UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: September 30, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT
Commission File Number: 0-30275
I-TRAX, INC.
------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware
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(State or other jurisdiction of incorporation or organization)
23-3057155
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(I.R.S. Employer Identification No.)
4 Hillman Drive, Suite 130
Chadds Ford, Pennsylvania 19317
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(Address of principal executive offices)
(610) 459-2405
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(Issuer's telephone number)
One Logan Square, 130 N. 18th Street, Suite 2615
Philadelphia, Pennsylvania 19103
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of November 11, 2004, the number
of outstanding shares of common stock, par value $.001 per share, was
28,655,871.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
INDEX
Page No.
PART I. FINANCIAL INFORMATION..............................................................................3
Item 1. Financial Statements ......................................................................3
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.....22
Item 3. Controls and Procedures...................................................................30
PART II. OTHER INFORMATION................................................................................30
Item 1. Legal Proceedings.........................................................................30
Item 2. Changes in Securities and Small Business Issuer Purchases of Securities...................30
Item 6. Exhibits .................................................................................30
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
I-TRAX, INC.
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Page No.
Report of Independent Registered Public Accounting Firm 4
Condensed Consolidated Balance Sheets at September 30, 2004
(unaudited) and December 31, 2003 5
Condensed Consolidated Statements of Operations
for the three month periods ended September 30, 2004 and 2003
(unaudited) 6
Condensed Consolidated Statements of Operations
for the nine month periods ended September 30, 2004 and 2003
(unaudited) 7
Condensed Consolidated Statement of Stockholders' Equity
for the nine month period ended September 30, 2004
(unaudited) 8
Condensed Consolidated Statements of Cash Flows
for the nine month periods ended September 30, 2004 and 2003
(unaudited) 9
Notes to Condensed Consolidated Financial Statements 11
3
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
of I-trax, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of
I-trax, Inc. (a Delaware corporation) and Subsidiaries as of September 30, 2004,
and the related condensed consolidated statements of operations for the three
month and nine month periods ended September 30, 2004 and 2003, the condensed
consolidated statements of stockholders' equity for the nine month period ended
September 30, 2004 and the condensed consolidated statements of cash flows for
the nine month periods ended September 30, 2004 and 2003. These interim
financial statements are the responsibility of the company's management.
We conducted our reviews in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board, the objective of
which is the expression of an opinion regarding the condensed consolidated
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with United States generally accepted accounting
principles.
We have previously audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the balance sheet as of
December 31, 2003, and the related consolidated statements of operations,
stockholders' equity and cash flows for the year then ended (not presented
herein); and in our report dated February 16, 2004, we expressed an unqualified
opinion on those financial statements. In our opinion, the information set forth
in the accompanying condensed consolidated balance sheet as of December 31, 2003
is fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
October 27, 2004
4
I-TRAX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
ASSETS
September 30,
2004 December 31,
(unaudited) 2003
---------- ----------
Current assets
Cash and cash equivalents $ 5,453 $ 574
Accounts receivable, net 12,363 549
Income tax receivable 132 --
Other current assets 2,105 188
---------- ----------
Total current assets 20,053 1,311
Property and equipment, net 5,784 1,675
Goodwill 46,064 8,424
Customer list, net 28,374 769
Other intangible assets, net 1,805 1,400
Other long term assets 113 24
---------- ----------
Total assets $ 102,193 $ 13,603
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 6,024 $ 606
Accrued expenses 4,765 361
Due to officers and related parties -- 280
Notes payable 2,000 --
Net liabilities of discontinued operations 1,299 --
Other current liabilities 8,730 355
---------- ----------
Total current liabilities 22,818 1,602
Common stock warrants -- 2,760
Note payable 5,500 --
Other long term liabilities 2,437 856
---------- ----------
Total liabilities 30,755 5,218
---------- ----------
Commitments and contingencies -- --
Stockholders' equity
Preferred stock - $.001 par value, 2,000,000 shares authorized,
1,200,000 and -0- issued and outstanding, respectively 1 --
Common stock - $.001 par value, 100,000,000 shares authorized,
24,796,671 and 13,966,817 shares issued and outstanding, respectively 24 14
Additional paid in capital 130,593 47,276
Accumulated deficit (59,180) (38,905)
---------- ----------
Total stockholders' equity 71,438 8,385
---------- ----------
Total liabilities and stockholders' equity $ 102,193 $ 13,603
========== ==========
See accompanying notes to consolidated financial statements (unaudited).
5
I-TRAX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(UNAUDITED)
(in thousands, except share data)
Three months Three months
ended ended
September 30, September 30,
2004 2003
------------- -------------
Net revenue $ 24,136 $ 1,001
------------- -------------
Costs and expenses:
Operating expenses 18,816 642
General and administrative expenses 4,670 1,024
Depreciation and amortization 1,097 440
------------- -------------
Total costs and expenses 24,583 2,106
------------- -------------
Operating loss (447) (1,105)
------------- -------------
Other expenses (income):
Interest expense 124 948
Amortization of financing costs 13 57
Other income -- (500)
------------- -------------
Total other expenses 137 505
------------- -------------
Loss before provision for income taxes (584) (1,610)
------------- -------------
Provision for income taxes 251 --
Net loss (835) (1,610)
------------- -------------
Less preferred stock dividend (605) --
------------- -------------
Net loss applicable to common stockholders $ (1,440) $ (1,610)
============= =============
Loss per common share, basic and diluted $ (0.06) $ (0.14)
============= =============
Weighted average number of shares outstanding, basic and diluted 24,730,933 11,121,724
============= =============
See accompanying notes to consolidated financial statements (unaudited).
6
I-TRAX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(UNAUDITED)
(in thousands, except share data)
Nine months ended Nine months ended
September 30, September 30,
2004 2003
------------ ------------
Net revenue $ 49,968 $ 3,668
------------ ------------
Costs and expenses:
Operating expenses 38,631 1,506
General and administrative expenses 11,342 4,243
Depreciation and amortization 2,889 1,318
------------- -------------
Total costs and expenses 52,862 7,067
------------- -------------
Operating loss (2,894) (3,399)
------------- -------------
Other expenses (income):
Interest expense 900 1,922
Amortization of financing costs 60 295
Other expenses (income) 350 (300)
------------- -------------
Total other expenses 1,310 1,917
------------- -------------
Loss before provision for income taxes (4,204) (5,316)
------------- -------------
Provision for income taxes 251 --
------------- -------------
Net loss (4,455) (5,316)
Less preferred stock dividend (1,282) --
Less deemed dividends applicable to preferred stockholders (15,820) --
------------- -------------
Net loss applicable to common stockholders $ (21,557) $ (5,316)
============= =============
Loss per common share, basic and diluted: $ (1.00) $ (0.53)
============= =============
Weighted average number of shares outstanding, basic and diluted: 21,613,701 10,111,766
============= =============
See accompanying notes to consolidated financial statements (unaudited).
7
I-TRAX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004
(UNAUDITED)
(in thousands, except share data)
Preferred Stock Common Stock Additional Total
--------------------- -------------------- Paid-in Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Equity
---------- ---------- ---------- -------- -------- ---------- ----------
Balances at January 1, 2004 -- $ -- 13,966,817 $ 14 $ 47,276 $ (38,905) $ 8,385
Reclassification of common stock warrants to paid in
capital -- -- -- -- 3,110 -- 3,110
Issuance of common stock in connection with
conversion of promissory note and other
settlement, net of costs -- -- 69,165 -- 71 -- 71
Issuance of common stock for conversion of debenture
and accrued interest -- -- 427,106 -- 747 -- 747
Issuance of common stock for exercise of warrants -- -- 333,583 -- 52 -- 52
Sale of preferred stock, net of costs 1,000,000 1 -- -- 23,509 -- 23,510
Issuance of preferred stock for acquisition of CHD
Meridian 400,000 -- -- -- 10,000 -- 10,000
Redemption of preferred stock (200,000) -- -- -- (5,000) -- (5,000)
Issuance of common stock for acquisition of CHD
Meridian -- -- 10,000,000 10 36,290 -- 36,300
Beneficial conversion feature in connection with
issuance of preferred stock -- -- -- -- 15,820 (15,820) --
Preferred stock dividend -- -- -- -- (1,282) -- (1,282)
Net loss for the nine months ended September 30, 2004 -- -- -- -- -- (4,455) (4,455)
---------- ------- ---------- -------- ---------- ---------- ----------
Balances at September 30, 2004 1,200,000 $ 1 24,796,671 $ 24 $ 130,593 $ (59,180) $ 71,438
========== ======= ========== ======== ========== ========== ==========
See accompanying notes to consolidated financial statements (unaudited).
