accumulated deficit (21,421,551)
-----------------
Total stockholders' equity 1,578,166
-----------------
Total Liabilities and Stockholders' Equity $ 3,774,062
=================
See accompanying notes to financial statements.
36
I-TRAX, INC. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
2001 2000
---------------- -----------------
Revenue $ 613,070 $ 260,645
---------------- -----------------
Operating expenses:
Cost of revenue 99,584 156,034
General and administrative 1,711,430 2,286,594
Salary & related benefits, including $3,915,232 for 2001
of stock based compensation 6,996,108 2,903,071
Research and development 818,176 710,858
Acquired in progress research & development 1,642,860 --
Depreciation & amortization 799,014 75,089
Marketing and advertising 989,972 380,277
---------------- -----------------
Total operating expenses 13,057,144 6,511,923
---------------- -----------------
Operating loss (12,444,074) (6,251,278)
---------------- -----------------
Other income (expenses):
Miscellaneous income - 119,689
Settlements of judgments - (176,500)
Debt issuance & conversion costs (1,424,688) --
Interest income 33,962 15,011
Interest expense (524,632) (122,406)
---------------- -----------------
Total other income (expenses) (1,915,358) (164,206)
---------------- -----------------
Loss before provision for income taxes (14,359,432) (6,415,484)
---------------- -----------------
Provision for income taxes -- --
---------------- -----------------
Net loss $ (14,359,432) $ (6,415,484)
================ =================
Loss per common share:
Basic and diluted (.54) (.36)
================ =================
Weighted average number of shares outstanding: 26,457,013 18,037,879
================ =================
See accompanying notes to financial statements.
37
I-TRAX, INC. AND SUBSIDIARIES
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
Total
Additional Notes Stockholders'
Common Stock Paid-in Accumulated Receivable Equity
Shares Amount Capital Deficit Officers (Deficiency)
---------- ----------- ----------- ----------- ----------- -----------
Balances at January 1, 2000 15,799,843 $ 15,800 $ 1,043,527 $ (646,635) $ - $ 412,692
Sale of common stock,
net of costs (note 12) 1,800,000 1,800 1,793,080 - - 1,794,880
Sale of common stock,
net of costs (note 15) 862,500 863 1,724,160 - - 1,725,023
Issuance of common stock in
connection with services
rendered to the Company 25,000 25 49,975 - - 50,000
Issuance of commons stock in
connection with conversion
of related party debt 17,500 17 34,983 - - 35,000
Grant of Non-qualified and Non-plan
options to consultants as
considerations for services
Rendered - - 256,035 - - 256,035
Fair market value of detachable
purchase warrants issued with
convertible promissory notes - - 743,027 - - 743,027
Issuance of common stock in
connection with exercise of
stock options 250,000 250 24,750 - - 25,000
Issuance of common stock in
connection with officers
Note & Pledge Agreements 500,000 500 999,500 - (999,500) 500
Net loss for the year ended
December 31, 2000 - - - (6,415,484) - (6,415,484)
---------- ----------- ----------- ----------- ----------- -----------
Balances at December 31, 2000 19,254,843 $ 19,255 $ 6,669,037 $(7,062,119) $ (999,500) $(1,373,327)
========== =========== =========== =========== =========== ===========
See accompanying notes to financial statements.
38
I-TRAX, INC. AND SUBSIDIARIES
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
Total
Additional Notes Stockholders'
Common Stock Paid-in Accumulated Receivable Equity
Shares Amount Capital Deficit Officers (Deficiency)
---------- ---------- ------------ ------------ ------- -----------
Balances at December 31, 2000 19,254,843 $19,255 $ 6,669,037 $ (7,062,119) $ (999,500) $(1,373,327)
Common Stock issued in
connection with acquisition
of
iSummit Partners, LLC 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 -- -- 459,854 -- -- 459,854
Sale of common stock, June 2001
Private Placement 2,200,000 2,200 1,097,800 -- -- 1,100,000
Grant of non-qualified and
non-plan
options to consultants as
consideration for services -- -- 29,741 -- -- 29,741
rendered
Cancellation of Note and
Pledge Agreements (500,000) (500) (999,500) -- 999,500 (500)
Issuance of Common Stock and
warrants in connection with
conversion of convertible
promissory notes 4,560,314 4,560 2,547,224 -- -- 2,551,784
Issuance of Common Stock and
warrants in connection
with conversion of
advances from officers 1,237,326 1,238 1,247,894 -- -- 1,249,132
Sale of Common Stock, net of
costs
October 2001, Private 4,211,976 4,212 2,038,746 -- -- 2,042,958
Placement
Issuance of Common Stock and
warrants as consideration for
services
rendered to the Company 601,533 601 1,012,297 -- -- 1,012,898
Granting of warrants to
employees as
consideration for deferring
and
converting accrued salary
amounting
to $814,595 into equity 3,915,232 -- -- 3,915,232
Cancellation of shares in
connection
with purchase price adjustment
for iSummit Partners, LLC (464,592) (465) (724,299) -- -- (724,764)
Issuance of common stock in
connection
with exercise of warrants 470,066 470 70,040 70,510
Mark-to-market of options
granted to
Officers in lieu of canceling
Note &
Pledge agreement 350,000 350,000
Net loss for the year ended
December 31, 2001 -- -- -- (14,359,432) -- (14,359,432)
---------- ---------- ------------ ------------ ------- -----------
Balances at December 31, 2001 34,939,466 $ 34,939 $ 22,964,778 $(21,421,551) $ -- $ 1,578,166
========== ========== ============ ============ ======= ===========
See accompanying notes to financial statements.
39
I-TRAX, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
2001 2000
----------- ----------
Operating activities:
Net loss $(14,359,432) $(6,415,484)
Adjustments to reconcile net loss to net
cash used for operating activities:
Purchase research & development 1,642,860 --
Accretion on discounts charged to interest expense 463,551 --
Depreciation and amortization 799,014 75,090
Issuance of various securities for consideration of services 6,576,003 429,125
Decrease (increase) in:
Accounts receivable 217,145 194,893
Prepaid expenses (62,539) (11,936)
Other current receivables 2,666 (4,581)
(Decrease) increase in:
Accounts payable 192,462 260,172
Accrued expenses (167,592) 418,742
Customer Deposits (226,404) 375,234
----------- ----------
Net cash used for operating activities (4,922,266) (4,678,745)
----------- ----------
Investing activities:
Purchase of office equipment and furniture (1,990) (324,585)
Security deposits made (refunded) 61,486 (88,220)
Collection of (investment) in promissory note receivable 312,500 (350,000)
----------- ----------
Net cash provided by (used for) investing activities 371,996 (762,805)
----------- ----------
Financing activities:
Repayments of convertible debentures -- (37,500
Proceeds from issuance of promissory note payable 692,809 -
Repayments to related parties -- (31,048)
Proceeds from officers advances 1,180,990 -
Repayments of officers advances (480,000) -
Principal payments on capital leases (40,095) (2,727)
Proceeds from sale of common stock, net of expenses 3,822,968 3,519,903
Proceeds from issuance of convertible promissory notes 270,000 1,930,000
----------- ----------
Net cash provided by financing activities 5,446,672 5,378,628
----------- ----------
Net increase (decrease) increase in cash 896,402 (62,922)
Cash and cash equivalents at beginning of year 132,806 195,728
----------- ----------
Cash and cash equivalents at end of year $ 1,029,208 $ 132,806
=========== ==========
Supplemental disclosure of non-cash flow information:
Cash paid during the year for:
Interest $ 7,468 $ 4,537
=========== ==========
Income taxes $ - $ -
=========== ==========
Schedule of non-cash investing activities:
Acquisition of office equipment in connection with
capital lease obligations $ _ $ 141,578
=========== ==========
Schedule of non-cash financing activities:
Issuance of common in connection with converting promissory notes
and related party advances $ 2,551,784 $ 35,000
=========== ==========
Acceptance (cancellation) of promissory note in connection with sale of
Common stock $ (999,500) $ 999,500
=========== ==========
See accompanying notes to financial statements.