8
I-TRAX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(UNAUDITED)
(in thousands, except share data)
Nine months Nine months
ended ended
September 30, September 30,
2004 2003
-------- --------
Operating activities:
Net loss $ (4,455) $ (5,316)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 2,889 1,318
Accretion of discount on notes payable charged to interest expense
and beneficial conversion value of debenture 573 1,609
Increase in fair value of common stock warrants 350 --
Amortization of debt issuance costs 47 295
Write-off of deposit on cancelled acquisition -- 200
Issuance of securities for services -- 1,414
Other non-cash items -- 10
Changes in operating assets and liabilities, net of acquisition:
Decrease in accounts receivable 996 33
Decrease in income tax receivable 147 --
Increase in other current assets (920) (670)
Increase in other long term assets (52) --
Decrease in accounts payable (948) (207)
Increase in accrued expenses 1,463 134
(Decrease) increase in other current liabilities 260 (1,379)
--------- --------
Net cash provided by (used in) operating activities 350 (2,559)
--------- --------
Investing activities:
Purchases of property, plant and equipment (1,628) (649)
Acquisition of intangible assets (688) --
Acquisition of CHD Meridian, net of acquired cash (18,134) --
--------- --------
Net cash used in investing activities (20,450) (649)
--------- --------
Financing activities:
Principal payments on capital leases (35) (62)
Proceeds from/ repayment to related parties (280) 575
Proceeds (repayment) of note payable (618) 175
Proceeds from exercise of warrants 52 --
Proceeds from bank credit facility, net of issuance costs 7,350 --
Proceeds from sale of preferred stock, net of issuance costs 23,510 --
Proceeds from sale of common stock -- 2,405
Redemption of preferred stock (5,000) --
--------- --------
Net cash provided by financing activities 24,979 3,093
--------- --------
Net increase (decrease) in cash and cash equivalents 4,879 (115)
Cash and cash equivalents at beginning of period 574 360
--------- --------
Cash and cash equivalents at end of period $ 5,453 $ 245
========= ========
Supplemental disclosure of non-cash flow information:
Cash paid during the year for:
Interest $ 377 $ 28
========= ========
(Continues on following page.)
See accompanying notes to consolidated financial statements (unaudited).
9
I-TRAX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(Continues from previous page.)
Nine months Nine months
ended ended
September 30, September 30,
2004 2003
------------- -------------
Income taxes $ 257 $ --
======== ========
Schedule of non-cash financing activities:
Reclassification of common stock warrants to paid in capital $ 3,110 $ --
======== ========
Issuance of common stock in connection with conversion of promissory
note and other settlement $ 71 $ 1,169
======== ========
Issuance of common stock in connection with conversion of debenture
payable $ 747 $ 565
======== ========
Beneficial conversion feature in connection with issuance of preferred
stock $ 15,820 $ --
======== ========
Issuance of common and preferred stock in connection with the
acquisition of CHD Meridian $ 46,300 $ --
======== ========
Preferred stock dividend $ 1,282 $ --
======== ========
Issuance of common stock in connection with the conversion of deferred
salaries $ -- $ 122
======== ========
Purchase of all capital stock of CHD Meridian and assumption of liabilities
in the acquisition as follows:
Fair value of non-cash tangible assets acquired $ 17,257 $ --
Goodwill 37,429 --
Customer list 29,184 --
Other intangibles 1,167 --
Cash paid, net of cash acquired (includes $85 of transaction costs
incurred in a prior period) (18,834) --
Common stock issued (36,300) --
Preferred stock issued (10,000) --
======== ========
Liabilities assumed $(19,903) $ --
======== ========
See accompanying notes to consolidated financial statements (unaudited).
10
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1--ORGANIZATION
I-trax, Inc. (the "Company") was incorporated in the State of Delaware on
September 15, 2000. On March 19, 2004, the Company consummated a merger with
Meridian Occupational Healthcare Associates, Inc., a private company, which does
business as CHD Meridian Healthcare ("CHD Meridian"). (See Note 3--Business
Combination.)
Following the merger, the Company offers two categories of services: (1) on-site
health related services such as occupational health, primary care, corporate
health, and pharmacy; and (2) personalized health management programs.
The Company conducts its on-site services through CHD Meridian Healthcare, LLC,
a Delaware limited liability company ("CHD Meridian LLC"), and its subsidiary
companies, and its personalized health management programs through I-trax Health
Management Solutions, LLC, a Delaware limited liability company, and I-trax
Health Management Solutions, Inc., a Delaware corporation.
Physician services at the Company's on-site locations are provided under
management agreements with affiliated physician associations, which are
organized professional corporations that hire licensed physicians who provide
medical services (the "Physician Groups"). The Physician Groups provide all
medical aspects of the Company's on-site services, including the development of
professional standards, policies and procedures. The Company provides a wide
array of business services to the Physician Groups, including administrative
services, support personnel, facilities, marketing, and non-medical services.
NOTE 2--INTERIM RESULTS AND BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
for interim financial information and the instructions to Form 10-QSB and Item
310(b) of Regulation S-B promulgated under the Securities Exchange Act of 1934.
In the opinion of management, the unaudited financial statements have been
prepared on the same basis as the annual financial statements and reflect all
adjustments necessary to present fairly the financial position as of September
30, 2004 and the results of the operations and cash flows for the three and nine
months ended September 30, 2004. Because the combination of the Company and CHD
Meridian for accounting purposes was effective as of April 1, 2004, the results
for the nine months ended September 30, 2004 only include the operations of CHD
Meridian for the six months ended September 30, 2004. The balance sheet at
December 31, 2003 has been derived from the audited financial statements of the
Company at that date.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted pursuant to the
Securities and Exchange Commission's rules and regulations.
Loss per common share is computed pursuant to SFAS No. 128, "Earnings Per
Share." Basic loss per share is computed as net income (loss) available to
common stockholders divided by the weighted average number of common shares
outstanding for the period. Diluted loss per share reflects the potential
dilution that could occur from common shares issuable through stock options,
warrants and convertible preferred stock. As of September 30, 2004 and 2003,
18,910,561 and 5,809,093 shares issuable upon exercise of options, warrants and
convertible preferred stock, respectively, were excluded from the diluted loss
per share computation because their effect would be anti-dilutive.
11
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2--INTERIM RESULTS AND BASIS OF PRESENTATION (continued)
These unaudited financial statements should be read in conjunction with the
Company's audited financial statements for the year ended December 31, 2003
included in the Company's annual report on Form 10-KSB/A filed on August 11,
2004, and the financial statements of CHD Meridian and notes thereto included in
the Company's current report on Form 8-K/A filed on November 10, 2004.
The consolidated financial statements include the balance sheet of CHD Meridian
LLC, its wholly owned subsidiaries, the Physician Groups and Green Hills
Insurance, a risk retention group (see Note 9- Risk Retention Group). The
financial statements of the Physician Groups are consolidated with CHD Meridian
LLC in accordance with the nominee shareholder model of Emerging Issues Task
Force ("EITF") Issue No. 97-2, "Application of FASB Statement No. 94 and APB
Opinion No. 16 to Physician Practice Management Entities and Certain Other
Entities with Contractual Management Arrangements." CHD Meridian LLC has
unilateral control over the assets and operations of the Physician Groups.
Control of the Physician Groups is perpetual and other than temporary because of
the nominee shareholder model and the management agreements between the
entities. The net tangible assets of the Physician Groups were not material at
September 30, 2004.
The Company records pass-through pharmaceutical purchases on a net basis in
compliance with EITF Issue No. 99-19, "Reporting Gross Revenue as a Principal
vs. Net as an Agent." The amounts of pass-through pharmaceuticals purchased by
the Company for the three and nine months ended September 30, 2004 were
$25,357,000 and $50,228,000, respectively.
For comparability, certain 2003 amounts have been reclassified to conform to the
financial statement presentation used in 2004.
As shown in the accompanying financial statements, the Company has suffered
recurring losses from operations, has an accumulated a deficit, and a working
capital deficiency. The Company borrowed funds under its senior secured credit
facility (see Note 6 - Long Term Debt) and has entered into agreements with new
customers which management expects to provide increased revenue. The Company
believes these measures will sustain operations through December 31, 2004.
NOTE 3--BUSINESS COMBINATION
On March 19, 2004, the Company merged with CHD Meridian, a privately held
company and a major provider of outsourced, employer-sponsored healthcare
services. CHD Meridian provides such services to large self-insured employers,
including Fortune 1,000 companies.