40
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
NOTE 1--ORGANIZATION
History
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. 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 structure allows the Company
greater flexibility in its expansion and diversification plans. Additionally,
the holding company structure facilitated the acquisition of iSummit Partners,
LLC (D/B/A "MyFamilyMD"), which was consummated on February 7, 2001 as further
discussed in Note 6 and the acquisition of WellComm Group, Inc on February 6,
2002, as discussed in Note 17. The Company's common stock is quoted on the
Over-the-Counter Bulletin Board under the symbol "IMTX".
The Company, through its subsidiary, Health Management, offers population health
management solutions to the medical industry by utilizing its suite of
technology products. The Company's mission is to combine real time
Internet-based software technology, smart electronic health information and
education, electronic health risk assessments and risk stratification, seamless
messaging and targeted electronic and personal interventions by healthcare
professionals to improve the quality of care, increase patient satisfaction,
improve clinical outcomes, reduce practice variances, improve operating
efficiencies and lower medical costs. The Company has also developed a powerful
disease management software engine and database architecture, which can be
expanded into unlimited health care applications.
As of December 31, 2001, the Company has two wholly owned subsidiaries, Health
Management as described above, and is the sole member of iSummit Partners, LLC,
a limited liability company acquired in February 2001. iSummit Partners, LLC
does have any operations other than maintaining ownership of certain
intellectual property.
NOTE 2--GOING CONCERN
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. For the years ended 2001 and 2000 the
Company used cash in operations of $4,900,000 and $4,700,000 million
respectively. As of December 31, 2001, the Company's accumulated deficit
amounted to $21,421,551 of which $14,359,432 resulted from losses generated
during the year ended December 31, 2001. Of the total loss of $14,359,432 for
2001, $1,642,860 was a non-cash charge to operations for the acquired in
progress research and development in connection with iSummit acquisition and
$6,576,003 of non-cash charges as consideration for payments for services
rendered to the Company and for the granting and re-pricing of warrants
associated with the conversion of debt into equity and for the borrowing of
funds from related parties. As of December 31, 2001, the Company's working
capital deficiency amounted to $624,863.
Beginning in the fourth quarter of 2000, in an effort to conserve cash, the
Company established a salary deferment program whereby certain executive
officers and certain other senior level employees agreed to defer all or a
portion of their salaries until the Company reached positive cash flows or
secured significant financing either from equity or debt instruments. The
program remained in effect until December 31, 2001. As consideration for
individuals deferring salaries, the Company agreed to pay interest at the rate
of 8% per annum on the deferred salary and offered warrants with exercise prices
paralleling the same exercise prices granted to outside investors during the
year. The Company agreed to repay such accrued salary to individuals not
electing to convert into equity over a twelve-month period commencing
immediately upon generating excess cash flows from operations.
41
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
NOTE 2--GOING CONCERN (cont'd)
Through December 31, 2001 and the date of this report, the Company has been able
to secure financing to support its working capital deficiency. Such support has
been received from unrelated parties and its Chief Executive and Operating
Officers. In the near future, additional cash will be required to enable the
Company to finish the development of its core products, liquidate its short-term
liabilities and continue to implement its marketing strategy based on its
re-defined markets.
Management is optimistic that it will be able to raise additional capital,
however, there can be no assurance that it will be able to do so. During the
fourth quarter of 2001 and immediately subsequent thereto, the Company executed
several sales contracts and two joint marketing agreements with organizations
that have the ability to market the Company's products and services to their
existing clients. The Company expects that these key agreements will generate
revenue in 2002 and that in the second half of 2002 the Company will have
sufficient cash flow to fund its cash flow deficits.
Regardless of these positive events, the Company will require additional funding
to bridge the gap until these agreements and contracts materialize into cash.
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.
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash And Cash Equivalents
The Company considers highly liquid investments with maturities of three months
or less at the time of purchase to be cash equivalents.
Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109 "Accounting for Income Taxes" which
requires the use of the "liability method" of accounting for income taxes.
Accordingly, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities, using enacted tax rates in effect for the year in which the
differences are expected to reverse. Current income taxes are based on the
respective periods' taxable income for federal and state income tax reporting
purposes.
Loss Per Common Share
Loss per common share is computed pursuant to Financial Accounting Standards
Board, "SFAS No. 128," "Earnings Per Share". Basic loss per share is computed as
net income (loss) available to common shareholders divided by the weighted
average number of common shares outstanding for the period. Diluted loss per
share reflects the potential dilution that could occur from common shares
issuable through stock options, warrants, and convertible debt. As of December
31, 2001, 11,743,718 options and warrants were excluded from the diluted loss
per share computation, as their effect would be anti-dilutive.
42
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
Use Of Estimates
In preparing the financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
which affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Fair Value Disclosure At December 31, 2001
The carrying value of cash, accounts payable and accrued expenses are a
reasonable estimate of there fair value because of the short-term maturity.
Office Equipment And Furniture
Office equipment and furniture are recorded at cost less accumulated
depreciation which is provided on the straight line basis over the estimated
useful lives of the assets which range between three and seven years.
Expenditures for maintenance and repairs are expensed as incurred.
Accounts Receivable
The Company utilizes the allowance method for recognizing the collectibility of
its accounts receivable. The allowance method recognizes bad debt expense based
on a review of the individual accounts outstanding based on the surrounding
facts.
Research And Development Costs
Research and development costs are expensed as incurred. Such costs amounted to
$818,176 and $710,858 for the years ended December 31, 2001 and 2000,
respectively.
Revenue Recognition
The Company recognizes revenues in accordance with Statement of Position 97-2
"Software Revenue Recognition" as further modified by Statement of Position 98-9
"Modification of SOP 97-2, "Software Revenue Recognition with Respect to Certain
Transactions". SOP 97-2 generally requires revenue earned on software
arrangements involving multiple elements such as software products, upgrades,
enhancements, post-contract customer support, installation and training to be
allocated to each element based on the relative fair value of the elements.
Revenue from software development contracts is recognized on a
percentage-of-completion method with progress to completion measured based upon
labor hours incurred or achievement of contract milestones. Revenue from re-sale
of hardware and software, obtained from vendors, is recognized at the time
hardware and software is delivered to customers. Customer deposits represent
funds received in advance in excess of revenue recognized. The Company has
adopted the provisions of the Securities & Exchange Commission Staff Accounting
Bulletin (SAB) 101, ("Revenue Recognition in Financial Statements") in the
fourth quarter of 2000, retroactively to January 1, 2000, as required by the
Securities & Exchange Commission. The adoption had no impact on the Company's
financial statements.
43
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
Software Development Costs
In accordance with the provisions of Statement of Financial Accounting Standard
(SFAS) No. 86, Accounting for the Costs of Computer Software to be Sold, Leased
or Otherwise Marketed, the Company will capitalize software development and
production costs once technological feasibility has been achieved. Software
development costs incurred prior to achieving technological feasibility are
included in research and development expense in the accompanying statement of
operations. As of December 31, 2001, the Company has not capitalized any
software development costs. Commencing with the first quarter of 2002, the
Company expects to start capitalizing some of its software development costs
based on the expected completion of working models for several of its software
products.
Comprehensive Income
The Company has adopted SFAS No. 130, "Accounting for Comprehensive Income."
This statement establishes standards for reporting and disclosing of
comprehensive income and its components (including revenues, expenses, gains and
losses) in a full set of general-purpose financial statements. The items of
other comprehensive income that are typically required to be disclosed are
foreign currency items, minimum pension liability adjustments, and unrealized
gains and losses on certain investments in debt and equity securities. The
Company had no comprehensive income for the years ended December 31, 2001 and
2000.
Reclassification
Certain reclassifications of operating expenses in the statement of operations
for the year ended December 31, 2000 have been made to conform to 2001
presentation.
Stock-Based Compensation
The Company accounts for employee stock options using the intrinsic value method
as prescribed by Accounting Principles Board Opinion No. 25 "Accounting or Stock
Issued to Employees". The Company follows the disclosure provisions of Statement
of Financial Accounting Standard ("SFAS") No. 123, "Accounting for Stock Based
Compensation" for valuing common stock issued to non-employees, which recommends
the utilization of the Black Scholes option-pricing model for valuing the
underlying securities to be issued.
Segment Reporting
The Company evaluates segment performance based on income from operations.
Through December 31, 2001, the Company does not measure segment performance as
it operates in only one segment.
New Accounting Pronouncements
Effective January 1, 2001, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended by SFAS No. 137, "Accounting for Derivatives Instruments
and Hedging Activities-Deferral of the Effective Date of FASB Statement No.
133," and SFAS No. 138, "Accounting for Certain Derivatives Instruments and
Certain Hedging Activities." The standards require an entity to recognize all
derivatives as either assets or liabilities measured at fair value. The
accounting for the changes in fair value of a derivative depends on the use of
the derivative. The Company does not have any derivatives subject to these
pronouncements at this time.
44
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
New Accounting Pronouncements (cont'd)
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations", and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 addresses
financial accounting and reporting for business combinations and supercedes APB
Opinion No. 16, "Business Combinations." Changes made by SFAS No. 141 include
(1) requiring the purchase method of accounting be used for all business
combinations initiated after June 30, 2001, and (2) established specific
criteria for the recognition of intangible assets separately from goodwill.
These provisions are effective for business combinations for which the date of
acquisition is subsequent to June 30, 2001. SFAS No. 142 addresses the
accounting for goodwill and intangible assets subsequent to their acquisition.
The provisions for SFAS No. 142 will be effective for fiscal years beginning
after December 15, 2001. The Company will adopt SFAS No. 142 in the first
quarter of calendar year 2002 and accordingly will cease amortization of
goodwill. From February 7, 2001 through December 31, 2001, the Company recorded
$640,851 of amortization. The impact of the impairment provisions, if any, of
FAS 142 cannot be estimated at this time.
In October 2001, the FASB issued SFAS No. 144 " Accounting for the Impairment or
Disposal of Long-Lived Assets" which addresses the financial accounting and
reporting for the impairment or disposal of long-lived assets and supercedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived
assets to be Disposed Of". SFAS 144 is effective for fiscal years beginning
after December 15, 2001 and the interim periods within. The adoption of SFAS 144
is not expected to have a material impact on the financial statements of the
Company.
NOTE 4--NOTE RECEIVABLE
Pursuant to a promissory note and a security agreement dated December 19, 2000,
the Company loaned Diabetex Corporation ("Diabetex"), which is 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. As of December 31, 2001, Diabetex and certain of its related parties
have paid the Company a total of $312,500, which has been first applied to
accrued interest and reimbursable expenses and the balance to principal. As of
December 31, 2001, the principal and interest outstanding under the promissory
note equaled $72,437, of which $37,500 was paid on February 11, 2002. The
parties anticipate that the outstanding balance along with all accrued interest
will be repaid by May 15, 2002.
NOTE 5--OFFICE EQUIPMENT AND FURNITURE
Office equipment and furniture are as follows at December 31, 2001:
Office equipment $ 420,171
Furniture 100,364
-----------
520,535
Less: accumulated depreciation 240,900
-----------
$ 279,635
===========
45
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
NOTE 5--OFFICE EQUIPMENT AND FURNITURE (cont'd)
Certain office equipment is pledged as collateral for related capital lease
obligations. (See Note 9.)
Depreciation expense for the years ended December 31, 2001 and 2000 amounted to
$158,162 and $75,090 respectively.
NOTE 6--ACQUISITION OF ISUMMIT PARTNERS, LLC
Effective February 7, 2001, the Company completed the acquisition of iSummit
Partners, LLC, doing business as MyFamilyMD ("iSummit") by issuing a total of
4,222,500 shares of its common stock to the owners of iSummit in exchange for
all of the issued and outstanding limited liability company membership interests
of iSummit. For purposes of recording the acquisition, of the total 4,222,500
shares, the Company originally recorded 3,368,000 shares (valued at $1.56 per
share or $5,254,080) (non-contingent) as consideration. Furthermore, of the
total 4,222,500 shares, 854,500 shares would have been released to the former
owners of iSummit, and recorded as an expense for accounting purposes, upon the
Company reaching certain revenue targets generated by iSummit'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 (representing undeveloped software) and $20,879 to tangible assets.
The allocation of purchase price was prepared based on a formal valuation by an
independent entity.
Effective December 31, 2001, 1,289,184 of the total 4,222,500 shares have been
mutually cancelled based on additional unexpected costs the Company incurred in
building out the technology it had acquired from iSummit. iSummit has been a
passive wholly owned entity of the Company, which holds certain intellectual
property of the Company and it does not engage in any operations. For accounting
purposes, the Company has reversed 464,592 of the total shares surrendered with
a recorded value of $724,764, since the remaining 854,500 were shares
contingently issuable upon reaching certain revenue targets, which were not met
and therefore were not previously recorded.
The Company is amortizing the goodwill over a five-year period on a
straight-line basis. Accordingly, from February 7, 2001 (date of acquisition)
through December 31, 2001, the Company recorded amortization expense of
$640,851.
The following summarized table sets forth the pro-forma statements of operations
as if the acquisition was consummated at the beginning of the year for each of
the respective periods.
Year ended
December 31,
2001 2000
--------------- -----------------
Total revenue $ 613,070 $ 260,645
=============== =================
Total expenses $ 14,972,502 $ 7,466,426
=============== =================
Net loss $ (14,359,432) $ (7,205,781)
=============== =================
Pro forma basic and diluted net loss per share (.54) (.34)
=============== =================
Weighted average number of shares outstanding 26,457,013 20,941,287
=============== =================
46
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
NOTE 7--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 contemplated a license by CardioContinuum to the Company of
certain protocols and workflows that facilitate efficient treatment of patients
suffering from cardiac disease. The letter of intent also contemplated a loan to
CardioContinuum of $100,000 in the form of a promissory note, and all accrued
but unpaid interest there under, 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.
As a result of CardioContinuum filing for bankruptcy during 2001, the Company
wrote off the deposit on the intellectual property since it wouldn't have been
able to realize any value and repayment of the note was unlikely.
NOTE 8--ACCRUED EXPENSES
Accrued expenses consist of the following at December 31, 2001:
Interest 49,469
Salaries 224,281
Other 3,000
-----------
Total $ 276,750
===========
NOTE 9--CAPITAL LEASE OBLIGATIONS
During April 2000, the Company acquired a telephone system for $34,290 by
entering into capital lease obligations with interest at approximately 10% per
annum, requiring 60 monthly payments of $731, which include principal and
interest. The related equipment secures the lease.
During October 2000, the Company acquired web hosting equipment for $107,288 by
entering into a capital lease obligation with interest at approximately 9% per
annum, requiring 36 monthly payments of $3,572, which include principal and
interest. The related equipment secures the lease.