Pursuant to the merger agreement, the Company, (1) issued 10,000,000 shares of
common stock, (2) issued 400,000 shares of convertible preferred stock (with
each share convertible into 10 shares of common stock) at $25.00 per share or
$10,000,000 in the aggregate, and (3) paid approximately $25,508,000 in cash to
the CHD Meridian stockholders. Immediately following the closing of the merger,
the Company also redeemed from former CHD Meridian stockholders that
participated in the merger, pro rata, an aggregate of 200,000 shares of
convertible preferred stock at its original issue price of $25.00 per share or
$5,000,000. The total value of the merger consideration is $73,592,000, made up
of common stock valued at $36,300,000, preferred stock valued at $10,000,000,
cash of $25,908,000 and transaction expenses of $1,384,000. The Company has
filed a registration statement with the Securities and Exchange Commission to
register for resale the (a) common stock issued in the merger, and (b) common
stock issuable upon conversion of convertible preferred stock issued in the
merger.
12
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3--BUSINESS COMBINATION (continued)
The former CHD Meridian stockholders will also receive additional shares of the
Company's common stock if CHD Meridian, continuing its operations following the
closing of the merger as CHD Meridian LLC, achieves calendar 2004 milestones for
earnings before interest, taxes, depreciation and amortization (or EBITDA) as
follows: If EBITDA equals or exceeds $8,100,000, the number of such additional
common shares payable will be 3,473,280; the number of such shares will increase
proportionately with EBITDA above $8,100,000, up to a maximum of 3,859,200
additional shares of the Company's common stock if EBITDA equals or exceeds
$9,000,000. In connection with this earn-out, the Company placed 3,859,200
shares in escrow. The shares are not recorded as outstanding for accounting
purposes until the earn-out target is satisfied.
The Company funded the cash portion of the merger consideration by (1) selling
1,000,000 shares of convertible preferred stock at $25.00 per share (with each
share convertible into 10 shares of common stock), for gross proceeds of
$25,000,000, and (2) drawing $12,000,000 under a new senior secured credit
facility with a national lender. (See Note 6 - Long Term Debt.)
In connection with the sale and issuance of the convertible preferred stock, the
Company reported $15,820,000 as a deemed dividend to preferred stockholders
representing the beneficial conversion value for the underlying common stock as
of the date of the merger agreement. The beneficial conversion value is treated
as a dividend on the convertible preferred stock solely for the purpose of
computing earnings per share. The dividend is computed by multiplying (1) the
difference between the value of the underlying common stock calculated using the
average closing price for the three days prior and three days after the
announcement of the merger ($3.63 per share) and the conversion price ($2.50 per
share) by (2) the number of shares of common stock into which the convertible
preferred stock outstanding at the merger's effective time was convertible
(14,000,000 shares).
The acquisition was accounted for using the purchase method of accounting. The
Company incurred acquisition costs of $1,384,000 that are included in the
purchase price. In addition, $832,000 of transaction related bonuses and
termination pay are included in the general and administrative expense item on
the condensed consolidated statement of operations.
The aggregate purchase price of $73,592,000 for this transaction is summarized
as follows:
Fair value of tangible assets acquired (includes
cash of $8,444,000) $ 25,715,000
Liabilities assumed (19,903,000)
Goodwill 37,429,000
Customer list 29,184,000
Other intangibles 1,167,000
-------------------
$ 73,592,000
===================
The following are the Company's unaudited pro forma results of operations giving
effect to the acquisition of CHD Meridian as though the transaction had occurred
on January 1, 2003. The results exclude transaction costs of $1,938,000 and
transaction related bonuses and termination pay of $832,000 included in the CHD
Meridian and the Company's statements of operations, respectively. The pro forma
results also include adjustments to amortization expense associated with the
intangibles acquired and interest expense related to the new senior secured
credit facility.
13
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3--BUSINESS COMBINATION (continued)
Nine months Nine months
ended ended
September 30, September 30,
2004 2003
------------------ ------------------
Net revenue 73,322,000 73,018,000
------------------ ------------------
Operating loss (1,453,000) (1,070,000)
------------------ ------------------
Net loss (3,166,000) (4,253,000)
================== ==================
Loss per share (0.13) (0.21)
================== ==================
NOTE 4--GOODWILL AND INTANGIBLE ASSETS
During the quarter ended September 30, 2004, goodwill increased by $211,000.
This increase is related to the cost of continuing directors and officers'
insurance coverage for former directors and officers of CHD Meridian. The
changes in the carrying amount of goodwill for the nine months ended September
30, 2004 are as follows:
Total
------------------
Balance as of January 1, 2004 $ 8,424,000
Goodwill acquired in the nine months
ended September 30, 2004 37,640,000
------------------
Balance as of September 30, 2004 46,064,000
==================
The components of identifiable intangible assets, which are included in the
consolidated balance sheet as of September 30, 2004, are as follows:
Gross Carrying Accumulated Net Carrying
Amount Amortization Amount
----------------- --------------- -----------------
Amortized intangible assets:
Customer lists 36,492,000 8,118,000 28,374,000
Other intangibles 5,124,000 3,319,000 1,805,000
----------------- --------------- -----------------
Total 41,616,000 11,437,000 30,179,000
================= =============== =================
Customer lists are amortized on a straight-line basis over the expected periods
to be benefited, generally 12 to 15 years. Other intangible assets represent
technology and deferred marketing costs, which are amortized on a straight-line
basis over the expected periods to be benefited, generally 3 to 5 years. In
accordance with SFAS No. 142, the Company completes a test for impairment of
goodwill and certain other intangible assets annually.
14
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5--CONVERTIBLE DEBENTURE
During the first quarter of 2004, Palladin Opportunity Fund LLC converted the
remaining balance of the debenture payable and accrued interest into common
stock. Accordingly, the Company issued 427,106 shares of common stock for the
conversion of principal and accrued interest amounting to $747,000.
Interest expense associated with the convertible debenture amounted to $368,000
for the nine months ended September 30, 2004. This amount includes $362,000 that
represents accelerated accretion to interest expense for the discount of the
value assigned to the warrants issued to the debenture holder and the beneficial
conversion value at date of issuance.
NOTE 6--LONG TERM DEBT
On March 19, 2004, in connection with the CHD Meridian acquisition, the Company
obtained a $20,000,000 senior secured credit facility from a national lender.
The credit facility expires on April 1, 2007. The credit facility originally had
a $6,000,000 term loan commitment with a $14,000,000 revolving credit
commitment. Outstanding letters of credit liabilities reduce the amount
available to be borrowed under the revolving credit commitment. The credit
facility has subsequently been amended, as discussed below.
In addition to funding the merger and related costs, the Company used a portion
of the proceeds from the credit facility to repay $280,000 in related party
loans and $944,000 in principal and interest for all other outstanding
promissory notes.
The credit facility is secured by substantially all of the Company's assets.
Borrowings, at the Company's election, may be either Base rate or Eurodollar
rate loans. Base rate loans bear interest at the prime rate as published from
time to time, plus up to 0.75% per annum depending on the Company's debt service
coverage ratios. Eurodollar rate loans bear interest at the Eurodollar rate plus
up to 3.0% per annum likewise depending on the Company's debt service coverage
ratios.
As of September 30, 2004, the Company had outstanding $10,500,000 under the
credit facility, $2,000,000 of which is classified as short term, $5,500,000 of
which is classified as long term, and an aggregate of $3,000,000 under letters
of credit.
The credit facility includes certain financial covenants, including a covenant
measuring: (1) the ratio of the Company's funded indebtedness to earnings before
income, taxes, depreciation and amortization, or EBITDA, (2) the ratio of the
Company's funded indebtedness to capitalization, and (3) the Company's fixed
charges coverage ratio. As of September 30, 2004, the Company was in compliance
with these financial covenants.
On August 12, 2004, the Company and the senior lender amended the credit
facility. Among other things, the amendment added two additional covenants that
required the Company to achieve: (1) minimum stockholders' equity of $82,878,000
as of October 31, 2004, an increase of $10,000,000 from the stockholder's equity
reflected on the balance sheet as of June 30, 2004, and (2) pro forma 2004
EBITDA (giving effect to the acquisition of CHD Meridian Healthcare as though
the transaction had occurred on January 1, 2004) of $3,560,000. The credit
facility amendment also limited the amount the Company could borrow under the
facility through October 31, 2004 to $8,500,000, although the amount of the
revolving credit commitments under the facility remained at $14,000,000.