The future minimum lease commitments under the capital leases as of December 31,
2001 are as follows:
For the year
ended December 31:
2002 $ 51,636
2003 44,492
2004 8,772
2005 2,924
------------
107,824
Total future payments
Less amount representing interest (9,045)
------------
Present value of minimum lease payments 98,779
Less current portion 42,878
------------
Net long term portion $ 55,901
============
47
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
NOTE 9--CAPITAL LEASE OBLIGATIONS (cont'd)
At December 31, 2001 equipment under capital leases is carried at a book value
of $93,824.
NOTE 10--RELATED PARTIES TRANSACTIONS
During the year ended December 31, 2001, the Company's Chief Executive Officer,
Chief Operating Officer and a key employee have periodically advanced/repaid
funds to/from the Company for working capital. As of December 31, 2001, the
Company was advanced a net of $739,598 after certain repayments and the
conversion. As consideration for the advances, the Company issued to such
individuals, detachable stock purchase warrants to acquire an aggregate of
1,093,000 shares of common stock at exercise prices ranging from $.50 to $1 per
share. The Company valued the detachable warrants using the Black-Scholes
pricing model, thereby recording a charge to earnings for financing costs of
$630,469.
In connection with the Company's Chief Executive Officer and Chief Operating
Officer converting a total of $618,663 of advances at $.50 per share, the
Company issued an aggregate of 1,237,326 shares of its common stock.
From November 2000 through May 2001, the Company issued several convertible
promissory notes with an aggregate face amount of $2,200,000. Of such total,
$500,000 was from the Company's Chief Executive Officer and Chief Operating
Officer during October 2000, which was subsequently converted into common stock
as further discussed in Note 12.
As of December 31, 2001, a venture fund managed by the Company's Chief Executive
Officer loaned the Company $75,000 and received warrants to purchase 197,400
shares of the Company's Common Stock at $.10 per share. (See Note 11 for
additional information.)
In connection with signing of their employment agreements, the Company's Chief
Executive and Operating Officers had each purchased from the Company 250,000
shares of common stock for a purchase price of $2 per share. The shares were
purchased pursuant to a subscriptions agreement and a note and pledge agreement.
Each note was for a principal amount of $499,750 (net of a $250 bonus), bearing
interest at approximately 6% per annum, and provided that the unpaid principal
amount shall be due in five equal installments on each December 29, 2001 and
thereafter. Effective during the second quarter 2001, pursuant to board
resolutions, such notes and pledge agreements were canceled. Further, on April
10, 2001, each of such executive officers was granted 350,000 incentive stock
options pursuant to the Company's 2001 Equity Compensation Plan. Pursuant to
FASB Interpretation No. 44, variable accounting at the end of each interim
period must be applied to 250,000 of the 350,000 options granted on April 10,
2001 since they are deemed a re-price of the cancelled pledge and note
agreements. Accordingly, since the Company's fair market value was $1.25 at
December 31, 2001 and such options have an exercise of $.55, the Company
recorded the intrinsic value of $.70 or a total of $350,000 as compensation
expense on account of the re-pricing. The Company will continue to
mark-to-market these options at the end of each respective interim period until
they are exercised.
On December 31, 2001, the Company issued 470,066 shares of common stock in
connection with the Chief Executive Officer exercising 470,066 warrants by
converting $70,510 of advance into equity. Such warrants were granted in
connection with the salary deferment program previously discussed in Note 2.
48
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
NOTE 11--PROMISSORY NOTES PAYABLE
On March 2, 2001 the Company entered into an Amended and Restated Promissory
Note and Warrant Purchase Agreement with Psilos Group Partners, L.P. and its
affiliates (the "Psilos Investor Group") pursuant to which the Psilos Investor
Group agreed to loan the Company up to $1,000,000. As consideration, the Company
granted the Psilos Investor Group detachable warrants to acquire shares of the
Company's common stock at $.10 per share. 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 December 31, 2001, the Psilos Investor Group (which
includes a venture fund managed by the Company's Chief Executive Officer) funded
an aggregate of $692,809 of the $1,000,000 and received warrants to purchase
1,823,473 shares of the Company's common stock.
The Company valued the detachable warrants issued at $459,854 using the
Black-Scholes pricing model, thereby 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 and netted against the related debt.
Furthermore, the discount is being accreted to interest expenses over the
five-year term of the underlying promissory notes. As of December 31, 2001,
$79,372 of such discount is accreted to interest expense.
NOTE 12--CONVERTIBLE PROMISSORY NOTES PAYABLE
From November 2000 through May 2001, the Company issued several Convertible
Promissory Notes ("Promissory Notes") with an aggregate face amount of
$2,200,000. 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 were convertible into common stock at $2.00 per share. The
Promissory Notes were to mature one year from the date of issuance and bore
interest at 8% per annum or 12% per annum in an event of default. Furthermore,
the Company issued to the holders of the Promissory Notes detachable warrants to
purchase an additional 2,200,000 shares of the Company's common stock at an
exercise price of $2.00.
The proceeds allocated to the detachable purchase warrants amounted to $845,650,
which was arrived at using the Black-Scholes pricing model. Such amount was
recorded as a discount to the Promissory Notes. The discount has been accreted
as interest expense over the life of the underlying Promissory Notes. On May 14,
2001, the holders of the Promissory Notes and the Company entered in to the
Exchange Agreement. As of May 15, 2001, the date the holders of the Promissory
Notes and the Company entered in to the Exchange Agreement discussed below, the
Company accreted $365,143 of the discount to interest expense.
Pursuant to an Exchange Agreement dated May 14, 2001 between the Company and the
holders of the Promissory Notes, the holders agreed to exchange $2,200,000,
representing the principal amounts of the Promissory Notes, and $80,157, the
interest accrued thereon through May 15, 2001, into common stock at the exchange
price of $.50 per share. In addition, as consideration for the exchange, the
Company reset the exercise price of the warrants to $.50 per share. Accordingly,
the Company issued a total of 4,560,314 shares of the Company's common stock in
the exchange. For accounting purposes, the Company recorded the conversion at
$2,551,784 (net of the un-amortized discount) into equity. In connection with
the Company reducing the conversion price from $2 to $.50 for the purpose of
inducing note holders to convert, during the second quarter, the Company
recorded debt conversion costs amounting to $794,219 which represented the
difference between the adjusted conversion price and the fair market value of
the Company's securities on the date of conversion.
49
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
NOTE 13--COMMITMENTS AND CONTINGENCIES
Nature of Business
The Company is subject to risks and uncertainties common to growing technology
companies, including rapid technological developments, reliance on continued
development and acceptance of the Internet and health care applications
utilizing the Internet, intense competition and a limited operating history.
Significant Customers
Financial instruments, which may potentially expose the Company to
concentrations of credit risk, consist primarily of accounts receivable.
Although as of December 31, 2001, the Company did not have any accounts
receivables, it did generate revenue from a small concentration of customers.
For the years ended December 31, 2001 and 2000, the Company had one and two
unrelated customers, respectively, which accounted for 84% and 75%, respectively
of total revenues.
Office Leases
On October 22, 1999, the Company entered into a lease agreement for its
technology and product development offices. The lease was to expire on October
31, 2004 with annual rent of approximately $162,000 before annual escalations.
During December 2001, the Company was successful in negotiating out of this
lease by entering into an amendment\relocation lease agreement with the same
landlord for materially less space. The Company entered into an eighteen-month
lease, which requires monthly payment of approximately $3,600.
The Company's approximate future minimum annual rental payments (as revised)
including annual escalations under the non-cancelable operating leases in effect
as of December 31, 2001 are as follows:
For the year
ended December 31,
2002 $ 166,200
2003 144,600
2004 123,000
2005 61,000
2006 -
------------
$ 494,800
============
Rent expense for the years ended December 31, 2001 and 2000 amounted to
approximately $312,000 and $249,000, respectively.
50
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
NOTE 13--COMMITMENTS AND CONTINGENCIES
Employment Agreements
The Company over the course of its history has entered into various employment
agreements with certain of its officers and key employees. Such employment
agreements range between three to five years with annual salaries ranging from
$75,000 to $175,000.
Judgments
During 1998, several judgments were entered against Health Management while it
was operating as U.S. Medical Alliance, relating to, among other things, the
Company's prior line of business of managing physician practices. The
allegations made in the underlying suits related to wrongful discharge, general
breach of contract, breach of equipment lease agreements and miscellaneous
vendor claims. The aggregate gross amount of such judgments entered against the
Company and certain associated physicians were approximately $600,000. Between
1999 and 2000, the Company settled and paid all such judgments for approximately
$214,000.
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, the present Chief Executive Officer of Health Management.
Health Management is identified in the caption as a defendant. The complaint
alleges 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. See Nazir Memon v. Frank Martin, et
al, CAM-L-04026-98. 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, the
present Chief Executive Officer 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 commence a new
action. The stipulated time period for commencing a new action has expired. By
Opinion-Letter/Order dated August 22, 2001, the New Jersey Superior Court, Civil
Division, ruled that Plaintiff is barred from reactivating the civil action by
the bankruptcy stipulation. The Plaintiff is appealing the Civil Division
Opinion-Letter/Order and the appeal is pending. As of December 31, 2001, the
Company made no accrual for accounting purposes because the Plaintiff's success
in this matter is not deemed probable nor could the Company reasonably estimate
any adverse effect based on the current facts.
Profit Sharing Plan
During the second quarter 2000, the Company established a 401(k) profit sharing
plan covering qualified employees, which includes employer participation in
accordance with the provisions of the Internal Revenue Code. The plan allows
participants to make pretax contributions and the Company to match certain
percentages of employee contributions depending on a number of factors,
including the participant's length of service. The profit sharing portion of the
plan is discretionary and noncontributory. All amounts contributed to the plan
are deposited into a trust fund administered by an independent trustee. As of
December 31, 2001, the Company has made no contributions.
51
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
NOTE 14--PROVISION FOR INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related to differences between the financial statement and tax bases of assets
and liabilities for financial statement and income tax reporting purposes.
Deferred tax assets and liabilities represent the future tax return consequences
of these temporary differences, which will either be taxable or deductible in
the year when the assets or liabilities are recovered or settled. Accordingly,
measurement of the deferred tax assets and liabilities attributable to the
book-tax basis differentials are computed at a rate of 34% federal and 6% state.
The only material tax effect of significant items comprising the Company's
current deferred tax assets as of December 31, 2001 is its net operating loss
carry forwards, which amounted to approximately $11,600,000. The deferred tax
asset associated with the Company's net operating losses amounted to
approximately $4,200,000 as of December 31, 2001.
In accordance with SFAS No. 109, the Company has recorded a 100% valuation
allowance for such deferred tax asset since management could not determine that
it was "more likely than not" that the deferred tax asset would be realized in
the future. The Company's net operating losses will expire between 2011 and 2016
if not utilized.
NOTE 15--STOCKHOLDERS' EQUITY
Amendment of the Company's Certificate of Incorporation
The Board of Directors of the Company also approved an amendment to the
Company's Certificate of Incorporation increasing the number of authorized
shares of common stock from 50,000,000 to 100,000,000 shares. The holders of the
majority of the Company's then outstanding shares of common stock approved this
amendment on May 21, 2001.
2000 Issuances of Common Stock and Warrants
During January and February 2000, the Company sold an aggregate of 1,800,000
shares of its common stock at $1 per share yielding net proceeds of $1,794,880
after certain offering expenses. Such shares were sold pursuant to Rule 506 of
Regulation D promulgated under the Securities Act of 1933.
In May 2000, the Company commenced a private placement pursuant to Rule 506 of
Regulation D under the Securities Act of 1933. The offering was initially
comprised of 1,000,000 shares of its common stock at $2 per share. Pursuant to
such offering, the Company sold an aggregate of 862,500 shares yielding proceeds
of $1,725,023 as of December 31, 2000.
In August 2000, the Company issued 25,000 shares of its common stock at $2.00
per share for recruiting expenses in connection with expanding its sales force.
Accordingly, the Company recorded recruiting expense amounting to $50,000 in
connection with such issuance.
In September 2000, the Company issued 17,500 shares of its common stock to a
former officer of Member-Link in connection with a $35,000 advance made by such
officer in prior year.
52
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
NOTE 15--STOCKHOLDERS' EQUITY (cont'd)
2000 Issuances of Common Stock and Warrants (cont'd)
For the year ended December 31, 2000, the Company recorded $256,035 of
consulting expenses as a result of granting 280,000 non-plan/non-qualified stock
options utilizing the Black-Scholes option-pricing model.
Concurrently with the sale of the Convertible Promissory Notes discussed in Note
12, the Company issued detachable purchase warrants to purchase an additional
share for every dollar invested of the Company's common stock at an initial
exercise price of $2 per share. As of December 31, 2000, the proceeds allocated
to the detachable purchase warrants amounted to $743,027, which was valued using
the Black-Scholes 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 year ended December 31, 2000, the Company
recorded $97,590 of the discount accreted to interest expense. In addition, as
of December 31, 2000, the Company has accrued $20,278 of interest on such
outstanding notes payable.
2001 Issuances of Common Stock and Warrants
In connection with the issuance of the Promissory Notes payable discussed in
Note 11 the Company granted the C2 Investor Group detachable warrants to acquire
2.632 shares of the Company's common stock at $.10 per share for each $1 of the
face amount of the loan. As of December 31, 2001, the C2 Investor Group (which
includes a venture fund managed by the Company's Chief Executive Officer) funded
an aggregate of $692,809 of the $1,000,000 and received warrants to purchase
1,823,473 shares of the Company's common stock. The Company valued the
detachable warrants issued at $459,854 using the Black-Scholes pricing model,
thereby 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 and netted against the related debt.
Effective as of June 25, 2001, the Company completed a private placement of
2,200,000 shares of its common stock at $.50, yielding to the Company a total of
$1,100,000. As consideration for completing the private placement, the Company
issued to the participating investors detachable stock purchase warrants to
acquire a total of 550,000 shares of common stock at an exercise price of $1.00
per share.
In connection with signing of their employment agreements, the Company's Chief
Executive and Operating Officers had purchased from the Company a total of
500,000 shares of common stock for a purchase price of $2 per share. The shares
were being purchased pursuant to a subscriptions agreement and a note and pledge
agreement. The note was for a principal amount of $999,500 (net of a $500
bonus), bearing interest at approximately 6% per annum, and provided that the
unpaid principal amount shall be due in five equal installments on each December
29, 2001 and thereafter. Effective during the second quarter 2001, pursuant to
board resolutions, such notes and pledge agreements were canceled. Subsequent
thereafter, such executive officers were granted an aggregate of 700,000
incentive stock options pursuant to the Company's 2001 Equity Compensation Plan.
Pursuant to FASB Interpretation 44, variable accounting at the end of each
interim period must be applied to such options since they are deemed a
re-pricing of the cancelled pledge and note agreements. Accordingly, since the
Company's fair market value was $1.25 at December 31, 2001 and such options have
an exercise of $.55, the Company recorded the intrinsic value of $.70 per option
or $350,000 of compensation expense. The Company will continue to mark-to-market
these options at the end of each respective interim period until they are
exercised.