15
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 6--LONG TERM DEBT (continued)
On October 27, 2004, the Company amended its credit facility with its senior
secured lender. The amendment: (1) increased the funded indebtedness to EBITDA
ratio and the fixed charge coverage ratio; (2) moved the first measurement date
for the consolidated net worth covenant to December 31, 2005, and restated the
covenant as a maintenance of minimum stockholders' equity at 90% of the level as
of December 31, 2005; (3) excluded the outstanding letters of credit from the
credit facility borrowing base through January 1, 2006; and (4) converted
amounts outstanding under the term loan commitment of the credit facility into
the revolving credit commitment, and eliminated the term loan commitment. The
Company continues to have access to $14,000,000 under the credit facility, of
which $3,000,000 is currently allocated to outstanding letters of credit and up
to $11,000,000 is available under the revolving portion.
NOTE 7--COMMITMENTS AND CONTINGENCIES
Litigation
CHD Meridian is a defendant in a lawsuit seeking a return of approximately
$556,000 in payments received in the ordinary course of business from a client
that filed for protection under bankruptcy laws during 2003. Management believes
that such amounts were not preference payments, and as such are not subject to
repayment. The outcome of this lawsuit, however, cannot be determined. During
the three months ended September 30, 2004, a second lawsuit seeking a return of
approximately $475,000 as preference payments was settled for substantially less
than the demand amount.
CHD Meridian is also involved in certain legal actions and claims on a variety
of matters related to the normal course of business. Management believes that
such legal actions will not have a material effect on the results of operations
or the financial position of the Company. (See also Note 9 - Risk Retention
Group.)
Compliance with Healthcare Regulations
Because the Company operates in the healthcare industry, it is subject to
numerous laws and regulations of Federal, state, and local governments. These
laws and regulations include, but are not limited to, matters regarding
licensure, accreditation, government healthcare program participation
requirements, reimbursement for patient services, and Medicare and Medicaid
fraud and abuse. Recently, government activity has increased with respect to
investigations and allegations concerning possible violations of fraud and abuse
statutes and regulations by healthcare providers. Violations of these laws and
regulations could result in, among other things, expulsion from government
healthcare programs together with the imposition of significant fines and
penalties, as well as significant repayments for patient services previously
billed.
Management believes that the Company is in compliance with fraud and abuse
statutes as well as other applicable government laws and regulations. Compliance
with such laws and regulations can be subject to future government review and
interpretation as well as regulatory actions unknown or unasserted at this time.
Significant Customers
As of September 30, 2004, one customer represented 15% of the Company's accounts
receivable as reflected on the Company's consolidated balance sheet.
For the three and nine months ended September 30, 2004, one customer of the
Company accounted for 12% of the Company's revenue as reflected on the Company's
condensed consolidated statement of operations.
16
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 7--COMMITMENTS AND CONTINGENCIES (continued)
Risk-Sharing Contracts
From time to time the Company enters into risk-sharing contracts. A risk-sharing
contract generally requires the Company to manage the health and wellness of a
predetermined set of individuals for a term of three to five years. A
risk-sharing contract provides that the Company is required to refund to its
client a percentage of the Company's fees if its program does not save the
client an agreed upon percentage of the client's healthcare costs. The Company
did not generate material risk revenue, which may be subject to a refund, during
the quarter or nine months ended September 30, 2004.
NOTE 8--STOCKHOLDERS' EQUITY
Preferred Stock
The Company has 2,000,000 authorized shares of preferred stock. As of September
30, 2004, the Company had issued and outstanding 1,200,000 shares of Series A
Convertible Preferred Stock. Each share of Series A Convertible Preferred Stock
is convertible, at any time, into 10 shares of common stock, has a liquidation
preference of $25.00 per share, the original purchase price, and accrues
dividends on that amount at a rate of 8% per year. Dividends are payable, at the
Company's option, in cash or common stock, and only upon the Company's
liquidation or conversion of the Series A Convertible Preferred Stock into
common stock. For the nine months ended September 30, 2004, the Company recorded
approximately $1,282,000 in accrued dividends.
The placement agents that assisted the Company in the sale of 1,000,000 shares
of the Series A Convertible Preferred Stock to fund the acquisition of CHD
Meridian received a commission of $1,490,000, and warrants to acquire 492,000
shares of common stock exercisable at $2.50 per share. Such warrants were valued
at $1,506,000 utilizing the Black-Scholes valuation model. The amount of the
cash paid and the value of the warrants have been classified as a cost of equity
in the condensed consolidated statement of stockholders' equity.
Common Stock
The Company has 100,000,000 authorized shares of common stock. As of September
30, 2004, the Company had issued and outstanding 24,796,671 shares, which
excludes 3,859,200 shares held in escrow for purposes of the CHD Meridian merger
earn out.
Warrants
Under the terms of a private placement completed during October 2003, the
Company filed a registration statement under the Securities Act of 1933, as
amended, covering the resale of the common stock and the common stock underlying
warrants issued in the private placement. The Securities and Exchange Commission
declared the registration statement effective on February 17, 2004.
In accordance with EITF Issue No. 00-19, "Accounting for Derivative Financial
Instruments Indexed To, and Potentially Settled In a Company's Own Stock," upon
issuance of such warrants, the Company recorded a liability in the amount of
$2,459,000, representing the fair value of the warrants to acquire 890,000
shares of common stock. The fair value of the warrants was estimated using the
Black-Scholes valuation model with the following assumptions: no dividends;
risk-free interest rate of 4%; the contractual life of 5 years; and volatility
of 112%. The fair value of the warrants was estimated to be $2,760,000 and
$3,110,000 at December 31, 2003 and February 17, 2004, respectively. The Company
recorded an additional liability, with a corresponding charge to operations, of
$301,000 and $350,000 on December 31, 2003 and February 17, 2004, respectively,
associated with the increase in fair value of the warrants.
17
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 8--STOCKHOLDERS' EQUITY (continued)
Warrants (continued)
The adjustments required by EITF Issue No. 00-19 were triggered by the terms of
the private placement subscription agreement, which imposed penalties if the
Company did not timely register the common stock underlying the warrants issued
in the private placement. The Securities and Exchange Commission declared the
related registration statement effective within the contractual deadline and the
Company incurred no penalties. The adjustments for EITF Issue No. 00-19 had no
impact on the Company's working capital, liquidity or business operations.
The warrants were accounted for as a liability, with an offsetting reduction to
additional paid-in capital received in the private placement. The warrant
liability has been reclassified to equity as of February 17, 2004, the effective
date of the registration statement, evidencing the non-impact of these
adjustments on the Company's financial position and business operations.
The following table summarizes the Company's activity as it relates to its
warrants for the nine months ended September 30, 2004:
Shares Underlying
Warrants
------------------
Balance outstanding at January 1, 2004 3,351,372
Quarter ended March 31, 2004:
Granted 492,000
Exercised (179,278)
------------------
Balance outstanding at March 31, 2004 3,664,094
------------------
Quarter ended June 30, 2004:
Granted --
Exercised (7,500)
------------------
Balance outstanding at June 30, 2004 3,656,594
------------------
Granted --
Exercised (361,700)
------------------
Balance outstanding at September 30, 2004 3,294,894
==================
Warrants issued during the nine months ended September 30, 2004 are exercisable
at $2.50 per share. Such warrants were valued at $1,506,000 and recorded as a
cost of equity because they were granted to placement agents in connection with
sales of convertible preferred stock.
On October 27, 2004, in connection with the amendment of the Company's senior
credit facility (see Note 6 - Long-Term Debt), the Company issued a warrant to
purchase 100,000 shares of the Company's common stock at an exercise price of
$.01 per share to its senior secured creditor. The warrant expires on December
31, 2014.
18
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 8--STOCKHOLDERS' EQUITY (continued)
Stock Options
The table below summarizes the activity in the Company's stock option plans for
the nine months ended September 30, 2004:
Non-Plan
Non-Qualified Non-Qualified
Incentive Options Options Options Total
------------------------ -------------------- ------------------- ------------------- -------------------
Outstanding as of
January 1, 2004 652,941 795,973 669,000 2,117,914
Granted 70,921 -- -- 70,921
Exercised -- -- -- --
Forfeited/Expired -- (30,000) -- (30,000)
-------------------- ------------------- ------------------- -------------------
Outstanding as of
March 31, 2004 723,862 765,973 669,000 2,158,835
-------------------- ------------------- ------------------- -------------------
Granted -- -- -- --
Exercised -- -- -- --
Forfeited/Expired (95,875) -- -- (95,875)
-------------------- ------------------- ------------------- -------------------
Outstanding as of June
30, 2004 627,987 765,973 669,000 2,062,960
-------------------- ------------------- ------------------- -------------------
Granted 1,147,000 595,000 -- 1,742,000
Exercised -- -- -- --
Forfeited/Expired (14,291) -- (175,002) (189,293)
-------------------- ------------------- ------------------- -------------------
Outstanding as of
September 30, 2004 1,760,696 1,360,973 493,998 3,615,667
==================== =================== =================== ===================
Vesting Dates:
December 31, 2004 10,530 31,083 6,666 48,279
December 31, 2005 580,357 330,578 26,668 937,603
December 31, 2006 436,493 248,329 -- 684,822
December 31, 2007 291,964 148,762 -- 440,726
December 31, 2008 -- -- 20,000 20,000
Thereafter -- -- -- --
As of September 30, 2004, exercisable plan and non-plan options to purchase an
aggregate of 1,410,307 shares, with exercise prices ranging from $.005 to
$10.00, were outstanding.
The Company accounts for its employee incentive stock option plans using the
intrinsic value method in accordance with the recognition and measurement
principles of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," as permitted by SFAS No. 123. The adoption of the
disclosure requirements of SFAS No. 148 did not have a material effect on the
Company's financial position or results of operations.
19
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 8--STOCKHOLDERS' EQUITY (continued)
Had the Company determined compensation expense based on the fair value at the
grant dates for those awards consistent with the method of SFAS 123, the
Company's net loss per share would have been increased to the following pro
forma amounts:
For the three For the three For the nine For the nine
months ended months ended months ended months ended
September 30, September 30, September 30, September 30,
2004 2003 2004 2003
------------------ ----------------- ----------------- -----------------
Net loss as reported $ (835,000) $ (1,610,000) $ (4,455,000) $ (5,316,000)
Add back intrinsic value of the - - -
options issued to employee and
charged to operations - - - 24,000
Deduct stock based employee
compensation expense determined
under fair value based methods
for all awards (370,000) (817,000) (788,000) (2,953,000)
------------------ ----------------- ----------------- -----------------
Pro forma net loss $ (1,205,000) $ (2,427,000) $ (5,243,000) $ (8,245,000)
================== ================= ================= =================
Basic and diluted net loss per
share as reported $ (0.06) $ (0.14) $ (1.00) $ (0.53)
================== ================= ================= =================
Pro forma basic and diluted net
loss per share $ (0.07) $ (0.22) $ (1.03) $ (0.82)
================== ================= ================= =================
The above pro forma disclosure may not be representative of the effects on
reported net operations for future years as options vest over several years and
the Company may continue to grant options to employees.
The fair market value of each option grant is estimated at the date of grant
using the Black-Scholes valuation model with the following weighted-average
assumptions:
Dividend yield 0.00%
Expected volatility 112%
Risk-free interest rate 4%
Expected life 5 years
Securities and Exchange Commission Registration
Pursuant to the terms of the merger agreement between the Company and CHD
Meridian, on April 19, 2004 the Company filed a registration statement under the
Securities Act of 1933, as amended, covering the resale of (1) the common stock
issued in the merger, (2) the common stock underlying the convertible preferred
stock issued in the merger and the related financing, and (3) the common stock
issuable upon exercise of warrants issued to the placement agents in connection
with the merger.
20
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 9--Risk Retention Group
During the first quarter of 2004, CHD Meridian formed Green Hills Insurance, a
Risk Retention Group (the "RRG"), licensed in the State of Vermont for the
purposes of self-insuring a portion of the merged companies' professional and
general liability insurance.
The RRG was capitalized with $2,000,000 in cash and a $1,000,000 letter of
credit under the Company's credit facility. The RRG began issuing policies on a
claims-made basis to CHD Meridian LLC, its direct subsidiaries and Physician
Groups in May 2004. As of September 30, 2004, cash held by the RRG, which
includes $2,000,000 contributed to RRG's capital, is invested in cash
equivalents in accordance with the regulations promulgated by the State of
Vermont and is reflected on the balance sheet as cash and cash equivalents.
Loss and loss adjustment expense reserves are recorded monthly and represent
management's best estimate of the ultimate net cost of all reported and
unreported losses incurred from May 1, 2004 through September 30, 2004.
Management's estimates are based on an independent actuarial report. The Company
does not discount loss and loss adjustment expense reserves. The reserves for
unpaid losses and loss adjustment expenses are estimated using individual
case-basis valuations and statistical analyses. Those estimates are subject to
the effects of trends in severity and frequency. Although considerable
variability is inherent in such estimates, management believes the reserves for
losses and loss adjustment expenses are adequate. The estimates are reviewed and
adjusted continuously as experience develops or new information becomes known;
such adjustments are included in current operations. No claims have been filed
against these policies as of September 30, 2004. To the extent claims are made
against the policies in the future, the Company expects such claims to be
resolved within five years of original date of claim.
The RRG does not plan to pay dividends to the policyholders in the foreseeable
future.
21
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Readers of this report should review the following Management's
Discussion and Analysis of Financial Condition and Results of Operations of
I-trax, Inc. and its subsidiaries in conjunction with our financial statements
and related notes appearing on the preceding pages as well as our audited
financial statements and related notes included in our Annual Report on Form
10-KSB for the year ended December 31, 2003, as amended, and the audited
financial statements of CHD Meridian Healthcare and related notes for the year
ended December 31, 2003 included in our current report on Form 8-K/A filed on
November 10, 2004.
The following discussion also contains forward-looking statements. All
statements, other than statements of historical facts, included in this
quarterly report regarding our strategy, future operations, financial position,
future revenues, projected costs, prospects, plans and objectives of management
are forward-looking statements. The words "anticipates," "believes,"
"estimates," "expects," "intends," "may," "plans," "projects," "will," "would"
and similar expressions are intended to identify forward-looking statements,
although not all forward-looking statements contain these identifying words. We
cannot guarantee that we will actually achieve the plans, intentions or
expectations disclosed in our forward-looking statements, and readers of this
report should not place undue reliance on our forward-looking statements. Actual
results or events could differ, possibly materially, from the plans, intentions
and expectations disclosed in our forward-looking statements. We have identified
important factors in the cautionary statements below and in our Annual Report on
Form 10-KSB for the fiscal year ended December 31, 2003, as amended, that we
believe could cause actual results or events to differ, possibly materially,
from our forward-looking statements. Our forward-looking statements do not
reflect the potential impact of any future acquisitions, mergers, dispositions,
joint ventures or investments we may make.
The accompanying unaudited financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information, the instructions to Form 10-QSB and
Item 310(b) of Regulation S-B. In our opinion, the unaudited financial
statements have been prepared on the same basis as the annual financial
statements and reflect all adjustments necessary to present fairly the financial
position as of September 30, 2004 and the results of the operations and cash
flows for the nine months ended September 30, 2004. The preparation of these
financial statements requires us to make estimates and judgments that affect the
reported amounts of assets and liabilities and the reported amounts of revenues
and expenses during the covered periods. We base our estimates and judgments on
our historical experience and on various other factors that we believe are
reasonable under the circumstances. We evaluate our estimates and judgments,
including those related to revenue recognition, bad debts, and goodwill and
other intangible assets on an ongoing basis. Notwithstanding these efforts,
there can be no assurance that actual results will not differ from the
respective amount of those estimates.
Our Business
I-trax is an integrated health and productivity management company
formed by the merger on March 19, 2004 of I-trax, Inc. and Meridian Occupational
Healthcare Associates, Inc., which does business as CHD Meridian Healthcare. For
accounting purposes, the consolidation of results of operations of the two
constituent companies was effective April 1, 2004. As a result, our consolidated
results of operations for the nine months ended September 30, 2004 include the
operations of CHD Meridian Healthcare only from April 1, 2004 until September
30, 2004.
We offer two categories of services that can be integrated or blended
as necessary or appropriate based on each client's needs. The first category
includes on-site health related services - occupational health, primary care,
corporate health, and pharmacy - which were historically offered by CHD Meridian
Healthcare. We believe we are the nation's largest provider of on-site corporate
health management services. The second category includes personalized health
management programs, which were historically offered by I-trax.