53
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
NOTE 15--STOCKHOLDERS' EQUITY (cont'd)
2001 Issuances of Common Stock and Warrants (cont'd)
Effective as of June 25, 2001 and pursuant to an Exchange Agreement dated as of
May 14, 2001 between the Company and the holders of the Convertible Promissory
Note as discussed in Note 12, the holders agreed to exchange $2,200,000, the
principal amount of the Promissory Notes, and $80,157, the interest accrued
thereon effective as of May 15, 2001, into common stock at the exchange price of
$.50 per share. Accordingly, during the second quarter, the Company issued a
total of 4,560,314 shares of the Company's common stock for conversion of such
debt. In addition, as consideration for the conversion, the Company reset the
exercise price of 2,200,000 warrants previously issued to such holders to $.50
per share from $2.00. For accounting purposes, the Company recorded the
conversion at $2,551,784 (net of un-amortized discount) into equity. In
connection with the Company reducing the conversion price from $2 to $.50, the
Company recorded debt conversion costs amounting to $794,219, which represents
the difference between the adjusted conversion price and the fair market value
of the Company's securities on the date of conversion.
During the year, the Company's Chief Executive and Operating Officers, and a
Vice President of Sales (and a shareholder), lent the Company funds for working
capital purposes. At various dates during the year, the Officers elected to
convert a portion of their advances to the Company into equity. As consideration
for the advances, the Company granted such individuals, detachable stock
purchase warrants to acquire 1,093,000 shares of common stock at exercise prices
ranging from $.50 to $1 per share. The Company valued the detachable warrants
issued to such individuals using the Black-Scholes pricing model, thereby
recording a charge to earnings for financing costs of $630,469. Lastly, the
Company issued an aggregate of 1,237,326 shares of its common stock to its Chief
Executive and Operating Officer in exchange for the conversion of a portion of
their advances amounting to $618,663.
During November and December, pursuant to a private placement, the Company sold
an aggregate of 4,211,976 shares of common stock for cash and services for
$2,042,958 (net of $50,640 of direct costs).
During the year, pursuant to various agreements and board resolutions, the
Company issued an aggregate of 601,533 shares of its common stock to various
consultants for consideration of services received. The common stock was valued
at the fair market value of the stock on the date of issuance or $907,598 in the
aggregate. In addition, in July 2001, the Company granted an investment banker
180,000 five year warrants with an exercise price of $0.75 for services from
July 2001 to July 2002. The Company valued such warrants at $72,000 by utilizing
the Black-Scholes pricing model. Pursuant to EITF 96-18, the Company, at the end
of each reporting period, must apply variable accounting treatment and re-value
these warrants. As of December 31, 2001, the Company recorded a charge to
earnings of $33,300 as an investor relations expense.
54
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
NOTE 15--STOCKHOLDERS' EQUITY (cont'd)
2001 Issuance of Common Stock and Warrants (cont'd)
Effective December 31, 2001, the Company terminated the salary deferment program
and granted each participant as consideration for participating in the program,
one warrant for each dollar deferred with exercise prices ranging between $.50
to $1. Accordingly, the Company granted 710,983 warrants with an exercise price
of $.50 each and 102,703 warrants with an exercise price of $1 each.
Additionally, individuals were given the option to convert the actual deferred
salaries into warrants with an exercise price of $.15 or elect to be paid in
cash over time. As of December 31, 2001, the Company had accrued $1,038,876 of
deferred salary of which $814,595 was converted into equity by granting such
individuals 2,327,415 warrants exercisable at $.15. Accordingly, the Company
granted an aggregate of 3,141,101 warrants for which it utilized the
Black-Scholes pricing model resulting in an additional charge to earnings of
$3,100,635 representing additional compensation cost.
On December 31, 2001, the Company's issued 470,066 shares of common stock in
connection with the Chief Executive Officer exercising 470,066 warrants by
converting $70,510 of advance into equity. Such warrants were granted in
connection with the salary deferment program as discussed above.
As of December 31, 2001, the total number of warrants outstanding amounted to
8,517,509 with exercise prices ranging from $.10 to $1.00.
NOTE 16 - STOCK OPTIONS
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 and the Company's stockholders adopted the 2001 Plan on
May 21, 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 will increase 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 December 31, 2001, the Company had granted an aggregate of 2,565,632
options with an exercise price of $.55.
55
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
NOTE 16 - STOCK OPTIONS (cont'd)
2000 Equity Compensation Plan
As of December 31, 2001, the Company had granted an aggregate of 2,617,223
options pursuant to the 2000 Equity Compensation Plan, of which 905,000 options
have an exercise price of $1.00 per share and 1,712,223 options have an exercise
price of $2.00 per share.
Non-Plan Stock Option Grants
As of December 31, 2001, the Company had granted an aggregate of 1,045,000
options outside of any stock option plan with exercise prices ranging from $0.55
to $2.00 per share.
A summary of the status of the Company's plan and non-plan options as of
December 31, 2001 and during the two years then ended is as follows:
Non-Qualified Non-Plan
Incentive Options Options Non-Qualified Total
Options
-----------------------------------------------------------------------------------
Outstanding as of
January 1, 2000 -- -- -- --
Granted 1,715,000 902,223 695,000 3,312,223
Exercised - - (250,000) (250,000)
-----------------------------------------------------------------------------------
Outstanding as of
December 31, 2000 1,715,000 902,223 445,000 3,062,223
Granted 602,500 1,734,632 600,000 2,937,132
Exercised -- -- -- --
-----------------------------------------------------------------------------------
Outstanding as of
December 31, 2001 2,317,500 2,636,855 1,045,000 5,999,355
===================================================================================
Vesting Dates:
December 31, 2002 606,242 908,310 308,324 1,822,876
December 31, 2003 444,254 575,031 345,836 1,365,121
December 31, 2004 145,422 -- 62,508 207,930
December 31, 2005 50,000 -- -- 50,000
December 31, 2006 50,000 -- -- 50,000
Thereafter 225,000 -- -- 225,000
As of December 31, 2001, there were outstanding an aggregate of 2,278,428 of
exercisable plan and non-plan options with exercise prices ranging from $.55 to
$2.00.
For the year ended December 31, 2001 and 2000, the Company recorded $29,741 and
$256,035, respectively, of consulting expenses as a result of granting
non-plan/non-qualified stock options utilizing the Black-Scholes option-pricing
model.
56
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
NOTE 16 - STOCK OPTIONS (cont'd)
Had compensation expense for the options issued to employees under the plan been
determined based on the fair market value of the options at the grant dates
consistent with the provisions of SFAS 123, the Company's net loss per common
share would have been changed to the pro forma amounts indicated below.
2001 2000
-----------------------------------------------------------------------
Net loss as reported $ (14,359,432) $ (6,415,484)
Pro forma net loss $ (15,551,369) $ (11,615,150)
Basic and diluted net loss per
share as reported $ (.54) $ (.36)
Pro forma basic and diluted
net loss per share $ (.58) $ (.50)
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 option-pricing model with the following weighted-average
assumptions
Dividend yield 0.00%
Expected volatility 153%
Risk-free interest rate 6%
Expected life 1 year
NOTE 17--SUBSEQUENT EVENTS (UNAUDITED)
Sale of Debenture
The Company, prior to acquiring WellComm as discussed below, sold a 6%
convertible senior debenture in the aggregate principal amount of $2,000,000
(the "Debenture") to Palladin Opportunity Fund LLC ("Palladin") pursuant to a
Purchase Agreement dated February 4, 2002. Pursuant to the Purchase Agreement,
the Company also issued a warrant to Palladin to purchase an aggregate of up to
1,538,461 shares of the Company's common stock (the "Warrant"). The outstanding
principal and any capitalized interest under the Debenture are payable in full
on or before February 3, 2004. Further, outstanding principal and any
capitalized interest may be converted at any time at the election of Palladin
into the Company's common stock at an initial conversion price of $1.00 per
share. The initial conversion price is subject to "reset" as of the date that is
12 months and 18 months after the issue date (each such date, a "Reset Date").