Our services are designed to allow employers to contract directly for a
wide range of employee healthcare needs. We can deliver these services at or
near the client's work site by opening, staffing and managing a clinic or
pharmacy dedicated to the client and its employees, or remotely by using the
Internet and our state-of-the-art Care Communication Center staffed with trained
nurses and other healthcare professionals who are available 24 hours per
22
day, 7 days per week. Our array of services provides each client with
flexibility to meet its specific pharmacy, primary care, occupational health,
corporate health, wellness, lifestyle management, or disease management needs.
We provide services to approximately 150 clients, including automotive
and automotive parts manufacturers, consumer products manufacturers, large
financial institutions, health plans, integrated delivery networks, and third
party administrators. These services include operating for certain of such
clients approximately 168 on-site facilities in 32 states. Our client retention
rate is high because we establish strong client relationships that are supported
by the critical nature of our services, the benefits achieved by employer and
employee constituents, and the utilization of multi-year service contracts.
Key Financial Trends and Analytical Points
The following is a summary of key trends and analytical points
affecting our business and, unless otherwise noted, reflects pro forma results
of operations giving effect to the acquisition of CHD Meridian Healthcare as
though the transaction had occurred on January 1, 2003:
Business Integration. On March 19, 2004, we finalized the acquisition
of CHD Meridian Healthcare and commenced reporting financial results that
include CHD Meridian Healthcare operations as of April 1, 2004. Since that time,
we have substantially completed the integration of the two companies' management
teams and operations, as well as the finance and information technology
functions. We are now focusing on integrating our population health and
productivity management solutions with our on-site services, and reorganizing
our sales and marketing efforts to deliver a wide range of value-added services
to our clients.
Revenue Restatement. On November 10, 2004, we amended the audited
financial statements of CHD Meridian Healthcare and related notes for the year
ended December 31, 2003 in our current report on Form 8-K/A, and our quarterly
financial statements included on our quarterly reports on Form 10-QSB/A for the
quarters ended March 31, 2004 and June 30, 2004. With these amendments, we are
reporting our revenues net of all sales of pharmaceuticals offered at on-site
pharmacies we operate for the benefit of our clients. In the past, we included
in reported revenue a portion of such sales in arrangements where we maintained
legal ownership of the pharmaceuticals. We believe that the current approach is
more appropriate under applicable accounting literature. The discussion of
financial results below is based on this revised approach. Comparable numbers
for prior periods are reported in the above referenced current and quarterly
reports.
Revenue Trend. As a result of the CHD Meridian Healthcare acquisition,
our revenue increased significantly from the nine-month period ended September
30, 2003 to the nine-month period ended September 30, 2004.
On a pro forma basis, however, revenue growth was modest from the
nine-month period ended September 30, 2003 to the nine-month period ended
September 30, 2004. Although we added 17 new on-site facilities during the nine
months ended September 30, 2004, we also closed 13 existing facilities during
such period because of client bankruptcies or facility shutdowns. We expect,
however, to implement 20 new on-sites facilities prior to March 31, 2005 with
few, if any, closures. We believe that these new facilities will add
approximately $7,000,000 in annualized revenue when fully operational, and
therefore, we expect better revenue growth in coming periods than we experienced
from the nine-month period ended September 30, 2003 to the nine-month period
ended September 30, 2004. By contrast, our heath management products are
experiencing only measured growth. We are continuing to de-emphasize software
sales and traditional nurse call center business in favor of our health
management solutions services launched in October 2003. We added approximately
41,000 lives under management during the first six months period ended June 30,
2004, and expect to add up to an additional 45,000 to 55,000 lives in the three
months ended December 31, 2004. When fully implemented by June 30, 2005, we
expect to have approximately 86,000 to 96,000 lives under management, with
annualized revenue of approximately $5,000,000. These new products, however, are
still in an early stage of development, and there can be no assurance that we
will be successful in completing pending contracts or fully implementing the
related services.
Profitability. The pro forma gross profit contribution, which is net
revenues less direct costs of operation, for our on-site services has shown
growth from the nine month period ended September 30, 2003 to the nine month
period ended September 30, 2004. Our gross profit margins for on-site services
are stable because these services are
23
well established and priced on a reimbursable cost model. The gross profit
contribution from our population health management services is less predictable
because we are continuing to develop and implement these services.
Liquidity. Our on-site operations continue to generate positive cash
flow. During the six months ended September 30, 2004, we invested substantially
all of such free cash flow in developing and implementing our health management
programs for existing customers. In coming periods, we expect to continue to
invest free cash flow in developing and implementing our health management
programs, but only to support continued revenue growth from such programs.
Working Capital. At September 30, 2004, we had a working capital
deficiency of $2,765,000. On October 27, 2004 we amended the terms of our senior
credit facility. This amendment has substantially reduced our working capital
deficiency. Please refer to "Liquidity and Capital Resources - Working Capital"
section below for a further discussion.
CHD Meridian Acquisition Earn-out. An aggregate of 3,859,200 shares of
our common stock is in escrow. These shares will be released to former CHD
Meridian Healthcare stockholders if CHD Meridian Healthcare, continuing its
operations following the closing of the merger as our subsidiary, achieves
agreed upon calendar 2004 milestones for earnings before interest, taxes,
depreciation and amortization (or EBITDA). Based on CHD Meridian Healthcare's
results of operations as of September 30, 2004, we believe that CHD Meridian
Healthcare will achieve at least the minimum EBITDA target, which will result in
3,473,280 shares being released to former CHD Meridian Healthcare stockholders.
Results of Operations
As noted above, we commenced reporting financial results that include
CHD Meridian Healthcare operations beginning as of April 1, 2004, and
consequently, our historic results from the periods prior to the second quarter
ended June 30, 2004 only reflect the separate operations of I-trax. Accordingly,
in addition to providing comparative analysis on a historical basis, we are also
providing supplemental unaudited pro forma information that we believe is useful
to understand how our results of operations have performed on a comparative
basis as if the acquisition of CHD Meridian Healthcare occurred on January 1,
2003.
Three Months ended September 30, 2004 (Actual) Compared to Three Months
ended September 30, 2003 (Actual)
Revenue for the three months ended September 30, 2004 was $24,136,000,
an increase of $23,135,000 from $1,001,000 for the three months ended September
30, 2003. Of the total revenue for the three months ended September 30, 2004,
$747,000 was from our personalized health management programs and $23,389,000
from our on-site facilities.
Operating expenses, which represent our direct costs associated with
the operation of our on-site and health management services, amounted to
$18,816,000 for the three months ended September 30, 2004, an increase of
$18,174,000 from $642,000 for the three months ended September 30, 2003.
General and administrative expenses which represent our corporate
costs, increased to $4,670,000 for the three months ended September 30, 2004
from $1,024,000 for the three months ended September 30, 2003. The increase of
$3,646,000 is primarily attributable to an increase of $3,008,000 related to the
CHD Meridian Healthcare acquisition, offset by a non-cash charge incurred during
2003 associated with issuing common stock, granting warrants and having certain
shareholders contribute shares to an investor relations firm as consideration
for services rendered.
Depreciation and amortization expenses were $1,097,000 for the three
months ended September 30, 2004, an increase of $657,000 as compared to $440,000
for the three months ended September 30, 2003. Approximately $435,000 of the
increase relates to amortization for the intangibles recorded as part of the CHD
Meridian transaction. The remaining increase relates to intangible assets
acquired from CHD Meridian Healthcare.
24
Interest expense for the three months ended September 30, 2004 was
$124,000, representing a decrease of $824,000 or 87% from $948,000 for the three
months ended September 30, 2003. For the three months ended September 30, 2004,
interest expense includes interest payable under the credit facility. For the
three months ended September 30, 2003, interest expense includes a charge of
$517,000 attributable to the unamortized portion of the discount and beneficial
conversion value associated with a convertible debenture.
Amortization of financing costs for the three months ended September
30, 2004 was $13,000 representing a decrease of $44,000 or 77% from $57,000 for
the three months ended September 30, 2003. As of September 30, 2004, these
financing costs are fully amortized.
Other income was $500,000 for the three months ended September 30,
2003. This consists of $500,000 of proceeds from a key-person life insurance
policy.
The provision for income taxes for the three months ended September 30,
2004 was $251,000, representing an increase of $251,000 from the three months
ended September 30, 2003. This increase is related to certain state taxes for
CHD Meridian operations.
For the three months ended September 30, 2004, our net loss was
$835,000, as compared to a net loss of $1,610,000 for the three months ended
September 30, 2003.
Nine Months ended September 30, 2004 (Actual) Compared to Nine Months
ended September 30, 2003 (Actual)
Revenue for the nine months ended September 30, 2004 was $49,968,000,
an increase of $46,300,000 from $3,668,000 for the nine months ended September
30, 2003. Of the total revenue for the nine months ended September 30, 2004,
$2,776,000 was from our personalized health management programs and $47,192,000
from our on-site facilities.
Operating expenses, which represent our direct costs associated with
the operation of our on-site and health management services, amounted to
$38,631,000 for the nine months ended September 30, 2004, an increase of
$37,125,000 from $1,506,000 for the nine months ended September 30, 2003.
General and administrative expenses, which represent our corporate
costs, increased to $11,342,000 for the nine months ended September 30, 2004
from $4,243,000 for the nine months ended September 30, 2003. The increase of
$7,099,000 is primarily attributable to the addition of $6,366,000 related to
the CHD Meridian Healthcare acquisition, and to an increase of $1,040,000 in
salaries and wages expenses, offset by a non-cash charge incurred during 2003
associated with issuing common stock, granting warrants and having certain
shareholders contribute shares to an investor relations firm as consideration
for services rendered.
Depreciation and amortization expenses were $2,889,000 for the nine
months ended September 30, 2004, an increase of $1,571,000 as compared to
$1,318,000 for the nine months ended September 30, 2003. Approximately $435,000
of the increase relates to amortization for the intangibles recorded as part of
the CHD Meridian Healthcare acquisition. The remaining increase relates to
intangible assets acquired from CHD Meridian Healthcare.
Interest expense for the nine months ended September 30, 2004 was
$900,000, representing a decrease of $1,022,000 from $1,922,000 for the nine
months ended September 30, 2003. For the nine months ended September 30, 2004,
interest expense includes a charge of $573,000 attributable to the unamortized
portion of the discount and beneficial conversion value associated with the
convertible debenture and certain other promissory notes. The discount amount is
expensed because the convertible debenture was converted into common stock and
the promissory notes were repaid during March 2004. During the nine months ended
September 30, 2003, interest expense includes a charge of $1,302,000
attributable to the unamortized portion of the discount and beneficial
conversion value associated with a convertible debenture.
25
Amortization of financing costs for the nine months ended September 30,
2004 was $60,000 representing a decrease of $235,000 or 80% from $295,000 for
the nine months ended September 30, 2003. As of September 30, 2004, these
financing costs are fully amortized.
The provision for income taxes for the nine months ended September 30,
2004 was $251,000, representing an increase of $251,000 from the nine months
ended September 30, 2003. This increase is related to certain state taxes for
CHD Meridian operations.
Other expense for the nine months ended September 30, 2004, represents
a one-time non-cash charge of $350,000 associated with the warrants to acquire
common stock issued in a private placement completed during October 2003. The
charge represents the increase in the value of the common stock underlying the
warrants until the effective time of a registration statement we filed with the
Securities and Exchange Commission to register the underlying shares. The
initial value of the warrants was recorded as a liability and any fluctuation in
the value was passed through the statement of operations. Once the registration
became effective, any balance in the liability account was reclassified to
equity. The registration became effective during February 2004, and accordingly,
we reclassified $3,110,000 of liability into equity. Other expense for the nine
months ended September 30, 2003, reflects a charge of $200,000 in connection
with the termination in January 2003 of our agreement to acquire DxCG, Inc., a
Boston-based predictive modeling company. This sum was paid to DxCG following
DxCG's termination of the merger agreement because certain conditions to
closing, including third party financing for the cash portion of the purchase
price, were not satisfied. It also includes $500,000 of proceeds from a
key-person life insurance policy.
For the nine months ended September 30, 2004, our net loss was
$4,455,000, as compared to a net loss of $5,316,000 for the nine months ended
September 30, 2003. The net loss for the nine months ended September 30, 2004,
includes non-cash and merger related expenses of $1,755,000, comprised of: (1)
$573,000 in non-cash interest expense attributable to the unamortized discount
and beneficial conversion value of a previously outstanding convertible
debenture and certain other promissory notes which were converted into common
stock in March 2004; (2) $350,000 of non-cash charges related to an increase in
the fair market value of common stock underlying warrants issued in a private
placement completed during October 2003; and (3) $832,000 of merger related
costs, which were included in general and administrative expense.
Pro Forma Results of Operations
The following are our unaudited pro forma results of operations giving
effect to the acquisition of CHD Meridian Healthcare as though the transaction
had occurred on January 1, 2003. The results exclude transaction costs of
$1,938,000 and transaction related bonuses and termination pay of $832,000
included in the CHD Meridian Healthcare's and our statements of operations,
respectively. The pro forma results also include adjustments to amortization
expense associated with the intangibles acquired and interest expense related to
the new credit facility.
Nine months Nine months
ended ended
September 30, September 30,
2004 2003
------------------ ------------------
Net revenue 73,322,000 73,018,000
------------------ ------------------
Operating loss (1,453,000) (1,070,000)
------------------ ------------------
Net loss (3,166,000) (4,253,000)
================== ==================
Loss per share (0.13) (0.21)
================== ==================
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Nine Months ended September 30, 2004 (pro forma) Compared to Nine
Months ended September 30, 2003 (pro forma)
Pro forma revenue for the nine months ended September 30, 2004
increased to $73,322,000, an increase of $304,000, from $73,018,000 for the nine
months ended September 30, 2003. In accordance with management's expectations,
our on-site revenue and personalized health management revenue increased from a
combination of expansion of existing business and new sales growth. Technology
revenue decreased as we continue to emphasize services over technology sales. We
expect this trend to continue.
Total costs and expenses include direct costs of our operations
(operating expenses), corporate overhead (general and administrative expenses),
and depreciation and amortization. Total costs and expenses for the nine months
ended September 30, 2004 increased to $74,775,000, a $687,000 increase, from
$74,088,000 reported for the nine months ended September 30, 2003 on a pro forma
basis. The increase is primarily related to the incremental costs associated
with new and expanded business discussed above offset by a slight reduction in
general and administrative expenses. Depreciation and amortization decreased by
$36,000 on a pro forma basis. In coming periods, we expect total costs and
expenses to increase as our revenue increases.
Interest expense and financing costs for the nine months ended
September 30, 2004 decreased from the corresponding expenses for the nine months
ended September 30, 2003 on a pro forma basis. During the nine months ended
September 30, 2004 and September 30, 2003, the company recorded non-recurring
charges to interest expense and other expenses in the amount of $923,000 and
$1,002,000, respectively. We expect interest expense related to outstanding
amounts due under the senior secured credit facility to increase in future
periods.
We record pass-through pharmaceutical purchases on a net basis. These
purchases were $69,778,000 and $63,122,000 for the nine months ended September
30, 2004 and 2003, respectively.
During the three months ended March 31, 2004, CHD Meridian Healthcare
formed Green Hills Insurance, a Risk Retention Group, to self-insure a portion
of the merged companies' professional and general liability insurance. Green
Hills was capitalized with $2,000,000 in cash and a $1,000,000 letter of credit
under our credit facility. Green Hills contributed an estimated $150,000 and
$300,000 to our pre-tax profits in the three and nine month periods ended
September 30, 2004, respectively. Green Hills' loss and loss adjustment reserves
are adjusted monthly and represent management's best estimate of the ultimate
net cost of all reported and unreported losses. Management's estimates are based
on an independent actuarial report.
Green Hills has permitted us to reduce our insurance costs, while
maintaining our level of exposure as under our prior insurance strategy, which
involved a self-insured retention of $500,000 per claim. We obtain excess
insurance to mitigate risk in excess of Green Hills' policy limits. Nonetheless,
we are now subject to the risks associated with any insurance business, which
include investment risk relating to the performance of our invested assets set
aside as reserves for future claims, the uncertainty of making actuarial
estimates of projected future professional liability losses, and loss adjustment
expenses. Failure to make an adequate return on our investments, to maintain the
principal of invested funds, or to estimate future losses and loss adjustment
expenses accurately, could cause us to sustain losses. Also, maintaining the
insurance subsidiary has exposed us to substantial additional regulatory
requirements, with attendant risks if we fail to comply with applicable
regulations.
Liquidity and Capital Resources
Working Capital
As of September 30, 2004, we had a working capital deficiency of
$2,765,000, an increase of $264,000 from a working capital deficiency of
$2,501,000 as of June 30, 2004.