With respect to each Reset Date, the conversion price will only be reduced if
the average of closing bid prices for the Company's common stock during a period
of 20 consecutive trading days ending on the date which immediately precedes the
applicable Reset Date is less than the then applicable conversion price, which
is currently $1.00. The Warrant entitles Palladin to purchase shares of the
Company's common stock at the price of $1.10 per share.
57
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
NOTE 17--SUBSEQUENT EVENTS (UNAUDITED) (cont'd)
Sale of Debenture (cont'd)
Pursuant to the Purchase Agreement, Palladin also received an option to purchase
an additional 6% convertible senior debenture in the face amount of $1 million
and receive an additional warrant to purchase an aggregate of up to 769,230
shares of the Company's common stock. Finally, pursuant to a related
registration rights agreement, the Company agreed to register all of the shares
of common stock underlying the Debenture and the Warrant on a registration
statement.
Acquisition of WellComm Group, Inc.
On February 6, 2002, the Company completed the acquisition of WellComm Group,
Inc. ("WellComm"), as stipulated in the Merger Agreement dated January 28, 2002,
by issuing 7,440,000 shares of its common stock and granting 560,000 options
with a nominal exercise price. In addition, the Company also paid $2,190,000 in
cash in cash for an aggregate acquisition value of approximately $12,000,000.
The WellComm acquisition was a two-step reorganization pursuant to the Merger
Agreement by and among I-trax, WC Acquisition, Inc., an Illinois corporation and
a wholly owned subsidiary of I-trax ("Acquisition"), WellComm, and WellComm's
two main shareholders. The initial step of the reorganization transaction
involved a merger of Acquisition with and into WellComm, in which merger
WellComm continued as the surviving corporation. The second step of the
reorganization transaction involved a statutory merger of WellComm with and into
the Company, in which merger the Company continued as the surviving corporation.
WellComm is a healthcare service company that offers a broad array of expertise
including a nurse contact center specializing in disease management, triage,
health information survey, and research services for the healthcare industry.
The acquisition will be accounted for as a purchase. As such, the purchase will
be allocated to the estimated fair values of the assets acquired and liabilities
assumed. The Company is in the process of obtaining third-party valuations of
certain intangible assets.
The following unaudited pro forma results of operations of the Company give
effect to the acquisition of WellComm as though the transaction had occurred on
January 1, 2000.
Year ended Year ended
December 31, December 31,
2001 2000
-------------------- ---------------------
Sales $ 5,900,772 $ 1,239,787
Expenses 20,063,645 7,736,825
Net loss (14,162,873) (6,497,038)
Earnings per share
Basic and Diluted $ (.54) $ (.25)
Weighted average shares outstanding
Basic and Diluted 34,457,013 26,037,879
58
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
NOTE 17--SUBSEQUENT EVENTS (UNAUDITED) (cont'd)
Private Placement
The Company has received a $2,000,000 verbal commitment from an asset manager
for the purchase of common stock. As of March 20, 2002, the Company has received
$1,425,000 for the purchase of 1,900,000 shares of common stock at $.75 per
share.
Stock Options
On January 4, 2002, the Company granted 228,500 stock options with an exercise
price of $1.25 pursuant to the 2001 Equity Compensation Plan. On February 12,
2002, the Company granted 600,000 stock options with an exercise price of $1.21
pursuant to the 2001 Equity Compensation Plan to the former employees of
WellComm.
59
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There are no changes and disagreements with accountants on accounting
or financial disclosure.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16 (a) OF THE EXCHANGE ACT
See the information set forth in the section entitled "Proposal No. 1
Election of Directors" in I-trax' Proxy Statement for the 2002 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission within 120
days after the end of the Company's fiscal year ended December 31, 2001 (the
"2002 Proxy Statement"), which is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
See the information set forth in the section entitled "Executive
Compensation" in the 2002 Proxy Statement, which is incorporated herein by
reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See the information set forth in the section entitled "Security
Ownership of Certain Beneficial Owners and Management" in the 2002 Proxy
Statement, which is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See the information set forth in the section entitled "Certain
Relationships and Related Transactions" in the 2002 Proxy Statement, which is
incorporated herein by reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
NUMBER EXHIBIT TITLE
2.1 Agreement and Plan of Merger dated December 14, 1999 between
I-Trax.com, Inc. and Member-Link Systems, Inc. (Incorporated
by reference to Exhibit 2.1 to I-Trax.com, Inc.'s
Registration Statement on Form 10-SB, Registration No.
000-30275.)
2.2 Form of Agreement and Plan of Merger by and among
I-Trax.com, Inc., I-trax, Inc. and I-Trax.com Acquisition
Co. (Exhibit A to the prospectus incorporated in I-trax,
Inc.'s Registration Statement on Form S-4, Registration No.
333-48862.)
2.3 Merger Agreement dated as of January 28, 2002 by and among
I-trax, Inc., WC Acquisition, Inc., WellComm Group, Inc.,
John Blazek and Carol Rehtmeyer. (Incorporated by reference
to Exhibit 2.1 to I-trax, Inc.'s Current Report on Form 8-K,
filed on February 20, 2002.)
2.4 Amendment dated as of February 5, 2002 to Merger Agreement
dated as of January 28, 2002 by and among I-trax, Inc., WC
Acquisition, Inc., WellComm Group, Inc., John Blazek and
Carol Rehtmeyer. (Incorporated by reference to Exhibit 2.2
to I-trax, Inc.'s Current Report on Form 8-K, filed on
February 20, 2002.)
60
3.1 Certificate of Incorporation of I-trax, Inc. filed September
15, 2000 (Incorporated by reference to Exhibit 3.1 to
I-trax, Inc.'s Registration Statement on Form S-4,
Registration No. 333-48862.)
3.2 Certificate of Amendment to Certificate of Incorporation of
I-trax, Inc. filed June 4, 2001.
3.2 By-laws of I-trax, Inc. (Incorporated by reference to
Exhibit 3.2 to I-trax, Inc.'s Registration Statement on Form
S-4, Amendment No.1, Registration No. 333-48862.)
4.1 Form of Common Stock certificate of I-trax, Inc.'s Common
Stock.
4.2 6% Convertible Senior Debenture dated February 4, 2002
issued by I-trax, Inc. to Palladin Opportunity Fund LLC.
(Incorporated by reference to Exhibit 4.1 to I-trax, Inc.'s
Current Report on Form 8-K, filed on February 8, 2002.)
10.1 Office Lease dated October 22, 1999 by and between Reston
Plaza I & II, LLC and Member-Link Systems, Inc.
(Incorporated by reference to Exhibit 10.3 to I-Trax.com,
Inc.'s Registration Statement on Form 10-SB, Registration
No. 000-30275.)
10.2 Amendment Office Lease (Relocation) made as of January 31,
2002 by and between TMT Reston I & II, Inc. (as successor to
Reston Plaza I & II, LLC) and I-trax Health Management
Solutions, Inc. (as successor to Member-Link Systems, Inc.).
10.3 Lease Agreement dated April 10, 2000 between I-Trax.com,
Inc. and OLS Office Partners, L.P. (Incorporated by
reference to Exhibit 10.1 to I-Trax.com, Inc.'s Quarterly
Report Form 10-QSB for the quarter ended June 30, 2000.)
10.4 Contribution and Exchange Agreement dated as of September
22, 2000 by and among I-Trax.com, Inc., I-trax, Inc.,
iSummit Partners LLC (d/b/a MyFamilyMD), and Stuart Ditchek,
A. David Fishman, and Granton Marketing Nederland BV.
(Incorporated by reference to Exhibit 10.7 to I-trax, Inc.'s
Registration Statement on Form S-4, Registration No.
333-48862.)
10.5 Side Letter Agreement dated September 22, 2000 to the
Contribution and Exchange Agreement dated as of September
22, 2000 by and among I-Trax.com, Inc., I-trax, Inc.,
iSummit Partners, LLC (d/b/a MyFamilyMD), and Stuart
Ditchek, A. David Fishman, and Granton Marketing Nederland
BV. (Incorporated by reference to Exhibit 10.8 to I-trax,
Inc.'s Registration Statement on Form S-4, Registration No.
333-48862.)
10.6 Amendment, effective as of February 7, 2001, to the
Contribution and Exchange Agreement by and among I-Trax.com,
Inc. and I-trax, Inc., on the one hand, and Stuart Ditchek,
A. David Fishman, Granton Marketing Nederland BV and iSummit
Partners, LLC (d/b/a MyFamilyMD), on the other hand, dated
as of September 22, 2000. (Incorporated by reference to
Exhibit 10.1 to I-trax, Inc.'s Current Report on Form 8-K,
filed on February 22, 2001.)
10.7 Amendments, effective as of December 31, 2001, to the
Contribution and Exchange Agreement by and among I-Trax.com,
Inc. and I-trax, Inc., on the one hand, and Stuart Ditchek,
A. David Fishman, Granton Marketing Nederland BV and iSummit
Partners, LLC (d/b/a MyFamilyMD), on the other hand, dated
as of September 22, 2000.
61
10.8 Employment Agreement dated November 29, 1999 between
I-Trax.com, Inc. and Michael O'Connell, M.D. (Incorporated
by reference to Exhibit 10.13 to I-Trax.com, Inc.'s
Registration Statement on Form 10-SB, Registration No.
000-30275.)
10.9 Employment Agreement dated June 1, 1999 between Member-Link
Systems, Inc. and Hans C. Kastensmith. (Incorporated by
reference to Exhibit 10.14 to I-Trax.com, Inc.'s
Registration Statement on Form 10-SB, Registration No.
000-30275.)
10.10 Employment Agreement entered into on September 28, 2000,
effective as of January 1, 2000 between I-Trax.com, Inc. and
David C. McCormack. (Incorporated by reference to Exhibit
10.15 to I-trax, Inc.'s Registration Statement on Form S-4,
Registration No. 333-48862.)
10.11 I-Trax.com, Inc. 2000 Equity Compensation Plan.
(Incorporated by reference to Exhibit 10.16 to I-Trax.com's
Registration Statement on Form 10-SB, Registration No.
000-30275.)
10.12 I-trax, Inc. 2001 Equity Compensation Plan. (Incorporated by
reference to Attachment to I-trax's 2001 Preliminary Proxy
Statement on Schedule 14A, filed on April 20, 2001.)
10.13 Employment Agreement effective as of December 29, 2000
between I-Trax.com, Inc. and Frank A. Martin.
10.14 Employment Agreement effective as of December 29, 2000
between I-Trax.com, Inc. and Gary Reiss.
10.15 Amended and Restated Amended and Restated Promissory Note
and Warrant Purchase Agreement dated as of March 2, 2001
among I-trax, Inc. and the Lenders (as defined therein)
including form of Stock Purchase Warrant issued to Lenders
attached thereto as Exhibit A and form of Stock Purchase
Warrant issued to Lenders attached thereto as Exhibit B.
(Incorporated by reference to Exhibit 10.21 to I-trax,
Inc.'s Annual Report on Form 10-KSB for the fiscal year
ended December 31, 2000, filed on April 2, 2001.)
10.16 Purchase Agreement dated as of February 4, 2002 between
I-trax, Inc. and Palladin Opportunity Fund LLC.
(Incorporated by reference to Exhibit 10.1 to I-trax, Inc.'s
Current Report on Form 8-K, filed on February 8, 2002.)
10.17 Registration Rights Agreement dated as of February 4, 2002
between I-trax, Inc. and Palladin Opportunity Fund LLC.
(Incorporated by reference to Exhibit 10.2 to I-trax, Inc.'s
Current Report on Form 8-K, filed on February 8, 2002.)
10.18 Warrant to Purchase Common Stock of I-trax, Inc. dated
February 4, 2002 issued by I-trax, Inc. to Palladin
Opportunity Fund LLC. (Incorporated by reference to Exhibit
10.3 to I-trax, Inc.'s Current Report on Form 8-K, filed on
February 8, 2002.)
10.19 Registration Rights Agreement dated as of February 5, 2002
by and among I-trax, Inc., and John Blazek, as an
attorney-in-fact, for each stockholder of WellComm Group,
Inc. (Incorporated by reference to Exhibit 10.1 to I-trax,
Inc.'s Current Report on Form 8-K, filed on February 20,
2002.)
10.20 Employment Agreement dated as of February 5, 2002 between
I-trax Health Management Solutions, Inc. and John Blazek.
(Incorporated by reference to Exhibit 10.2 to I-trax, Inc.'s
Current Report on Form 8-K, filed on February 20, 2002.)
62
10.21 Employment Agreement dated as of February 5, 2002 between
I-trax Health Management Solutions, Inc. and Carol
Rehtmeyer. (Incorporated by reference to Exhibit 10.3 to
I-trax, Inc.'s Current Report on Form 8-K, filed on February
20, 2002.)
10.22 Employment Agreement dated as of February 5, 2002 between
I-trax Health Management Solutions, Inc. and Jane Ludwig.
(Incorporated by reference to Exhibit 10.4 to I-trax, Inc.'s
Current Report on Form 8-K, filed on February 20, 2002.)
21 Subsidiaries of I-trax, Inc.
(b) Reports on Form 8-K
I-trax, Inc. 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 of iSummit Partners, LLC (d/b/a MyFamilyMD).
I-trax, Inc. filed an amendment to the current report on Form 8-K
originally filed on February 22, 2001, on April 23, 2001, attaching the pro
forma consolidated financials of I-trax, Inc. and iSummit Partners, LLC (d/b/a
MyFamilyMD).
63
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized as of March 29, 2002.
I-TRAX, INC.
By: /s/ Frank A. Martin
-----------------------------------
Frank A. Martin, Chairman and
Chief Executive Officer
By: /s/ Anthony Tomaro
------------------------------------
Anthony Tomaro, Chief Financial Officer
(Principal Financial and Accounting Officer)
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
Signature Title Date
------------------------------------ ------------------------------------ ------------------
/s/ Frank A. Martin Chairman, Chief Executive Officer March 29, 2002
------------------------------------ and Director
Frank A. Martin
/s/ Carol Rehtmeyer Director March 29, 2002
------------------------------------
Carol Rehtmeyer
/s/ John Blazek Director March 29, 2002
------------------------------------
John Blazek
/s/ Hans Kastensmith Director March 29, 2002
------------------------------------
Hans Kastensmith
/s/ David R. Bock Director March 29, 2002
------------------------------------
David R. Bock
/s/ Philip D. Green Director March 29, 2002
------------------------------------
Philip D. Green
/s/ Dr. Craig A. Jones Director March 29, 2002
------------------------------------
Dr. Craig A. Jones
/s/ Dr. Michael M.E. Johns Director March 29, 2002
------------------------------------
Dr. Michael M.E. Johns
/s/ Arthur N. Leibowitz Director March 29, 2002
------------------------------------
Dr. Arthur N. Leibowitz
/s/ John R. Palumbo Director March 29, 2002
------------------------------------
John R. Palumbo
/s/ William S. Wheeler Director March 29, 2002
------------------------------------
William S. Wheeler
64