On October 27, 2004, we amended our credit facility with our senior
secured lender. The amendment: (1) increased the funded indebtedness to EBITDA
ratio and the fixed charge coverage ratio; (2) moved the first measurement date
for the consolidated net worth covenant to December 31, 2005, and restated the
covenant as a maintenance of minimum stockholders' equity at 90% of the level as
of December 31, 2005; (3) excluded the outstanding letters of credit from the
credit facility borrowing base through January 1, 2006; and (4) converted
amounts outstanding under the term loan commitment of the credit facility into
the revolving credit commitment, and eliminated the term loan commitment. We
continue to have access to $14,000,000 under the credit facility, of which
$3,000,000 is currently allocated to outstanding letters of credit and up to
$11,000,000 is available under the revolving portion.
27
The amendment strengthened our cash position by providing us access to
the full amount available under the credit facility and by excluding outstanding
letters of credit from the credit facility's borrowing base through January 1,
2006. Consequently, we believe that amounts available under the credit facility,
together with cash flow from operations, are sufficient to meet our operating
needs through December 31, 2004.
Sources and Uses of Cash
Cash provided by operations was $350,000 for the nine months ended
September 30, 2004. A portion of the cash used for operations is the result of
an increase in accounts receivable from the CHD Meridian Healthcare acquisition
and billings on the implementation costs of new clients. Other current assets
also increased due to additional carrying balances in prepaid insurance.
Finally, accrued expenses increased because the higher carrying amount of
accrued payroll and vacation.
In connection with the CHD Meridian Healthcare merger, we received
funds from selling 1,000,000 shares of Series A Convertible Preferred Stock for
$25,000,000, before commission expenses and other transaction costs, which
amounted to approximately $1,490,000 in the aggregate. We also received funds
from borrowings of $12,000,000 from our new senior secured credit facility with
a national lender. These funds were primarily used to fund $30,508,000 required
for the cash portion of the CHD Meridian Healthcare acquisition, including the
$5,000,000 redemption of Series A Convertible Preferred Stock issued directly to
the CHD Meridian Healthcare stockholders and for working capital.
In addition to funding the merger and related costs, we used a portion
of the proceeds from the credit facility to repay $280,000 in related party
loans and $944,000 in principal and interest for all other outstanding
promissory notes.
During the first quarter of 2004, Palladin Opportunity Fund LLC
converted the remaining balance of the debenture payable and accrued interest
into common stock. Accordingly, the Company issued 427,106 shares of common
stock for the conversion of principal and accrued interest amounting to
$747,000.
Critical Accounting Policies
Impairment of Goodwill and Intangible Assets
We operate in an industry that is rapidly evolving and extremely
competitive. It is reasonably possible that our accounting estimates with
respect to the useful life and ultimate recoverability of our carrying basis of
goodwill and intangible assets could change in the near term and that the effect
of such changes on the financial statements could be material. In accordance
with SFAS No. 142, we complete a test for impairment of goodwill and certain
other intangible assets annually.
Revenue Recognition
Service Revenue - On-site Facilities. We generate revenue from
contractual client obligations for occupational health, primary care, pharmacy
and corporate health services rendered on either a fixed fee or a cost-plus
arrangement. For fixed fee contracts, revenues are recorded on a straight-line
basis as services are rendered. For cost-plus contracts, revenues are recorded
as costs are incurred with the management fee component recorded as earned based
on the method of calculation stipulated in the client contracts.
Revenue is recorded at estimated net amounts to be received from
customers for services rendered. The allowance for doubtful accounts represents
management's estimate of potential credit issues associated with amounts due
from customers.
We record pass-through pharmaceutical purchases on a net basis in
accordance with EITF Issue No. 99-19, "Reporting Gross Revenue as a Principal
vs. Net as an Agent." Under our pharmacy arrangements, we provide
pharmaceuticals to a client as a component of our pharmacy agreement, which
typically requires us to staff and operate a pharmacy for the sole benefit of
the client's employees and, in certain instances, dependents and retirees.
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The substance of our pharmacy agreement in relation to pharmaceutical purchases
demonstrates an agent-like arrangement and points to net reporting. Our
agreements stipulate that we must be reimbursed upon purchasing pharmaceuticals,
and not upon dispensing, thus limiting inventory risk. We also price
pharmaceuticals on a pass-through basis and mitigate credit risk through
structured payment terms with our clients. Consequently, we do not have
unmitigated credit risk.
Cash we receive prior to the performance of services is reflected as
deferred revenue on the balance sheet.
Service Revenue - Personalized Health Management Programs. We recognize
service revenue as services are rendered. We contract with our customers to
provide services for a monthly fee based on the number of employees, members or
covered lives, a per-call charge to our Care Communication Center, or a
combination of both.
Upon execution of a contract for services, we assess whether the fee
associated with our revenue transactions is fixed and determinable and whether
collection is reasonably assured. We assess whether the fee is fixed and
determinable based on the payment terms associated with such contract. If a
significant portion of a fee is due after our normal payment terms, which are
generally 30 to 90 days from invoice date, we account for such fee as services
are provided.
From time to time we enter into risk-sharing contracts. A risk-sharing
contract generally requires us to manage the health and wellness of a
predetermined set of individuals for a term of three to five years. A
risk-sharing contract may also provide that we are required to refund to our
client a percentage of our fees if our program does not save the client a
stipulated percentage of the client's healthcare costs. We did not generate
material risk revenue that may be subject to a refund during the quarter or nine
months ended September 30, 2004.
Technology Revenue. We derive our revenue pursuant to different
contract types, including perpetual software licenses, subscription licenses and
custom development services, all of which may 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 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 unbundle our fee and, accordingly, do not apply
separate accounting guidance to the hardware and software elements. For hardware
transactions where software is not involved, we apply the provisions of Staff
Accounting Bulletin 101 "Revenue Recognition." In addition, we apply the
provisions of EITF 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 the product is delivered to a common
carrier.
We assess collection based on a number of factors, including past
transaction history with the customer and the creditworthiness 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 technology arrangements with multiple obligations (for example,
undelivered software 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. Accordingly, we defer technology revenue in
the amount equivalent to the fair value of the undelivered elements.
29
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, upon
execution of a contract, we determine whether 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 fee using the percentage of completion
method. We determine the percentage of completion based on our estimate of costs
incurred to date compared with the total costs budgeted to complete the project.
Material Equity Transactions
During the nine months ended September 30, 2004, we executed equity
transactions with unrelated parties in connection with the CHD Meridian
Healthcare merger and related financing. We believe that we have valued all such
transactions pursuant to the various accounting rules and that they ultimately
represent the economic substance of each transaction. Please refer to
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Sources and Uses of Cash" and Part II, "Item 2 - Changes in
Securities and Small Business Issuer's Purchases of Securities."
Item 3. Controls and Procedures
Our management, under the supervision and with the participation of the
principal executive officer and principal financial officer, has evaluated the
effectiveness of our controls and procedures related to our reporting and
disclosure obligations as of September 30, 2004, which is the end of the period
covered by this quarterly report on Form 10-QSB. Based on that evaluation, the
principal executive officer and principal financial officer have concluded that
our controls and procedures are effective.
There were no changes that occurred during the fiscal quarter ended
September 30, 2004 that have materially affected, or are reasonably likely to
materially affect, our internal controls over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Other than as described in Note 7 - Commitments and Contingencies to
the condensed consolidated financial statements, there have been no material
developments in any reported legal proceedings.
Subsidiaries of I-trax are involved in various other claims and legal
actions arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not have a material
adverse effect on I-trax's overall consolidated financial position, results of
operations or liquidity.
Item 2. Changes in Securities and Small Business Issuer's Purchases of
Securities
Issuance of Unregistered Securities
Effective July 30, 2004, an investor and former executive, exercised
warrants to purchase an aggregate of 361,500 shares of our common stock at
exercise prices of $.75 to $2.50. In lieu of paying the exercise price in cash,
such investor used the warrants' cashless exercise feature, such that the
investor received 201,597 shares of our common stock and surrendered to us for
cancellation 160,103 shares of our common stock. The investor is an accredited
investor. In undertaking this issuance, we relied on an exemption from
registration under Section 4(2) of the Securities Act.
Item 6. Exhibits
10.1 Lease Agreement made as on August 12, 2004 by and between
Henderson Birmingham Associates and I-trax Health Management
Solutions, Inc.
30
10.2 Guarantee and Suretyship Agreement made as on August 12, 2004
by I-trax, Inc. for the benefit of Henderson Birmingham
Associates.
10.3 Amended and Restated 2001 Equity Compensation Plan.
31.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
31
SIGNATURE
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
I-TRAX, INC.
Date: November 12, 2004 By: /s/ Frank A. Martin
----------------------------
Name: Frank A. Martin
Title: Chief Executive Officer
32